Luca Amato (Fenech and Fenech Advocates) authored this publication

Malta's FDI regime regulates certain FDIs made, or planned to be made, in Malta. The regime covers greenfield investments and acquisitions of companies operating in certain key areas that would result in foreign (non-EU) investors having a direct or indirect ownership or holding voting rights of more than 10 percent in such companies

Summary of major changes in 2023

• No major changes have occurred in 2023
• The NFDISO continues to adopt a pragmatic and responsive approach to notifications and is generally forthcoming when investments are subjected to screening

Who files?

The National Foreign Direct Investment Screening Office Act obliges foreign investors and all persons involved in an FDI that is captured by the act to notify the NFDISO regarding the investment and to provide certain information regarding the entity carrying out the investment.

"Foreign investor" is defined as a natural person or an undertaking of a third (non-EU) country intending to make or having made an FDI in Malta.

The information to be provided includes the ownership structure and ultimate beneficial ownership of the investor, the value of the investment, the products, services and business operations of the foreign investor, and the source of funds for the investment. Additionally, the NFDISO may request any other information as it may reasonably require for the proper performance of its functions under the act.

The notification is made via NFDISO's online portal and must be signed by a company director of the foreign investor and, where applicable, the relevant advisory firm or agent assisting with the notification.

Types of deals reviewed

The act covers certain FDIs made or planned to be made in Malta. An FDI is defined as an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links to carry on an economic activity in Malta, including investments that enable effective participation in the management or control of a company based in Malta.

Mandatory notification of FDIs is required by a foreign investor where an investment that affects any of the factors or activities mentioned in the schedule of the act is planned to be carried out in the future; and where, having carried out an investment in Malta, the business activity of a foreign investor is changing to one that affects any of the factors or activities mentioned in the schedule of the act.

Notification is also required where having carried out an investment in Malta that affects any of the factors or activities mentioned in the schedule, the ownership structure of an investor changes such that at least 10 percent becomes owned by foreign investors; and where, having carried out an investment, the direct or indirect controlling interest of a company or a group company changes and passes onto a foreign investor.

Scope of the review

A number of activities are mentioned in the schedule of the act and trigger the need for a notification to the NFDISO.

Firstly, critical infrastructure, whether physical or virtual, includes energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure.

Critical technologies and dual-use items as defined in point 1 of Article 2 of Council Regulation (EC) No. 428/2009 (15), including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies, are also included.

Notification is also required for activities relating to the supply of critical inputs, including energy or raw materials, as well as food security; access to sensitive information, including personal data, or the ability to control such information; and the freedom and pluralism of the media.

The factors to be considered are: whether the foreign investor is directly or indirectly controlled by the government of a third country, including state bodies or armed forces, through ownership structure or significant funding; whether the foreign investor has already been involved in activities affecting security or public order in an EU Member State; or whether there is a serious risk that the foreign investor engages in illegal or criminal activities.

Where, in considering the above activities and factors, the NFDISO concludes that the FDI affects the security or public order of Malta, it may condition, prohibit or unwind such an investment, as the case may be, and it shall inform the foreign investor in writing of its decision. The notification of the decision shall include the NFDISO's reasoning and justification, and the investor shall not be entitled to claim any compensation or reimbursement.

If the NFDISO determines that an investment shall be subjected to one or more conditions, it shall permit the foreign investor to take all necessary measures in order to satisfy the said conditions within a reasonable time period. Should the investor fail to satisfy these within the prescribed period, the NFDISO shall prohibit or unwind the investment.

Similarly, if an investment is declared unwound, the NFDISO shall permit the foreign investor to reverse or modify the investment within a reasonable time period. Failure to do so within the prescribed time would entitle the NFDISO to commence judicial proceedings before the civil court for the unwinding of the investment.

Review process timeline

The NFDISO shall determine within five days whether the investment will be subject to screening. In reaching its decision, the NFDISO will consider whether the investment may affect the security or public order of Malta on the basis of the aforementioned activities and factors. In making its assessment, the NFDISO may request any necessary additional information from the foreign investor and may seek the clarifications and explanations.

Where the NFDISO concludes that the foreign direct investment shall not be subject to screening, it shall, within five business days from the date of its decision, inform the foreign investor of its decision.

If the NFDISO concludes that the foreign direct investment shall be subject to screening, it shall inform the foreign investor within five business days from the date of its decision, and trigger the cooperation mechanism in terms of articles 6 and 7 of Regulation (EU) 2019/452, and it shall, within 60 calendar days, determine whether the foreign direct investment may affect the security or public order of Malta.

The NFDISO is also empowered by law to impose administrative penalties ranging from not less than €1,000 for failure to provide information, to not more than €100,000 for providing incorrect, inaccurate or incomplete information.

Appeals to any decision of the NFDISO or the imposition of administrative penalties are allowed by bringing an action before the Administrative Review Tribunal.

How foreign investors can protect themselves

Due to the broad wording of the law, Maltese FDI legislation covers a substantial number of transactions, particularly in the context of the notification requirement. This is because the activities that are mentioned in the schedule are drafted in a broad manner, particularly under limb (a) which covers sectors ranging from energy and health, to more commonplace industries such as media, communications and data processing or storage.

Prudent foreign investors would do well to take a cautious approach and notify the NFDISO whenever an investment is planned in a Maltese business that operates in the relevant sectors. Maltese law does not outline a specific point when the investment needs to be notified. In practice, it makes sense to notify the NFDISO whenever an investment is reliably deemed to occur, such as the period immediately following the signature of a share purchase agreement. Indeed, it is nowadays commonplace to include the obtaining of regulatory consent by the NFDISO as a condition precedent to completion in such agreements.

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