Pursuant to Act LX of 2020, Malta has enacted the National Foreign Direct Investment Screening Office Act, 2020 (the "Act"). This Act implements Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 (the "Regulation") establishing a framework for the screening of foreign direct investments into the European Union.
How does this Act apply?
The Act, which has come into force as at 11 October 2020, applies to foreign direct investments, with the exclusion of portfolio investments, made or planned to be made in Malta and to all persons involved in a foreign direct investment, including foreign investors, being non-EU persons, aiming to establish or to maintain lasting and direct links in order to carry on an economic activity in Malta, including investments which enable effective participation in the management or control of a company carrying out an economic activity.
Who is empowered to screen?
In order to create a screening mechanism, the Act established the National Foreign Direct Investment Screening Office (the "Office") which has its functions and duties established under Article 9 of the Act. Through this article, the Office is empowered to screen, assess, investigate, authorise (or otherwise) and ultimately unwind foreign direct investments carried out in Malta which may affect the security or public order in Malta.
What obligations does the Act impose?
Through this Act, foreign investors and all persons involved in a foreign direct investment shall be obliged, prior to carrying out an investment, or prior to effecting any changes as outlined in the Act, to notify the Office with the investment and provide information to the Office regarding the entity carrying out the investment and any information which may be necessary for the proper observance of the applicable provisions or which may be requested by the Office. The notification form is to be submitted to the Office online by either the beneficial owner or their respective corporate service providers or advisors. Applicants will then be notified in writing on the outcome of their application form by the Office.
This notification is generally required where:
- the entity in Malta intends to carry out activities that are mentioned in the First Schedule to the Act;
- the entity has, or is going to have a foreign investor, being a non-EU person,who is a beneficial owner or will have a direct or indirect controlling interest (as defined under the Act);
- after having carried out an investment in Malta, the direct or indirect controlling interest of the company or the group company changes and passes onto a foreign investor.
The Act also refers to a notification requirement to the Office when there is a change to a structure in Malta which would result in a foreign investor holding at least 10% – this sets the threshold at just below the definition of beneficial owner in terms of the Act and it is yet to be seen how this will be applied.
In determining whether the criteria outlined above are met, it is critical to bear the following key definitions in mind:
- 'beneficial owner' meaning any natural person/s having direct or indirect ownership of 10% plus 1 or more of the shares or more than 10% of the voting rights or other ownership interests of the company and where no beneficial owner can be identified in this manner, the beneficial owners shall be those natural person or persons who hold the position of senior management official or officials.
- 'foreign direct investment' meaning an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links in order to carry on an economic activity in Malta, including investments which enable effective participation in the management or control of a company carrying out an economic activity and any investments made pursuant to a public procurement process;
- 'foreign investor' meaning a natural person (non-EU) or an undertaking of a third country, intending to make or having made a foreign direct investment in Malta.
The information required by the Office for the notification and screening process, would typically include information on:
- the ultimate beneficial owners;
- the source of funding;
- the activities to be carried out;
- the products, services and business operations of the foreign investor and of the undertaking in which the foreign direct investment is planned or has been completed.
Through the Act, it clearly emerges that even an intended change in activities of the Maltese company may trigger a notification requirement to the Office and thus practitioners are well advised to ensure that they carefully discuss any changes being made to a Maltese company's statute with their clients, especially where such changes are changes to the company's activities.
Upon receipt of a notification, the Office has 5 working days to determine whether the investment is subject to screening, and if subject to screening, the Office then has 60 calendar days from the date of the decision rendering the investment subject to screening, to determine whether the foreign direct investment may affect the security or public order of Malta and in such a case is given the authority to condition, prohibit or unwind such an investment as the case may be, and shall inform the foreign investor in writing with its decision which shall also include a simple reasoned justification.
Depending on the type of infringement, the Act imposes hefty penalties ranging from EUR 500 to EUR 100,000 for failure to abide with by the provisions of the Act. These penalties can be imposed on any person, which creates the implication that service providers may also be exposed to such a penalty for failure to abide with the provisions of the Act when assisting.
It is paramount that professional advisors ensure that they acquaint themselves with the provisions of the Act as well as ensuring that they keep the implications of this Act at the forefront when advising clients given that changes in a company's structure or its objects may trigger a notification requirement.
The purpose of the above-mentioned Office and the notification and screening process is to protect the European Union's intelligence, knowledge, and technology as well as its security interests.
This article was first published in the Times of Malta, 25 January 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.