Among many other effects, the COVID-19 pandemic has revealed the vulnerability of supply chains worldwide, thereby increasing awareness of the need to protect critical domestic infrastructure. The new Austrian Investment Control Act (the “ICA”) clearly reflects this increased awareness by significantly extending the scope of application of the FDI regime. It entered into force on 25 July 2020, replacing the previously applicable Sec 25a of the Foreign Trade Act (the “FTA”).
Sec 25a of FTA had a rather limited scope of application, covering internal and external security (including the weapons industry) as well as infrastructure and services of general public interest (energy, transport, water supply, telecommunications, healthcare, etc.). At first glance, this list does not appear all that narrow. However, indirect acquisitions were not covered, making it fairly easy to set up a holding structure and circumvent the approval requirement. This meant that during the FTA’s eight years of application, the competent authority received fewer than ten applications for transactions. The new ICA addresses these issues with the following features:
A list of highly sensitive sectors and other sectors that goes beyond the old regime: Artificial intelligence, robotics, semiconductors, cybersecurity, defence technology, quantum and nuclear technologies, nano- and biotechnologies, food security, medicines, medical devices and personal protective equipment, vaccines as well as R&D in these areas and many more are now included.
For investments in highly sensitive sectors, an application is necessary if voting rights of 10%, 25% or 50% are reached or surpassed. Under the old regime, 25% was the lowest threshold.
The ICA now also applies to indirect acquisitions. This means that special-purpose vehicles with no genuine substantive economic activity in the EU/EEA that are controlled by third-country nationals will be subject to approval.
Apart from extending the scope of application, the ICA includes several other new features such as a committee, which the competent minister (currently the Minister for Digital and Economic Affairs) can consult on the assessment of particular transactions, the introduction of the EU consultation mechanism, the obligation for the target company as well as the purchaser to submit an application under the ICA, and several more topics.
While the ICA is only a few months old, one thing already seems certain: The former, rarely applicable, obligation to file for approval under Section 25a FTA will become a standard check that needs to be assessed in many transactions involving non-EU/EEA purchasers.
For further information please contact our FDI experts: Alexander Rakosi, Florian Mayer, Marco Selenic. Please also see the multi-jurisdictional FDI database that CMS has established in partnership with LexisNexis which includes guides on the FDI regimes in Austria, the EU, France, Germany, Hungary, Italy, Mexico, Poland, Romania, Russia, Singapore and South Africa, with more to follow. The database is accessible here.