In compliance with the requirements of Regulation (EU) 2019/452 of the European Parliament and of the Council of March 19, 2019. to create a framework for the screening of foreign direct investment in the Union (the "Regulation"), through amendments to the Investment Promotion Law ("IIP"), Bulgaria introduced a national mechanism for screening foreign direct investment related to security or public order in the country.
The pre-screening mechanism applies in addition to existing authorization and/or registration regimes, for example concentration authorizations from the Competition Commission or other sectoral authorisations.
The amendments to the ZNI were promulgated in the State Gazette, issue 20 of 03/08/2024, and shall enter into force as of 03/12/2024.
✓ General requirements for pre-screening of foreign direct investment
The national foreign direct investment screening mechanism requires prior authorization for any foreign direct investment that cumulatively meets the following conditions:
- It is carried out by a person who is not a citizen of an EU member state or whose seat is not located in the EU, or by a legal entity in which control is exercised by persons who are not EU citizens, as well as by a legal entity or another legal entity in the EU making the investment on its own behalf but for the account of or under the control of a person who is not an EU citizen or whose registered office is not in an EU Member State, and
- It affects any of the industries listed in the Regulation, namely:
- Critical infrastructure (physical or virtual), including related to energy, transportation, water, healthcare, communications, media, data processing or storage, aviation, defense, electoral or financial infrastructure and others;
- Critical technologies and dual-use items, including artificial intelligence, robotics, semiconductors, cyber-security, aerospace and defense technologies, energy storage technologies, quantum and nuclear technologies and others;
- The supply of critical resources, including energy or raw materials, as well as on food security;
- Access to sensitive information, including personal data, or the ability to control such information; or
- The freedom and pluralism of the media, and
- Alternatively, it meets one of the following conditions:
- Through the implementation of the investment, the ownership of at least 10 percent of the capital of an enterprise operating in Bulgaria is acquired, or the value of the investment exceeds the threshold of 2 million euros (or their BGN equivalent);
- Through the implementation of the investment, the ownership of at least 10 percent of the capital of an enterprise that operates in Bulgaria and carries out high-tech activities is acquired;
- A new investment is made (i.e. an initial investment related to an activity such as a new enterprise, a significant change in a production process of existing enterprise, etc.) that exceeds the threshold of 2 million euros (or their BGN equivalent).
✓ Exceptions to general screening requirements. Ex officio screening (service start)
- Certain foreign direct investments are subject to screening in all cases (ie regardless of whether they meet the general criteria described above), namely:
- Foreign direct investments in sites and activities related to the production of energy products from oil and products of petroleum origin in sites that are part of or adjacent to critical infrastructure, according to the Law on the Administrative Regulation of Economic Activities Related to Oil and Products of Petroleum Origin;
- Foreign direct investments of foreign investors from Russia and Belarus;
Regardless of investment threshold restrictions, foreign direct investments are subject to review and authorization when there is a direct or indirect participation of a non-EU country in the capital of the foreign investor, including significant funding from a government body. When the foreign investor is a company whose shares are traded on a regulated market, this exception applies if the direct or indirect participation of a non-EU country in the capital of the company is greater than 5 percent. However, some non-EU jurisdictions subject to further clarification by the National Assembly, as well as the US, UK, Canada, Australia, New Zealand, Japan, the Republic of Korea, the United Arab Emirates and Saudi Arabia, are considered low-risk and do not fall under within the scope of this exception.
In some cases, a foreign direct investment may be subject to ex officio screening (officially initiated and not based on an application by the investor), including by exception:
- On the proposal of a member of the Interdepartmental Council for Screening Foreign Direct Investments (the "Council") with competence in the sector in which the investment will be implemented, in agreement with the representatives of the State Agency "National Security" and the State Agency "Intelligence" - with regard to foreign direct investment, which is a new investment, or does not exceed the threshold of 2 million euros (or their BGN equivalent);
- At the motivated request of the State Agency "National Security" and the State Agency "Intelligence" - regardless of the general criteria described above, when there is evidence that the foreign direct investment may have an impact on security and public order;
- Ex officio at the initiative of the Council - upon learning of a new circumstance that is a prerequisite for the initiation of proceedings for the screening of a foreign direct investment (within three months of learning of this circumstance);
- Ex officio at the initiative of the Council - in case an opinion is received from the European Commission or a signal containing sufficient information from a Member State that a foreign direct investment for which no authorization application has been submitted could be subject to screening, at provided that the investment began up to two years before the opinion or signal was received.
✓ Competent authority. Terms and procedure
The screening will be carried out by the newly established Inter-Ministerial Foreign Direct Investment Screening Board, which consists of Ministers from various departments and representatives of various regulatory commissions (ie the Board).
The Council adopts decisions within 45 days from the receipt of the application submitted by the investor, respectively from the elimination of inconsistencies in it. This term can be extended once by up to 30 days. The absence of a ruling within these terms is considered tacit consent to make the investment.
The Council adopts a decision allowing the investment to be made or rejecting the application. The Council may issue a conditional permit for foreign direct investment after the investor has fulfilled restrictive measures such as limiting the right to acquire up to 20 percent of a company's capital or up to 10 percent of a company's capital in the case of high-tech productions, protection orders of personal data and others.
✓ Sanctions
In case of non-compliance or violation of the obligations related to the screening mechanism, the foreign investor may be imposed a fine or a property sanction in the amount of 5 percent of the value of the investment, but not less than BGN 50,000.
Regardless of the fine or pecuniary sanction, the Council may impose on the foreign investor restrictive measures, including change of control, change and/or suspension of activity, termination of foreign direct investment and other appropriate measures.