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23 October 2023

Bulgaria soon to adopt an FDI screening regime (Updated to reflect the latest amendments to the FDI screening bill as of the date of publication)

Bulgaria is one of the few remaining EU countries that have not yet adopted a foreign direct investment (FDI) screening regime. This is about to change with the introduction in late June of a bill on the amendment of the Investment Promotion Act, implementing the screening mechanism under Regulation (EU) 2019/452 (the "EU FDI Screening Regulation"). See here for our previous Legal Insight.

On 20 September, the Bulgarian parliament approved the bill in principle and subsequently supplemented it with detailed provisions on 18 October. Currently, the bill is under a second parliamentary review. The final vote is expected later this year, possibly as early as 7 November, although the timeline for passing the bill is currently unclear. When the final bill is adopted, many details will be left open for further implementing regulation by the administration in the nine months following adoption. This leads us to believe that the application of the law will be postponed until Q4 2024. We expect that the legislative timeline will clarify in the next month.

The bill closely follows the concepts of the EU FDI Screening Regulation. It requires prior screening of any foreign direct investment that directly or indirectly originates from a non-EU controlled entity (i.e. including from the USA and UK) and meets the following criteria:

  • targets any of the industries under Art. 4, item 1 of the Regulation (i.e. critical infrastructure, critical technologies, supply of critical inputs, access to sensitive information and freedom and pluralism of the media);
  • exceeds EUR 2m or, by exception, is below EUR 2m but could still negatively affect or create a risk for security or public order in Bulgaria;
  • leads to an acquisition of at least 10 % ownership in an undertaking which achieves revenue in Bulgaria (no revenue threshold has been set yet);
  • a non-EU state holds ownership or board seats in the foreign investor; and
  • the investment is made in a high-technology company (according to the NACE classification).

The following investments are excluded from the screening requirement:

  • greenfield investments (i.e. initial investments related to the starting of a new economic activity); and
  • investments in start-up companies (defined by the amount of revenues and number of employees).

Administrative control over the screening process will rest with a newly created Inter-ministerial Council for Screening of Foreign Direct Investments (the "FDI Screening Council"). The new FDI Screening Council will be staffed with representatives from all branches of the government and chaired by a Deputy Prime Minister. The screening criteria that the FDI Screening Council will apply for determining if a foreign direct investment is likely to affect security or public order follow Art. 4 of the EU FDI Screening Regulation.

The FDI Screening Council must issue a decision on the investment within 55 calendar days from the notification by the investor. The review period can be extended by the time required to supplement the filing in case of deficiencies. The FDI Screening Council may approve an investment, approve an investment on the condition that the investor complies with certain behavioural or structural measures, or prohibit an investment.

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, though not less than about EUR 25,500. In addition it may be subject to behavioural or structural measures aimed at restoring security or public order.