Raluca Nădejde and Ionut Lechea (Bondoc & Associatii) contributed to the development of this publication

The Romanian regime regarding foreign direct investment (FDI) has undergone a major change in April 2022, when new legislation was enacted, aimed at implementing European Regulation of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (Regulation 2019/452).

Such new legislation is represented by Government Emergency Ordinance no. 46/2022 for the implementation of Regulation 2019/452(GEO 46/2022), which, among others, define the concepts of foreign direct investments, new investments and foreign investor.

Accordingly, "foreign direct investment" is defined as an investment of any kind that fulfills the following conditions:

• Is performed by a foreign investor
• Its purpose is to establish or maintain long-lasting and direct links between the foreign investor and the target company (or a separate division of the target company) to which funds are made available or will be made available for the purpose of carrying out an economic activity in Romania and
• The FDI allows the foreign investor to exert control over the management of the target company

Both direct and indirect changes of control in the ownership of the foreign investor fall under the scope of FDI review if control is acquired by an entity/individual that qualifies as a foreign investor, even if such change in control is outside of Romania (e.g., a change of the parent company of the foreign investor would trigger FDI review if the new parent company qualifies as a foreign investor, even if the new parent company has not carried any additional FDI in Romania).

"New investments" is defined as an "initial investment in tangible and intangible assets located within the same perimeter, related to the (1) launching of the activity of a new undertaking, (2) expanding the capacity of an existing undertaking, (3) diversifying production of an enterprise through products not previously manufactured or (4) a fundamental change in the general production process of an existing undertaking."

Setting up a new undertaking represents the creation of a new site for carrying out the activity for which funding is requested, independent from a technological point of view, from other existing units.

Expanding the capacity of an existing undertaking represents the increase of the production capacity at the existing site due to the existence of an unfulfilled demand.

Diversification of the production of an existing undertaking is the obtaining of products or services that were not previously carried out in the establishment in question.

Under GEO 46/2022, a new public body has been established to examine and approve FDI, namely the Commission for Examination of Foreign Direct Investments (CEISD), which in essence replaces CSAT (under the previous regime, transactions falling under FDI scope were notified to the Competition Council and the latter would forward them to CSAT).

Recent updates

In 2022, there was significant uncertainty generated by the new FDI regime, in particular due to the lack of implementing rules that were not adopted on time.

Who files

The principle is that the foreign investor has the obligation to make the FDI filing in Romania. In case of mergers or other types of transactions, the obligation to file is incumbent on the merging parties or the party/parties acquiring sole or joint control.

"Foreign investor" is defined as: (i) a natural person that is not a citizen of an EU Member State; or (ii) a legal entity that does not have its registered office in an EU Member State; or (iii) a legal entity with its registered office in an EU Member State controlled directly or indirectly by a natural person that is not a citizen of an EU Member State or a legal entity that does not have its registered office in an EU Member State; or (iv) a trustee of an entity without legal personality or a person in a similar position, if he/she is not a EU citizen or is not established in a EU Member State, as the case may be, or if such entity was incorporated under the laws of a Non-EU Member State.

Please note that a draft law adopted by the Romanian Parliament and submitted to the Romanian President for promulgation intends to expand the scope of foreign investors to include EU investors—the draft law was sent back to the Romanian Parliament for further amendments by the Romanian President.

Types of deals reviewed

Pursuant to GEO 46/2022, the filing is mandatory for a foreign direct investment or new investment made by a foreign investor, that:

• Concerns the fields of activity relevant to national security according to Decision of National Council for Country's Defense no. 73/2012, in conjunction with the criteria set out in art. 4 of Regulation 2019/452

AND

• Whose value exceeds a threshold of €2 million, calculated at the exchange rate of the National Bank of Romania (NBR) applicable to the last day of the financial year prior to the transaction. By exception, FDIs that do not exceed the threshold of €2 million may also be subject to examination and approval by CEISD, if, by their nature and potential effects, in relation to the criteria set out in Article 4 of Regulation 2019/452, may have an impact on security or public order or pose a risk to them

The fields of activity mentioned above under as being relevant to national security according to the Decision of National Council for Country's Defense no. 73/2012, are: (i) security of individuals and of communities, (ii) security of frontiers, (iii) energy security, (iv) transportation security, (v) vital supply systems security, (vi) critical infrastructure security, (vii) IT&C systems security, (viii) security of financial, fiscal, banking and insurance activities, (ix) security of weapons, ammunition, explosives and toxic substances production and circulation, (x) industrial security, (xi) protection against disasters, (xii) protection of agriculture and the environment, and (xiii) protection of state-owned company privatization or its management.

According to GEO 46/2022, portfolio investments are exempted from examination and approval.

Scope of the review

The purpose of the review is to examine whether a particular foreign direct investment or new investment is likely to affect Romania's national security or public order or projects and programs of interest to the European Union.

Review process timeline

As per GEO 46/2022, there is a maximum term of 135 days for the notifying party to be informed of the approval of the transaction by the Romanian Competition Council, which begins as of the moment the filing may be deemed complete (additional time may be added if CEISD requests the opinion of other authorities). In case of transactions that are sent by the CEISD to the Romanian government with the recommendation to be either prohibited or approved conditionally, there is no maximum legal time limit for the Romanian government to issue the decision.

How foreign investors can protect themselves

Foreign investors can protect themselves by ensuring that any transaction carried out in Romania is verified from an FDI perspective (in other words, verifying if the transaction falls under the criteria set out under GEO 46/2022), in addition to other regulatory clearances that may be required, such as the merger clearance by the Romanian Competition Council.

Also, in case of transactions which fall under CEISD review, CEISD clearance would need to be a condition precedent to the closing of the transaction because a prohibited transaction would trigger the cancelation of the transaction (noting that, in practice, this has not happened under the old regime).

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