Finland: Introducing the Foreign Direct Investment regime with latest trends

Latest trends in the Finnish Foreign Direct Investment regime

Countries across the EU have become increasingly cautious about national security over the past years and recognized the importance of monitoring business transactions where critical companies are sold, fully or partially, to foreign buyers. Several EU states, including Finland, have strengthened regulation regarding acquisitions of crucial entities by foreign buyers. In Finland, the Ministry of Economic Affairs and Employment (MEAE) acts as a regulator for foreign direct investments (FDI). 

The Act on the Screening of Foreign Corporate Acquisitions in Finland (172/2012, as amended, “Finnish FDI Act”) was revised in 2020 to capture potentially problematic acquisitions on a larger scale. Previously, only defence-related acquisitions fell under the FDI regime.  However, following the reform, acquisitions in the security industry were also included, marking a significant change to the scope of application of the FDI regime. Additional amendments included granting the regulator the authority to impose conditions on approvals and enhancing information exchange between national regulators.

After the reform, the volume of FDI applications has increased rapidly. According to the MEAE’s annual report[1], there were 38 applications submitted in 2023, with acquirers coming mostly from the UK, Sweden, Japan and Norway, and relating to sectors such as IT, manufacturing, construction and R&D.

When is the Finnish FDI Act applicable to acquisitions?

The Finnish FDI Act is applicable when all the following three (3) criteria are met:

1.The acquisition concerns a critical industry 

a) The transaction involves the defence industry, meaning that the Finnish target company produces or supplies dual-use products or goods or services relevant to entities or authorities responsible for national defence. Since the Finnish FDI Act does not provide a clear definition of what triggers this criterion, among other things, existing contracts with defense-related authorities may activate this condition. 

• Examples of defence-related authorities: Ministry of Defence, Finnish Defence Forces and Finnish Border Guard.

b) The transaction involves the security industry, meaning that the Finnish target company produces critical products or services essential to entities or authorities responsible for societal security. As an example, the regulator has mentioned key software applications and similar products and services used for maintaining security.

• Examples of security-related authorities: Finnish Defence Forces, Finnish Border Guard, Police, Custom, National Emergency Supply Agency, NSA and Traficom.

c) The transaction involves a company considered crucial to safeguarding the vital functions of Finnish society in other sectors than defence or security. While FDI approval for such acquisitions is not mandatory, it is something to consider for legal certainty. 

2. Control over the Finnish entity is obtained through a transaction

A threshold for application of the Finnish FDI Act is when a foreign entity – directly or indirectly – acquires at least 10%, 33% or 50% of the total voting rights in a Finnish entity subject to screening, or equivalent to actual control of the company.

3. Foreign buyer

Lastly, the focus is on the ultimate owner of the buyer and, most importantly, the domicile of that entity. The domicile plays a crucial role in determining whether the acquisition falls under the scope of the Finnish FDI Act, as the definition of a foreign buyer varies by industry. Buyers – including the ultimate owner – domiciled in Finland are not subject to the Act, even if they are acquiring entities involved in the defence or security industries.

For defence industry acquisitions, a foreign buyer is defined as any non-Finnish entity, meaning that the notification obligation applies to all acquisitions where the buyer is not Finnish, regardless of whether they are from an EU or non-EU country. This also includes transactions involving dual-use products.

However, in the security industry, the definition of a foreign buyer is not as restricted. A foreign buyer is considered to be any entity domiciled outside the EU or EFTA, meaning that acquisitions by buyers from non-EU or non-EFTA countries must undergo review. 

For other sectors, the monitoring of acquisitions applies only to foreign buyers or owners whose residence or domicile is outside the EU or EFTA.

Acquisitions that fall under the scope of the Finnish FDI Act are subject to the FDI procedure in Finland. However, a prior filing is mandatory only for transactions related to the security and defence sectors. For transactions in industries other than defence or security, filing is voluntary. Nevertheless, the Finnish FDI Act allows the MEAE to request an FDI filing from the involved parties after the transaction has been completed if it deems that the transaction affects interests protected by the Finnish FDI Act. This often leads to situations where transactions that fall under voluntary filing are also notified for the sake of legal certainty. 

If you need more information or further guidance in this area, please contact Katia Duncker, Riikka Aarikka or Maria Karpathakis.

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[1] Screening of foreign corporate acquisitions in Finland (tem.fi)