Bulgaria closes the gap: new FDI screening regime enters into force

Following its promulgation last Friday, the act entered into force on 12 March 2024.

As we previously noted, the act largely rests on the concepts of the EU FDI Screening Regulation, albeit with several distinctive features.

Under the newly adopted act, prior screening is required for any foreign direct investment that (i) directly or indirectly originates from a non-EU controlled investor (including those from the USA and UK) and (ii) targets any of the industries listed under Article 4, para 1 of the EU FDI Screening Regulation (i.e. critical infrastructure, critical technologies, supply of critical inputs, access to sensitive information, and freedom and pluralism of the media), when the investment:

• involves the acquisition of at least 10 % of the capital of an enterprise operating in Bulgaria; or
• exceeds EUR 2m (or its equivalent in BGN), including greenfield investments.

By way of exception, the regime allows for discretionary screening of certain investments that do not meet the above criteria, particularly when they could impact security or public order. Furthermore, specific foreign direct investments (involving investors from Russia or Belarus, or individuals engaged in certain activities related to, among others, the production of petroleum-based products concerning critical infrastructure) are subject to screening under the act regardless of the aforementioned conditions.

Finally, foreign direct investments, which would otherwise fall within the scope of the new regime, are subject to screening regardless of the investment thresholds (EUR 2m and 10 %) in case of direct or indirect non-EU state participation in the foreign investor, including significant financing. As an exception to this rule, certain states (including the USA, the UK, Canada, Australia, New Zealand, Japan, South Korea, the UAE, Saudi Arabia and other "low-risk" states as determined by the Council of Ministers) are treated as EU states for the purposes of this additional screening "trigger".

Any foreign direct investments subject to screening under the act are to be approved by the newly created Inter-ministerial Council for Screening of Foreign Direct Investments (the "FDI Screening Council") in charge of administrative control under the act and chaired by the Deputy Prime Minister. The FDI Screening Council may also conduct an ex officio screening of a foreign direct investment for which an application has not been submitted.

In its assessment, the FDI Screening Council will apply screening criteria for determining whether a foreign direct investment is likely to affect security or public order, in line with Art. 4 of the EU FDI Screening Regulation. Upon receiving a complete application for the approval of a foreign direct investment, the Council will have 45 calendar days to conduct the screening and issue a decision. The review period may be extended by an additional 30 days. Notably, the act explicitly provides that the absence of a decision within the designated timeframes is construed as tacit approval of the investment.

After the screening, the Council may reject the application or approve the investment unconditionally or subject to compliance with certain behavioural or structural measures. If an investment is made without the required approval, the transaction remains valid, but the investor would be subject to a fine of 5 % of the value of the investment, but no less than BGN 50,000 (approx. EUR 25,500). In addition, the investor may be subject to behavioural or structural measures aimed at restoring security or public order, including modification and/or suspension of operations and/or termination of the foreign direct investment.

The act also introduces a "transitional regime". Its ambiguous wording, however, leaves uncertainty about how the transitional rules will operate in practice. The act exempts foreign direct investments that have "commenced" after the act entered into force but before the necessary implementing regulations and regulations on the organisation and operation of the FDI Screening Council were adopted. It is currently unclear what this means for in-between transactions that are signed prior to the act becoming applicable.

As the act entered into force on 12 March 2024, the implementing and organisational regulations are to be adopted no later than by 12 September 2024, after which the new Bulgarian screening regime is expected to be fully operational. Therefore, as the current text of the act stands, investments intended to be implemented towards the anticipated end of the transitional period (12 September 2024) or thereafter, (even if signed prior to the act becoming applicable), will have to be reviewed to assess whether they fall under the new regime.

authors: Ilko Stoyanov, Ema Stoyanova