Estonia Introduces Foreign Direct Investment Screening Mechanism to Protect National Security and Public Order
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The Estonian Parliament has passed a landmark law establishing a foreign direct investment screening mechanism (FDI Act) aimed at preventing adverse effects on the security and public order of Estonia or any other EU country. The FDI Act is set to come into effect on September 1, 2023.
What is the FDI Act?
The new regime requires all non-EU individuals and legal persons who acquire control, a qualifying holding, or significant assets in companies operating in designated sectors to notify the Consumer Protection and Technical Regulatory Authority (CPTRA) prior to completing their transactions. The sectors targeted by the FDI Act include:
- Providers of vital services
- Media and telecommunications companies
- Infrastructure operators
- Those involved in the production, supply, or provision of military and dual-use goods
How does the screening mechanism work?
The screening mechanism applies regardless of the size of the investment, with a mandatory review process that includes a 30-day deadline for CPTRA to assess potential risks. If necessary, the authority may extend this period up to 180 days.
Penalties for non-compliance
In cases where foreign investors fail to comply with the notification requirement, they may face penalties of up to EUR 100,000.
Why is the FDI Act important?
The Estonian government has emphasized the importance of ensuring national security and public order in the country’s economic affairs. The move is seen as a significant step towards harmonizing Estonia’s investment screening regime with those of other EU countries.
What does this mean for foreign investors?
With the new law set to take effect later this year, foreign investors are advised to familiarize themselves with the requirements and procedures outlined in the FDI Act to avoid any potential legal or financial consequences.