Issue link: https://maltatoday.uberflip.com/i/1265483
02.07.2020 8 OPINION THE FDI (foreign direct investment) Regulation entered into force on 10 April 2019 and will apply to transac- tions from 11 October 2020 onwards. e new Malta office has so far re- ceived 143 applications for evaluation – of which only nine required approval from the office and even for these some amendments to M&A would generally get the approval for MBR to proceed - and only two were considered to require screening, one cleared with EU and the other more complex and exchanging info with clients. e over-riding criteria is that such screening is only applicable for any FDI where the owner, titleholder or ultimate beneficial owner originates outside the 27 Member states. Why is this screen- ing important? e EU has one of the world's most open investment regimes, as acknowl- edged by the OECD in its investment restrictiveness index. It is the top des- tination for foreign direct investment in the world: foreign direct investment stocks held by third country investors in the EU amounted to €6,295 billion at the end of 2017. is new investment is a godsend since it has created 16 million much-needed direct jobs. ere is a set of minimum criteria where a Member State chooses to have an FDI screening mechanism assessing FDI's effects on "security or public order". In theory, it is expected that all mem- ber States cooperate with one another and with the European Commission in this activity. us, simply stated, one-member state needs to seek infor- mation from the foreign investor and investment beneficiary to share with other EU counterparts and to provide relevant information especially on the potential impact of FDI on security and public order. is requirement is obligatory before and also for up to 15 months after the FDI is secured. e European Commission will not shy away from using its power to pro- vide ex-post advice within 15 months after the FDI has been completed. is could lead to ex-post investigations by Member States able to retroactively re- view deals under their national legisla- tion and possible orders to unwind or adopt mitigating measures post-closing. e European Commission will moni- tor investment structures which aim to circumvent FDI screening. e current Guidelines indicate that, certainly in the Covid-19 context, the goal of protecting the EU's security (specifically health- care) is the priority. It is interesting to note that in response to the Covid-19 pandemic, Spain had decided to block all FDI combing from outside the EU or the European Free Trade Association (including state-owned companies). In particular exclusions include: healthcare, energy, finance, for reasons of public safety, public order. Other countries such as France, Germany and Italy are contemplating to introduce further restrictions for non-EU invest- ments. Member States are encouraged to con- sider reviewing portfolio investments where relevant to security or public or- der: for example, where a small share- holding (e.g. 5%) may confer relevant rights on the investor. By comparison, in the US, there has been increasing fo- cus in recent years on so-called "critical infrastructure" – which is understood to encompass aspects of the economy related to healthcare, pharmaceuticals and related supply chains – and ad hoc regulations already call for heightened scrutiny of foreign investments in crit- ical infrastructure. Malta recently set up a new agency styled National Foreign Direct Invest- ment Screening office. e sectors that fall under the screening regulation are as follows: 1. critical infrastructure, wheth- er physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial in- frastructure, and sensitive facili- ties, as well as land and real estate crucial for the use of such infra- structure; 2. critical technologies and dual-use items as defined in point 1 of Ar- ticle 2 of Council Regulation (EC) No 428/2009 (15), including arti- ficial intelligence, robotics, sem- iconductors, cybersecurity, aer- ospace, defense, energy storage, quantum, and nuclear technolo- gies as well as nanotechnologies and biotechnologies; 3. supply of critical inputs, including energy or raw materials, as well as food security; 4. access to sensitive information, including personal data, or the ability to control such informa- tion; and 5. the freedom and pluralism of the media. is is another burden (possibly un- paid) for practitioners, lawyers, nota- ries and corporate service providers that after extensive marketing succeed to attract FDI to Malta. ey must sub- mit critical data requesting clearance from the Office prior to filing the cus- tomary documents when registering companies, foundations, partnerships etc. e screening office therefore vets the new forms that need to be submitted and give or refuse clearance. Without clearance, the FDI cannot seek shelter in Malta. e list of additional infor- mation is exhaustive. Officially the screening agency requests authenticat- ed documentation from the business introducer. e guideline states that forms need to be filled stating inter alia: 1. the ownership structure of the foreign investor and of the under- taking in which the foreign direct investment is planned to be made or has been made, including in- formation on the ultimate inves- tor and/or beneficial owner and participation in the capital; 2. the approximate value of the FDI; 3. the products, services and busi- ness operations of the foreign in- vestor and of the undertaking in which the FDI foreign is planned or has been completed; 4. the jurisdictions, including Mem- ber States, in which the foreign investor and the undertaking in which the FDI, is planned or has been completed to conduct rele- vant business operations; 5. the funding of the investment and its source; and 6. the date when the FDI, is planned to be completed or has been com- pleted. One may question, whether this is another level of bureaucracy intended to slow down new business coming to Malta. is rule comes at an awkward time when the Covid 19 pandemic has created havoc in the global business sphere and there are a lot of coun- tries seeking elusive business to their shores. One hopes that the Screening office (possibly at a nominal fee) will be su- per-efficient and understands the dire need for FDI even though it is not com- ing from Europe but other continents such as Asia. In fact, China is the world's sec- ond-largest economy giving its enor- mous leverage to shape the world economy and politics. It is still lagging behind the EU in many areas of technol- ogy, but has ambitious policies of pro- moting technology upgrading including through outward FDI. ere is some concern to ensure that no sell-out of EU strategic companies occurs in the current volatile market as these businesses will be crucial to rebuilding the European economy post the Covid-19 crisis. In conclusion, one hopes that the re- covery plan for the global economy will be aided by bona fide investors who tru- ly wish to revive the sagging GDP of the recipient country. Europe introduces screening measures on FDI George Mangion George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island