Foreign Direct Investments in the Czech Republic

The Czech Republic has long been recognized as an attractive destination for foreign direct investments due to its strategic location, skilled workforce, and favourable business environment. 

The cornerstone of the Czech Republic’s approach to foreign investment review is the Act No. 34/2021 Coll., on the Screening of Foreign Investments (“FDI Screening Act”), which came into effect on 1 May 2021. This legislation aligns with the EU Regulation 2019/452, establishing a robust framework for the screening of foreign direct investments into the Union. The primary objective is to safeguard national security and public order by scrutinizing investments in critical sectors.

This article delves into the key principles of the review process in the Czech Republic and provides related insights from transactions that have been subject to review.

Review Process

Under the FDI Screening Act, certain non-EU investments are subject to mandatory clearance of the Ministry of Industry and Trade (“Ministry”) in order to prevent investors gaining control over certain strategic sectors or access to sensitive technology and information. Mandatory screening applies to non-EU investments that may threaten the security or the internal or public order of the Czech Republic.

Foreign direct investments in certain sensitive sectors, such as military equipment, certain dual-use goods, critical infrastructure, and universal services are always subject to prior approval by the Ministry. The review process involves a comprehensive risk assessment, consultations with relevant state authorities, and, if necessary, the imposition of conditions to mitigate potential risks. The Ministry shall decide generally within 90 days of the initiation of the screening process whether the investment is to be permitted, permitted under further conditions, or refused permission. 

The foreign direct investments that are not subject to approval might be reviewed ex-post. The Ministry may initiate screening proceedings even five years after the completion of the foreign direct investment, with the possibility of retroactively restricting or annulling the investment. 

In order to obtain legal certainty, the foreign investor may apply to the Ministry for a voluntary consultation on the contemplated investment (mandatory consultation only applies to certain domestic companies in the media sector). The Ministry will inform the foreign investor of its decision within 45 days of receipt of the application. The decision may be either that the foreign investor may proceed with the investment or that the investment must be examined in the screening proceedings.

Foreign Direct Investments – Insights 

According to the latest annual report by the Ministry (covering 2022), the Ministry handled a total of 13 cases of non-EU foreign investments, with the following outcomes:

• Nine consultations were initiated, of which two progressed to the screening proceedings.
• The Ministry dealt with six foreign direct investments in the screening proceedings ‑ three at the request of the foreign investor, two following the consultation process, and one ex officio.
• No contemplated foreign direct investments were prohibited.
• Five foreign direct investments were approved, while in three instances, the investors reconsidered their intentions and withdrew their applications.
• As of 31 December 2022, a total of five cases remained unresolved. 

The reviewed investments spanned various critical sectors, notably, the information and communication technology (ICT) sector and the electrical engineering industry. The most significant investors were from the United States (four deals assessed), Canada (two deals assessed), South Korea, and Japan.

Apart from the information included in the annual report by the Ministry, there is no official and publicly available information about decisions relating to review of foreign investments.

Conclusion

The review of foreign investments in the Czech Republic is a critical component of the country’s strategy to balance economic growth with national security. Despite a complex framework for screening of foreign direct investments established by the FDI Screening Act, the Czech Republic remains an attractive and secure destination for foreign investors.  

For more information or further guidance in this area, please contact Ľubomír Brečka and Kristýna Opolzerová.

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