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Foreign Direct Investment in Central Europe: Czech Republic

Foreign Direct Investment in Central Europe: Czech Republic

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The global pandemic has impacted all markets, with subsequent ramifications for M&A. Investors are now seeking greater protection against general lock-downs and supply-chain disruptions, while governments aim to protect critical supplies and services by imposing new regulations on foreign investment in crucial or strategic industries. ​

If you are considering investment opportunities in the Czech Republic, take a look at this overview to get insight into the regulations on foreign investment in strategic industries

​The following overview is an extract from the Foreign Direct Investment in Central Europe publication, which gives insight into the regulations on foreign investment in strategic industries in the region.

Have FDI screening rules been implemented (or will they be implemented) in the country?

Yes. The Czech Act on the Screening of Foreign Investments ("Act") No. 34/2021 Coll. entered into force on 1 May 2021.

Definition of FDI

FDI means an asset in any form which has been provided or will be provided by a foreign investor for the purpose of carrying out an economic activity in the Czech Republic and which allows the foreign investor to exercise an effective degree of control over the conduct of this economic activity.

According to the Act, an effective degree of control over the conduct of the economic activity is:

  • the possibility for a foreign investor to dispose of at least a 10% share of voting rights or the possibility of exerting an appropriate influence on the person through which the economic activity is carried out ("target person"); this share also includes the shares of persons who are subject to uniform management with a foreign investor, and the shares of associations of a foreign investor;

  • the membership of a foreign investor or a person close to the foreign investor in the body of the target person;

  • the possibility for a foreign investor to dispose of the property rights to a thing through which the economic activity is carried out ("the target thing"); or

  • another degree of control resulting in the ability of a foreign investor to gain access to information, systems or technologies that are important with respect to protecting the security of the Czech Republic or internal or public

Definition of foreign investor

A foreign investor is anyone who has made or intends to make a FDI in the Czech Republic and who::

  • is not a citizen of the Czech Republic or a citizen of another Member State of the EU;

  • does not have a registered office in the Czech Republic or in another Member State of the EU; or

  • is directly or indirectly controlled by a person who meets the above mentioned requirements for a foreign

A foreign investor is also a trustee of a trust fund who, on behalf of that trust fund, has made or intends to make a FDI in the Czech Republic if its:

  • the possibility for a foreign investor to dispose of at least a 10% share of voting rights or the possibility of exerting an appropriate influence on the person through which the economic activity is carried out ("target person"); this share also includes the shares of persons who are subject to uniform management with a foreign investor, and the shares of associations of a foreign investor;

  • the membership of a foreign investor or a person close to the foreign investor in the body of the target person;

  • the possibility for a foreign investor to dispose of the property rights to a thing through which the economic activity is carried out ("the target thing"); or

  • another degree of control resulting in the ability of a foreign investor to gain access to information, systems or technologies that are important with respect to protecting the security of the Czech Republic or internal or public

Deadline for notification of the relevant screening body

According to the Act, there is no specific deadline for notification of the relevant screening body (Ministry of Industry and Trade). Valid permission is, however, condition precedent to the transaction.

Screening procedure

The Ministry of Industry and Trade ("Ministry") examines FDI, consults, conducts negotiations, decides on FDI and monitors compliance with the obligations laid down by the Act and decisions issued under the Act.

In general according to the the Act, the FDI could not be realized without permission, or without conditional authorization in:

  • the founder of the trust fund;

  • the trustee of the trust fund;

  • a person authorized to supervise the management of the trust fund, who may appoint or remove a trustee or beneficiary, or whose consent determine such appointment or removal;

  • the beneficiary of the trust fund; or

  • someone in whose primary interest the trust fund has been established or managed

The Ministry shall initiate the screening procedure of the FDI ex officio if the foreign investor makes a FDI in the target person, who will in 5 years become a target person in which the FDI could not be realized without permission, or without conditional authorization, or will make a contract with a person designing, creating, or modifying the nuclear facility. The Ministry shall initiate the screening procedure of the FDI ex officio if:

  • a foreign investor does not submit an application for permission of a FDI; or

  • it is after 5 years from the day of completion of the FDI apparent that the foreign investor has acted in such way as to cover up facts for which otherwise the screening procedure of the FDI may be initiated. For the FDI that do not meet the above mentioned requirements but are capable of endangering the security of the Czech Republic or internal or public order, the Ministry can initiate the screening procedure of FDI ex officio:

  1. on the basis of the result of the consultation proposed to the Ministry by a foreign investor; or

  2. within 5 years from the date of completion of the foreign investment if the foreign investor has not submitted a proposal for

Screening decision

If the Ministry does not receive an opinion or information showing that a FDI may pose a threat to the security of the Czech Republic or internal or public order, and if the Ministry has no reason to believe so, it will issue a decision approving the FDI within 90 days from the day of initiation of the procedure for examining the FDI. A period of up to 30 days shall be added to the period of 90 days in the case of a particularly complex case.

