Czech Republic

Foreign direct investment screenings in Czechia are governed by Act No. 34/2021 Coll. on the Screening of Foreign Investments (the "FDI Act"). The FDI Act identifies certain categories of foreign investments, which are subject to mandatory screening by the Czech Ministry of Industry and Trade (the "Ministry"). For foreign investments not fulfilling the mandatory screening criteria, the Ministry may still initiate a review at its own initiative. Foreign investors can avoid the opening of such an ex-officio review by initiating voluntary consultation proceedings.

Who is a foreign investor?

The definition of a foreign investor is broad and encompasses any person or entity implementing a foreign investment (see definition below) who is either (i) domiciled or incorporated in a non-EU country; or (ii) directly or indirectly (at any point in the holding chain) controlled by any person or entity domiciled or incorporated in a non-EU country. Notably, the FDI Act does not provide for exemptions for non-EU EEA countries or Switzerland, which are thus treated as any other third country for the purposes of the FDI assessment.

What constitutes a foreign investment?

Foreign investments are defined broadly by the FDI Act as providing any item of value in any form (monetary or non-monetary) for the purpose of gaining an “effective degree of control” in a target entity or target asset performing economic activity in Czechia.

An effective degree of control as required by the FDI Act is obtained if any of the following conditions are fulfilled: 

(a) the foreign investor acquires (directly or via affiliates) 10% or more of the voting rights in the target (or an equivalent influence);

(b) the foreign investor or its nominee is appointed in any corporate body of the target;

(c) the foreign investor gains the ability to exercise ownership rights over assets used to perform the target’s economic activity in Czechia;

(d) other means of control or influence, as a result of which the foreign investor may gain access to information, systems or technologies which are important for the protection of the national security interests of Czechia.

As there is no specific monetary threshold, most acquisitions of a shareholding in the target will generally satisfy this definition (even if the investment is at a non-Czech holding level).

Foreign investments requiring mandatory screening

The FDI Act requires a mandatory notification to the Ministry if the target engages in any of the following activities:

(a) manufacturing, research, development, innovation, or organization of the lifecycle of military material according to legal regulation concerning foreign trade in military material;

(b) operation of a critical infrastructure element designated as such by relevant public authorities according to Czech laws;

(c) acting as administrator of an information system belonging to the critical information infrastructure, administrator of a communication system belonging to the critical information infrastructure, administrator of an information system belonging to an essential service, or operator of an essential service as defined in the Czech Cybersecurity Act;

(d) development or manufacturing of dual use items listed in Annex IV to Council Regulation (EC) 428/2009; or

(e) operating a media business holding a national radio or television licence or publishing periodicals with a total average daily production exceeding 100,000 copies in the past calendar year. In this case the foreign investor is not obliged to file for the full FDI screening procedure, but rather a simplified consultation procedure (see below).

Voluntary consultations

For foreign investments where a mandatory filing is not required, the Ministry has the power to initiate a screening on its own (ex officio) if it considers the transaction has a potential to endanger national security, internal order or public order. The Ministry may initiate such screening up to five years after completion of a transaction. The only way to avoid such a screening is to conduct a voluntary “consultation” process. 

Notification process

Both mandatory and voluntary screenings are initiated by submitting a designated form to the Ministry. The form requires information on the foreign investor and its ownership structure as well as the details of the contemplated foreign investment. In the voluntary screening procedure, the amount of information required is less extensive than in the mandatory screening.  

Under the mandatory screening procedure, the Ministry has 90 days to either (i) issue an unconditional clearance or (ii) refer the matter to the Czech Government, recommending either conditional clearance or a prohibition. If the matter is referred to the Czech Government, it should issue a decision within an additional 45 days. The transaction is not automatically considered cleared even if the Ministry misses the extended deadline. 

Under the voluntary screening procedure, the Ministry has 45 days to either (i) issue a comfort letter stating that the foreign investment does not have a capacity to endanger national security, internal order or public order or (ii) initiate full screening procedure – in such case the foreign investor must make the same filing as under the mandatory screening procedure and the timeline in the previous paragraph applies.

Sanctions

Fines amounting up to CZK 50 million (approximately EUR 2 million) or 1% of worldwide turnover, whichever is higher, may be imposed for the failure to notify. Additionally, the Ministry may prohibit the transaction and order its unwinding, where the transaction was already implemented.

Fines amounting up to CZK 100 million (approximately EUR 4 million) or 2% of worldwide turnover, whichever is higher, may be imposed in the case of failure to comply with an obligation imposed by a decision prohibiting the foreign investment or commitments imposed by a decision on the conditional authorization of the foreign investment.

Robert Neruda, Partner 

Roman Světnický, Counsel

Martin Rott, Senior Associate