The new act in the Czech Republic is intended to establish a mechanism for verifying foreign direct investment, which is in fact carried out by investors from countries outside the European Union and which may pose a risk to the security interests of the Czech Republic. This mechanism of the state will make it possible to monitor relevant transactions, evaluate the risks associated with them and, in rare cases, if the situation requires it, limit specific investments in an appropriate way – eg by setting conditions under which it can be carried out, in extreme cases by blocking it.
At its extraordinary session on April 6, 2020, the Government approved a bill. The Government submitted a bill to the Chamber of Deputies on 21 April 2020. The act was discussed in the Economic Committee after the first reading, which on 10 September issued a resolution with amendments. A second reading is to take place in the Chamber of Deputies in the coming days.
Below are important points of the act, but since the act has not yet been approved, it is possible that its content will change:
- Foreign investor = who has made or intends to make a foreign investment in the Czech Republic and at the same time a) is not a citizen of the Czech Republic or a citizen of another Member State of the European Union b) is not domiciled in the Czech Republic or another Member State of the European Union or c) is directly or indirectly controlled by someone who meets the requirements of points (a) or (b). In certain cases, a foreign investor is also considered to be a trust administrator of a trust fund that has made or intends to make a foreign investment in the Czech Republic on behalf of this trust fund.
- For the purposes of this Act, a foreign investment means an asset value in any form provided by a foreign investor for the purpose of performing an economic activity in the Czech Republic and which enables a foreign investor to exercise an effective degree of control over the performance of this economic activity. The effective degree of control means: a) the treatment of at least 10% of the voting rights of the target person or the possibility of exercising the corresponding influence, b) membership of a foreign investor or a person close to him in the body of the target person, c) the possibility of a foreign investor to deal with ownership rights to the thing through which the economic activity is carried out, d) the ability of a foreign investor to gain access to information, systems or technologies that are important from the point of view of protection of the security of the Czech Republic or internal or public order.
- Foreign investments will be examined by the Ministry of Industry and Trade.
- Foreign investment a) in a person conducting research, development, innovation or ensuring the life cycle of military material, b) in a person operating a critical infrastructure element designated by the relevant central administrative authority, c) in a person who is the administrator of the critical information infrastructure information system, the administrator of the critical information infrastructure communication system, the administrator of the basic service information system or the operator of the basic service d) in a person developing or manufacturing goods listed in Annex IV to the Regulation Council Regulation (EC) 428/2009 (so-called dual-use goods = goods for civilian and military purposes) are subject to authorization.
- For other types of foreign investments that are capable of endangering the security of the Czech Republic or internal or public order, the Ministry may initiate proceedings to verify the foreign investment ex officio (eg after consultation with the investor).
- In case of uncertainty as to whether the investment is subject to verification, it is possible to contact the Ministry of Industry and Trade with a proposal for consultation. Within this framework, the competent state authorities will then state whether they consider it reasonable to initiate proceedings to verify foreign investment. The exception is if the target person is a holder of a nationwide radio or television broadcast or a publisher of periodicals whose aggregate minimum average print run is 100,000 copies per day for the last calendar year, in this case the investor is obliged to submit a proposal to the Ministry before completing the foreign investment for consultation.
- The Foreign Investment Examination Act should only marginally affect real estate investment, in the case of investments in very specific real estate such as power plants, large waterworks or energy infrastructure.