In Belgium, the screening of foreign direct investments is carried out by the federal and regional governments (depending on sector and location of the target company), under the coordination of the Interfederal Screening Commission (ISC).

Summary of major changes in 2023

The Belgian FDI screening regime was introduced at the end of 2022 and entered into force on July 1, 2023. It applies to transactions signed on or after that date.

On June 30, 2023, the ISC issued draft guidelines on the scope of the screening mechanism and the procedure to be followed. Although the guidelines provide useful guidance on certain questions left open by the legislator, other topics remain unclear. They will likely be updated in the future, as the ISC gradually reviews more cases.

Who files?

The foreign investor must notify the investment that falls within the scope of the secretary office of the ISC. For the purposes of the screening mechanism, the following persons are considered foreign investors: physi-cal persons with their primary residence outside the EU; undertakings (including states, public and private companies, associations, foundations and so on) with their registered office or main activities outside the EU; or undertakings that have at least one ultimate beneficial owner (UBO) with a primary residence outside the EU.

In light of the above, investors based in the UK or EFTA will fall under the definition of foreign investors. The same goes for Belgian undertakings that have a UBO residing outside the EU, even if the UBO is a Bel-gian citizen.

The notification must be made after signing but before closing of the transaction. The notification requirement is both mandatory and suspensive, which means the transaction cannot be closed until clearance has been obtained. Failure to comply with this obligation may give rise to an administrative fine imposed on the foreign investor, ranging from 10 to 30 percent of the value of the investment in question, depending on the circumstances.

Types of deals reviewed

The screening mechanism covers any type of investment, including share acquisitions, subscriptions to capital increases and public takeover offers, in each case to the extent that it results in a direct or indirect acqui-sition of a certain percentage of voting rights in a Belgian business operating in one of the sensitive sectors covered by the Cooperation Agreement.

Greenfield investments are excluded from the scope of the screening mechanism. The situation is less clear with respect to asset deals. Initially, the ISC considered that these fall outside the scope of the screening mechanism if they do not result to the acquisition of voting rights in the Belgian entity. The current guide-lines nevertheless state that the sale of a "division" of a company falling within the scope must be notified, which seems to imply that at least certain types of asset deals may be subject to screening.

Scope of the review

The screening mechanism covers investments resulting in a direct or indirect acquisition of 25 percent or more of the voting rights in a Belgian business.

Such businesses should be active in one of the following areas:

• Critical infrastructure (both physical and virtual) for energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure and sensitive facilities, as well as the land and real estate crucial for the use of such infrastructure
• Technologies and raw materials that are of essential importance to safety, including public health safety, defense and public order control, military equipment subject to the "Common Military List" and nation-al control, dual-use items, artificial intelligence, semiconductors, robotics, cybersecurity, aerospace, de-fense, energy storage, quantum and nuclear technologies and nanotechnologies
• Supply of critical inputs, including energy, raw materials and food security
• Access to sensitive information (for example, relating to Belgium's defense and strategic interests), as well as personal data or the possibility to control such data
• Private security (such as monitoring and protection of persons and goods)
• Freedom and pluralism of the media (including news outlets, broadcasting services, newspapers)

The mechanism also covers investments resulting in a direct or indirect acquisition of 25 percent or more of the voting rights in a Belgian business that is active in the biotech sector and has realized a turnover of more than €25 million during the financial year preceding the investment; or 10 percent or more of the voting rights in a Belgian business that is active in the energy, defense (including dual-use products), cybersecurity and electronic communication or digital infrastructure sectors and has realized a turnover of more than €100 million in the financial year preceding the investment.

Review process timeline

The screening process, which will only commence once the notification file is deemed complete by the secretary office, is carried out in two main phases.

During the initial assessment phase, the federal and regional governments (each to the extent concerned by the investment) will assess whether the investment could potentially result in threats to the public order, national security or strategic interests of Belgium or the relevant region. In principle, the decision must be taken within 40 calendar days following receipt of the complete notification. However, this period may be suspended and thus extended in case additional information is requested.

If one of the relevant governments considers that the investment presents a potential risk, a formal screening procedure is carried out. During this second phase, the relevant governments carry out a more detailed risk analysis of the investment for an initial duration of 14 calendar days. Each government that believes such risk exists shall draw up a draft report, which is provided to the foreign investor for comments and may be the subject of an oral hearing. Following the end of the review period, each government has six calendar days to adopt a decision. The investment shall be considered approved unless the federal government (acting alone) or all relevant regional governments (acting together) decide to reject the transaction. Clearance may be subject to corrective measures.

In case of a negative decision, the foreign investor may lodge an appeal with the Court of Appeals of Brussels. The Court may decide to annul the decision but may not replace it by a positive decision. In the case of annulment, the ISC will be called upon to take a new decision in accordance with the above-mentioned procedure.

How can foreign investors protect themselves?

The scope of the screening mechanism is broad, and the sensitive sectors that it covers are not precisely de-scribed. With time, as the guidelines are updated and precedents are established, investors will have a better view of which types of investments effectively fall within the ambit of the screening mechanism. In the meantime, the ISC recommends notifying a transaction if it is uncertain whether it falls within the scope of the screening mechanism, to be on the safe side. This is to avoid an ex officio investigation, which could result in penalties (up to 30 percent of the transaction amount) for failure to notify the transaction, as well as legal uncertainty about the transaction (in case it was already closed).

If a contemplated transaction falls within the scope of the screening mechanism, parties should ensure that this is accounted for in the transaction documents, including condition precedent, cooperation undertaking and so on. In doing so, they should also carefully review the screening timeline. Although the process should normally not take more than two or three months according to the ISC, it cannot be excluded that it will be delayed due to certain circumstances, such as requests for more specific information on the investment, or delays in the cooperation and discussions between the various authorities involved in the review. This should be considered, for instance, when agreeing on a long stop date.

As noted, a transaction falling within the scope cannot be closed until clearance has been obtained. It is therefore recommended that foreign investors start preparing their file well before signing so that they are ready to notify the transaction immediately following signing. In certain cases, it is permitted to proceed with the notification based on a draft agreement, provided that all parties involved confirm that they have the intention to enter into an agreement that does not materially deviate from the draft agreement.

To avoid delays, and although it cannot be excluded that the ISC would request further information, it is essential that the initial notification includes (at least) all information required by law, including: the owner-ship structure of the foreign investor and of the target; the approximate value of the investment and the manner in which this value was determined; the products, services and business operations of the foreign investor and its controlling entities, including entities under their control, on the one hand, and of the target, on the other; Member States of the EU and third countries in which, on the one hand, the foreign investor and its controlling entities, including entities under the control of the latter, and, on the other hand, the tar-get, conduct relevant to business activities; the financing of the investment and its source; and the date or expected date of completion of the investment.

Finally, foreign investors who fear that their investment is at risk of not being cleared, may want to start working on a contingency plan. Indeed, if one of the competent governments takes the view that the investment would result in threats to the public order, national security or strategic interests, it may approve the transaction subject to corrective measures to be agreed with the relevant investor—such as adopting a code of conduct, a carve-out of certain parts of the business, certification of shares, etc. Depending on the circum-stances, it may be useful for a foreign investor to carry out a feasibility study of certain corrective measures and potentially start preparing for their implementation. This should speed up the negotiations with the competent government and the process of obtaining clearance.

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