If the Ministry receives an opinion or information showing that a FDI may pose a threat to the security of the Czech Republic or internal or public order, or if the Ministry has a reason to believe so, it will submit the matter to the Czech Government for consideration before issuing a final decision within 90 days from the day of the initiation of the procedure for examining the FDI.

The Ministry shall issue without undue delay a decision on the conditional authorization of a FDI, a decision on the non-granting of a FDI permit, a decision on conditional admissibility of a FDI, a decision on the prohibition of FDI or a decision on the prohibition of further duration of a FDI if the Czech Government agrees that such decision is necessary for the protection of the security of the Czech Republic or internal or public order.

The Ministry will issue without undue delay a decision on the authorization of a FDI or a decision on the admissibility of a FDI without setting conditions if the government decides that the FDI does not pose a threat to the security of the Czech Republic or internal or public order. 

Are fines or other penalties prescribed due to failure to notify the FDI?

According to the Act, the foreign investor will commit an offence if:

  1. the foreign investor fails to comply with the obligation imposed by the decision prohibiting the continuation of the FDI;

  2. the foreign investor does not meet the conditions imposed by the decision on the conditional authorization of the FDI or the decision on conditional admissibility of the FDI;

  3. the foreign investor makes the FDI without making an application for permission of the FDI; or

  4. the foreign investor does not submit a request for consultation where the target person holds a licence for a national radio or television broadcast or a periodic publisher with a combined minimum printed cost of 100 000 copies per day for the last calendar

For the offence in the letter a) and b) a fine can be imposed up to 2% of the total net turnover achieved by a foreign investor for the last completed financial year, or from CZK 100,000 to CZK 100,000,000 if the amount of total net turnover achieved by a foreign investor for the last completed financial year cannot be determined.

For the offence in the letter c) and d) a fine of up to 1% of the total net turnover achieved by a foreign investor for the last completed financial year, or from CZK 50,000 to CZK 50,000,000 if the amount of total net turnover achieved by a foreign investor for the last completed financial year cannot be determined.

Additional comments on FDI review aspects (e.g. any peculiarities, exemptions, broader definitions etc.).

With some exceptions, the Act on the Screening of Foreign Investments shall not apply to the FDI completed before the day of the entry into force of the Act.

By Petr Suchy, Partner, Deloitte Legal

Czech Republic Knowledge Partner

PRK Partners, one of the leading Central European law firms, has been helping clients achieve their business objectives almost 30 years. Our team of lawyers, based in our Prague, Ostrava, and Bratislava offices, has a unique knowledge of Czech and Slovak law and of the business environment. Our lawyers studied at top law schools in the United States, United Kingdom, Switzerland and elsewhere. They also have experience working for leading international and domestic law firms in a number of jurisdictions. We speak your language, too. Our legal team is fluent in more than 15 languages, including all the key languages of the region.

PRK Partners has one of the most experienced legal teams on the market. We are consistently rated as one of the leading law firms in the region. We have received many significant honours and awards for our work. We represent the interests of international clients operating in the Czech Republic in an efficient way, combining local knowledge with an understanding of their global requirements in a business-friendly approach. We are one of the largest law firms in the Czech Republic and Slovakia. Our specialised teams of lawyers and tax advisors advise major global corporations as well as local companies. We provide comprehensive legal advice drawing on our profound knowledge of local law and markets.

Our legal advice delivers tangible results – as proven by our strong track record. We are the only Czech member firm of Lex Mundi, the world's leading network of independent law firms. As one of the leading law firms in the region, we have received many national and international awards, in some cases several years in a row. Honours include the Chambers Europe Award for Excellence, The Lawyer and Czech and Slovak Law Firm of the Year. Thanks to our close cooperation with leading international law firms and strong local players, we can serve clients in multiple jurisdictions around the globe. Our strong network means that we can meet your needs, wherever you do business.

PRK Partners has been repeatedly voted among the most socially responsible firms in the category of small and mid-sized firms and was awarded the bronze certificate at the annual TOP Responsible Firm of the Year Awards.

Our work is not only “business”: we have participated on a longstanding basis in a wide variety of pro bono projects and supported our partners from the non-profit sector (Kaplicky Centre Endowment Fund, Tereza Maxová Foundation, Czech Donors Forum, etc.).

Firm's website: www.prkpartners.com

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