Slovakia – early stages of the new FDI regime

Foreign direct investment (FDI) screening in Slovakia has been subject to recent reform. The main rules are set forth in the Slovak Act No. 497/2022 (the FDI Act) which entered into force on 1 March 2023, and related secondary legislation. At its core, the FDI regime is designed to be in line with the EU standards set out in the Regulation (EU) 2019/452 on establishing a framework for the screening of foreign direct investments into the EU.

Generally, the aim of the FDI regulation is to establish mechanisms to screen certain planned foreign investments in target entities in Slovakia. A target under the Slovak FDI Act is any entity based in the Slovakia that already exists or is to be established in connection with a foreign investment (i.e. greenfield investment), regardless of its legal form, legal personality, method of financing or focus of activity (the Target).  

It's also worth noting that the monetary extent of the investment is not relevant, i.e. foreign investment can fall under the FDI regulation regardless of the price of the transaction paid by the foreign investor.

The FDI Act primarily recognizes and regulates 2 types of FDIs with different regulatory requirements:

a) Foreign Investment, and

b) Critical Foreign Investment.

In a nutshell, Foreign Investment is investment planned or completed by a Foreign Investor, regardless of the application of Slovak law, which enables the Foreign Investor to directly or indirectly: (i) acquire the Target or a part of it, (ii) exercise effective participation in the Target, (iii) increase effective participation in the Target, (iv) exercise control over the Target, or (v) acquire ownership rights or other rights to substantial assets of the Target, provided it is considered a Critical Foreign Investment.

On the other hand, Critical Foreign Investment is such type of Foreign Investment which, due to the importance of the Target or its activities from the point of view of essential state functions, poses an increased risk of negative impact on the security or public order of Slovakia. Secondary legislation further defines a list of specific sectors which would fall under the category of Critical Foreign Investments, e.g. investments involving broadcasting, military, biotechnology, pharmaceutical sectors, etc.

Threshold criteria applies, but are rather low, e.g. minimum effective participation to meet the definition of Foreign Investment is in the acquisition of at least 25 % of Target’s share capital or at least 10% in case of Critical Foreign Investment.

If the Foreign Investment meets certain conditions set forth in the FDI Act, it is subject to mandatory FDI screening. The implications are important; for example, Critical Foreign Investment cannot be made effective before the decision on (conditional) Foreign Investment permission is issued by the authorities. Otherwise, several sanctions could be imposed (e.g. fines of up to 2% of the revenue of the foreign investor or its beneficial owner).

In mid-2024 the Slovak Ministry of Economy issued the first of annual reports on the application of local FDI regulation in practice for the previous year (covering period from effectiveness of the FDI Act from 1 March 2023 to 31 December 2023) (the Report). 

According to the Report, the average period of time for consideration of the foreign investment was 58.8 calendar days, and the average length of the in-depth screening procedure was 94.75 calendar days. 

The Report also mentions that most foreign investors originated from the United Kingdom and Singapore, followed by Germany, United Arab Emirates, and others. The most common sectors entered by foreign investors were ICT (telecommunications activities), the health sector, and the industrial sector. 

The Slovak Ministry of Economy did not issue any commitment decisions (conditional clearances) or prohibitions in 2023. 

Given that the FDI Act only entered into force in March 2023 and considering the open Slovak economy, the ever-changing and challenging foreign and geopolitical environment, we expect that the number of cases of screening of foreign investments in Slovakia will increase in the future. Some cases of prohibition of foreign investments can also be expected, even though, hopefully, not in a high ratio compared to the authorized investments.

The Slovak Ministry of Economy also projects that near term heightened awareness of the Foreign Investment screening agenda within Slovakia, coupled with the implementation of additional screening mechanisms by other EU Member States, will contribute to the increase in the number of applications for screening of Foreign Investment. 

If you need more information or further guidance in this area, please contact Ivan Kisely and Róbert Čuperka. 

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