House debates new law to screen foreign investments

Parliament on Thursday began debating legislation to screen foreign direct investments in strategic sectors, aligning Cyprus with EU rules designed to safeguard security and public order. 

The bill, approved by the Council of Ministers earlier this month, implements Regulation (EU) 2019/452, which establishes a framework for monitoring foreign direct investments (FDIs) into the European Union on grounds of national security or public order. 

The draft legistlation gives the state the power to approve, impose conditions, block, or even reverse foreign investments deemed to pose risks.

It aims to protect sensitive industries while maintaining an open environment for investors, the Finance Ministry said in a statement. 

Under the proposed framework, the Finance Ministry will act as the competent authority, assisted by a seven-member advisory committee comprising officials from relevant ministries who will provide written recommendations.

Foreign investors will be required to notify the Finance Ministry at least 10 days before acquiring significant stakes in enterprises of strategic importance.  

The written submission must outline the planned investment in detail and provide any additional information requested. Prior approval will be mandatory before implementation.

A qualifying holding is defined as acquiring, directly or indirectly, at least 25 per cent of an enterprise’s share capital or voting rights, or the ability to exert decisive influence over its activities.  

Any further acquisition increasing holdings from below 25 per cent to 25 per cent or more, or from below 50 per cent to 50 per cent or higher, will also trigger a notification obligation, regardless of the transaction value. 

Strategic sectors covered by the law include energy, transport, health, defence, communications, tourism, financial services, and dual-use technologies, among others.

The legislation applies to any organisation where a foreign investor holds at least 25 per cent of the shares or voting rights, is the beneficial owner, or exercises direct or indirect control, if it plans to invest in enterprises considered strategically important. 

Foreign investments involving ships under construction or vessels being bought or sold, excluding floating storage and regasification units (FSRU), will be exempt from the notification requirement.

The Finance Ministry may also examine investments falling outside the specified thresholds where there are reasonable grounds to believe they could affect national security or public order.

Administrative fines will apply for breaches of the law, while decisions may be appealed before the administrative court, the ministry added.

The draft legislation replaces an earlier version submitted to Parliament in March 2024 and revised following consultations with stakeholders, as requested by the House Finance Committee.