Global rules on foreign direct investment: Austria

On 25 July 2020, the Austrian Federal Investment Control Act (Investitionskontrollgesetz – ICA) came into effect. It significantly expanded the scope of foreign investment screening in Austria. Most cases concern the following sectors: defence industry, semi-conductors, energy, health, data processing or storage and information technology/cyber security.

FDI Regime

Foreign direct investment (FDI) screening in Austria is governed by the Federal Investment Control Act (Investitionskontrollgesetz – ICA). 

The Federal Ministry of Labour and Economy (Bundesministerium für Wirtschaft, Energie und Tourismus  – BMWET) carries out the reviews in consultation with the Federal Ministry for European and International Affairs, the Federal Ministry of Finance, the Federal Ministry for Innovation, Mobility and Infrastructure, the Federal Ministry of Labor, Social Affairs, Health, Care and Consumer Protection and – depending on the specific foreign investment – with other federal ministries and the Austrian province (Bundesland) in which the target is located.

Internal restructurings are not exempted from the ICA and may therefore be subject to FDI screening (e.g., if a non-EU / non-EEA / non-Swiss group entity becomes a new shareholder). Asset deals are caught by FDI screening if the acquisition concerns an Austrian business (or material assets thereof). Acquisitions of an Austrian branch office (Zweigniederlassung) are not subject to FDI screening according to the current administrative practice.

The ICA only applies to foreign investors, i.e., to natural persons who are not citizens of, and legal persons which do not have their seat / headquarters in, an EU / EEA member state or Switzerland (foreign investor). 

The foreign investment must concern the direct or indirect acquisition of

• an Austrian business (Unternehmen),
• controlling influence over an Austrian business (or material parts/assets thereof), or
• voting rights in an Austrian business reaching or exceeding certain thresholds; the thresholds depend on whether the target is active in a particularly sensitive sector (in this case thresholds are 10%, 25% and 50%) or in a “normal” sensitive sector (in which case the thresholds are 25% and 50%).

The Austrian target must be active in a sensitive sector. In its Annex, the ICA lists the sectors in scope and distinguishes between particularly sensitive and “normal” sensitive sectors:

Particularly sensitive sectors

The following sectors, as set out in Part 1 of the Annex to the ICA (exhaustive list), are considered to be particularly sensitive: defence equipment and technologies; the operation of critical energy infrastructure; the operation of critical digital infrastructure (in particular 5G infrastructure); water and operating systems that guarantee the data sovereignty of the Republic of Austria.

“Normal” sensitive sectors 

Amongst others, the following sectors as set out in Part 2 of the Annex to the ICA (non-exhaustive list) are considered sensitive: 

• critical infrastructures (e.g., energy, information technology, health, food, telecommunications, data processing or storage, defence, chemical industry)
• critical technologies and dual-use items (e.g., artificial intelligence, robotics, semiconductors, cyber security, defence technologies)
• security of supply of critical inputs (e.g., energy supply, supply of raw materials, food supply, supply of medicines and vaccines)
• access to or ability to control sensitive information, including personal data
• freedom and pluralism of the media.

The BMWET interprets the scope of sensitive sectors very broadly. In practice, the notion of “critical” does not limit the FDI screening (and the notification obligation) to core sensitive sectors of the economy.

Even if the BMWET approves the initial acquisition of voting shares (i.e., 10% if the target is active in a particularly sensitive sector and 25% if the target is active in a “normal” sensitive sector), a later increase of the voting shares will trigger a new notification obligation if the subsequent threshold (i.e., 25% or 50% of the voting rights if the target is active in a particularly sensitive sector, and 50% if the target is active in a “normal” sensitive sector) is reached or exceeded.

Adding-up rule

Voting rights of foreign investors are added up in certain circumstances (e.g., if a foreign investment involves several foreign investors, if foreign investors are connected undertakings or in case foreign investors agree on the joint exercise of voting rights).

Exemption for micro-enterprises

The notification obligation does not apply to the acquisition of a micro-enterprise, including start-ups (de minimis rule). A micro-enterprise is an enterprise with less than 10 employees and an annual turnover or balance sheet total of less than EUR 2 million.

Review Proceeding

Any transaction for which a mandatory notification is required is subject to a standstill obligation until the BMWET has, or is deemed to have, granted its clearance. A transaction that is implemented prior to clearance (gun jumping) is provisionally invalid and constitutes a criminal offence, punishable by imprisonment of up to one year (in very serious cases up to three years). The ICA contains additional (administrative) penalties (e.g., for failure to provide relevant information). In case of completion of a notifiable transaction without prior clearance, the BMWET may also impose conditions ex post if it considers that the transaction poses a risk to security or public order. If no appropriate remedy is available, the BMWET may order the unwinding of the transaction.

The FDI screening proceedings in Austria may be quite lengthy, even in standard cases. It should be noted, however, that the BMWET has recently accelerated the review process: Following receipt of the notification, the BMWET kicks off the EU cooperation mechanism (which usually takes 35 calendar days). The national phase 1 proceedings (up to one month) start upon expiry of the EU cooperation mechanism period. In practice, however, the BMWET regularly initiates the (one month) phase 1 proceedings in parallel with the EU cooperation mechanism. Where the BMWET sees concerns as to security or public order (or requires additional time to review the matter), the BMWET will open an in-depth investigation (phase 2 proceedings) which may last up to an additional two months. In total, the FDI screening proceedings may take approx. 2.5 – 3 months if the matter can be cleared in phase 1 (in unproblematic cases, clearance may be issued more quickly) and approx. 4.5. – 5 months if the matter is pursued to phase 2.

Substantive test

The BMWET examines whether a foreign investment may pose a risk to security or public order. In assessing this risk, the BMWET mainly focuses on the following two factors:

• investor related factors, i.e., whether the foreign investor is directly or indirectly controlled by the government of a third country; whether the foreign investor has already been involved in activities affecting security or public order in an EU member state; or whether there is a serious risk that the foreign investor engages in illegal or criminal activities.
• the effect of the investment in the affected sensitive sector. In this context, the BMWET looks at the nature and scope of the Austrian target’s activities, including the products and / or services offered, the position on the market, customers, competitors and substitute products. 

In case of a risk to security or public order, the BMWET will approve the transaction only with conditions or, as a last resort, will prohibit the transaction altogether.