Marko Ketler, Nina Krajnc, and Monika Jejčič (Ketler & Partners Ltd., member of Karanović) authored this publication

As of July 1, 2023, a new FDI review regime was introduced with the amendment of the Investment Promotion Act. The act made changes to the regulation of the entire FDI procedure, narrowed the definition of "foreign investor" and extended the deadlines for the issuance of decisions in the review procedures. Unfortunately, it did not remove all the legal uncertainties that had arisen under the previous FDI review regime.

Summary of major changes in 2023

• There were major changes to Slovenia's FDI review mechanism in 2023. It is no longer included as a temporary regime in the Act Determining the Intervention Measures to Mitigate and Remedy the Consequences of the Covid-19 Epidemic, but has become a permanent measure in Slovenia with the amendments to the Investment Promotion Act
• The main changes include a narrower definition of a foreign investor, which no longer includes EU entities, but is limited to a company or organization domiciled/incorporated in a third country
• There were amendments to the definition of foreign investment to include an investment in tangible and intangible assets related to the establishment of a new business unit
• The acquisition of land or real estate related to critical infrastructure is no longer subject to review
• The scope of notifiable FDIs as defined in the act no longer explicitly includes FDIs in medical and pharmaceutical technology, and medical and protective equipment
• A preliminary review procedure was implemented, alongside the formal establishment of a commission for notifications, as well as the implementation of an expert group that provides expert opinions in the review procedure
• The changes also included the implementation of the ministry's right to impose conditions for the implementation of an FDI if an impact on the security or public order of the Republic of Slovenia is identified, but the impact can be mitigated or prevented by imposing conditions

Who files?

A foreign investor is obliged to submit an FDI notification if a specific FDI meets the prescribed requirements.

A foreign investor is defined as a citizen of, or a company or organization incorporated in, a third country that is not part of the EU that: intends to make a direct foreign investment in the Republic of Slovenia or has already made such an investment; holds (directly or indirectly) at least 10 percent participation in the capital or voting rights in a business entity established in an EU Member State, and intends to make a direct foreign investment in the Republic of Slovenia or has already made such an investment.

A notification may also be filed by the target company or foreign investor's subsidiary in Slovenia.

Fines up to €500,000 are applicable to foreign investors if the FDI is not notified within the deadline. There is no filing fee.

The competent authority to review FDIs is the Ministry of the Economy, Tourism and Sport.

Types of deals reviewed

The subject of the review is an investment made by a foreign investor, the purpose of which is to establish or maintain permanent and direct or indirect links between the foreign investor and a Slovenian company, by means of the (direct or indirect) acquisition of at least 10 percent of the capital or voting rights of such company.

Notification of a specific FDI made by a foreign investor is mandatory if it fulfils the following requirements: it results in at least (direct or indirect) 10 percent participation in the capital or voting rights in a business entity in the territory of the Republic of Slovenia; and if the business activities of a target company or newly established company fall within the scope of the activities listed in the act. These include critical infrastructure, transport, water, aviation, media, data processing, artificial intelligence, the supply of critical resources and similar.

Notification is required within 15 days after: the closing of a transaction for the acquisition of shareholding or voting rights; publication of takeover bid; or the registration of the incorporation of a company in Slovenia that will be active in the critical sectors or with which a foreign investor intends to invest in tangible and intangible assets, related to the establishment of a new business unit by which the foreign investor acquires, directly or indirectly, at least 10 percent of the capital or voting rights in the newly established company established in the Republic of Slovenia.

Scope of the review

The review is limited to whether a specific FDI represents a threat to security or public order in the Republic of Slovenia. FDI is approved if the threat to security or public order is insignificant or non-existent.

There are a number of factors that the ministry is required to consider in particular. It should consider whether the foreign investor is directly or indirectly controlled by the government, including state bodies or armed forces of a third country, including through ownership structure or significant funding.

The ministry must also consider whether the foreign investor has already been involved in activities affecting security or public order in an EU Member State, and whether there is a serious risk that the foreign investor engages in illegal or criminal activities.

Another factor to consider is whether the foreign investor reached the control threshold of the targeted company (participation in a third of all voting rights in this company) or whether it reached 10 percent participation in voting rights in the targeted company with a successful takeover bid, or whether it gained at least a 75 percent share of all the targeted company's shares with voting rights.

Finally, the ministry should also consider whether the foreign investor holds at least a 20 percent market share in the field of critical activities, through the targeted, acquired or newly established company; and whether the foreign investor reached a 25 percent or 50 percent share of participation in the capital or voting rights of the targeted company, or that the company acquired with the transaction that is being reviewed.

Review process timeline

After the notification of an FDI, the procedure is divided in two parts.

The "preliminary procedure" is carried out by the Commission for Notifications, which issues an opinion on whether the ministry should initiate a review procedure. The act does not specify a deadline for the issuance of such an opinion by the Commission, but in practice it normally takes up to eight weeks for such an opinion to be issued. If the Commission for Notifications issues an opinion that the conditions for notification are not met or that a foreign direct investment will have an insignificant or no impact on public order and security, the ministry issues a decision based on such opinion.

The "review procedure" is initiated by the ministry if the preliminary procedure ends with an opinion that the conditions for notification are met and that the FDI may have an impact on public order and security. Review procedure is carried out by the expert group, which shall issue an opinion determining whether the FDI affects the security or public order of the Republic of Slovenia and shall propose that the FDI be either approved, approved on a limited basis by setting conditions for its implementation, or prohibited. Such opinion should be issued within two years of the conclusion of the transaction or of the registration of the company in the Slovenian court register. The ministry must issue a decision based on the expert group's opinion within two months after the expert group issues its opinion.

How foreign investors can protect themselves

As in other jurisdictions, it is important for foreign investors to consider Slovenian FDI review requirements when planning and negotiating transactions.

In particular, foreign investors should ensure that they include in the transaction documents that include a closing condition precedent related to the obtaining of an FDI approval in Slovenia. In practice, if there are no specific concerns that the ministry would decide to prohibit the transaction, it is advised that the condition precedent is structured in a way that is deemed to be met if the transaction is approved or if the FDI process is concluded after the preliminary review—if the ministry decides that the review procedure will not be initiated.

Foreign investors should also take into account that the act imposes a rather long deadline for the completion of the review procedure (if initiated) and should secure appropriate long stop dates for the completion of the transactions.

It is also important to note that the ministry may initiate the review procedure and potentially annul the transaction later on, namely within two years of the conclusion of the transaction or of the registration of the establishment of a company in the Slovenian court register if it obtains information that a foreign investor who has made an FDI in Slovenia is engaged in activities in critical business sectors, which have affected or are likely to affect the security or public order of a Member State of the EU or is engaged in illegal or criminal activities.

Such ex officio review procedures can be initiated even if the ministry already issued a decision that the review procedure is not required or that the FDI is approved. Although the ministry has not yet used these powers in practice, the possibility of facing a new review even after obtaining an approval of the FDI creates relative uncertainty for foreign investors, so a thorough assessment of the foreign investor's activities before and after the planned transaction in light of FDI requirements is advisable.

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