November 2022 – The Romanian government has adopted secondary legislation for the organisation and functioning of the FDI Screening Commission (the “CEISD”)—the authority tasked with the review of foreign investments under Romania’s new foreign direct investment (“FDI”) regime. Specifically, the government adopted Government Decision no. 1,326/2022 approving the Regulation on the functioning of the CEISD, which came into force as of 8 November 2022 (the “CEISD Regulation”).
Romania’s new FDI regime was introduced earlier this year through Government Emergency Ordinance no. 46/2022 on measures for applying EU Regulation 2019/452 establishing a framework for the examination of foreign direct investment in the Union (the “EU FDI Regulation”) and amending Competition Law no. 21/1996 (“GEO 46/2022”).
GEO 46/2022 introduced an overhaul of Romania’s FDI regime, with the newly created CEISD taking over the role of screening proposed foreign investments from the Supreme Council of National Defence (“CSAT”) and the introduction of a clear standstill obligation and severe fines in case of gun jumping, among other changes.
Key features of the new FDI regime
Romania’s new FDI regime provides for the screening of both foreign investments and what GEO 46/2022 defines as “new investments” (also including greenfield investments). For an investment to trigger a filing obligation under the new FDI regime, the following cumulative criteria would need to be met:
New investments considered for the purposes of the FDI regime pertain to initial investments in tangible and intangible assets within the same perimeter related to (i) the start of the activity of a new undertaking (in a new location, technically independent from other existing units); (ii) the expansion of the capacity of an existing undertaking (in an existing location, due to unmet demand); (iii) the diversification of the production of an undertaking with products/services not available before (in the respective unit); or (iv) a fundamental change in the general production process of an existing undertaking. The definition of a new investment, which is inspired from State-aid rules, is rather general and particular questions may arise in practice, which is why a case-by-case FDI analysis would be recommended, especially regarding a planned capacity expansion or change in the production process of existing undertakings in potentially sensitive sectors.
In addition to the filing triggers, other significant features of the new FDI regime include:
Newly enacted rules on the functioning of the CEISD
GEO 46/2022 formally designated the CEISD as the new competent body for FDI screening in Romania since its enactment in April 2022. Moreover, the CEISD was formally established by Decision no. 350/6 June 2022 of the Prime Minister of Romania. However, in the absence of secondary rules on its functioning and organisation, the CEISD was still a dormant body under the new FDI regime, with CSAT continuing rather on a de facto basis to screen foreign investments.
With the recent adoption of the CEISD Regulation, the CEISD could now be considered operational and start to fulfil its role under the new FDI framework.
The CEISD Regulation generally follows along the lines of GEO 46/2022, without major deviations or clarifications, while laying down the necessary framework for the CEISD to operate. The following are among the more noteworthy provisions of the CEISD Regulation:
Further changes to the FDI regime in the pipeline
Given the recent change to Romania’s FDI regime, there are still a number of open points where further clarification could be expected following the authorities’ decisional practice. In this respect, the RCC has also recently started publishing its first FDI clearance decisions under the new regime.
However, important questions still remain (e.g., with respect to the scope of the new regime in terms of sensitive sectors or type of (new) investments covered, the manner of determining the investment value, or the clearance timeline for more sensitive cases) and a case-by-case analysis is recommended to mitigate risks, especially given the high fines introduced by GEO 46/2022.
Additional clarity and also further material amendments to the new FDI regime could be brought by the upcoming law for the approval of GEO 46/2022, currently under debate in parliament (the “Draft Law”). The Draft Law was initially adopted and sent for promulgation to the president in July 2022 but the president vetoed it, arguing that it was inconsistent in certain respects.
Given its previous form, the Draft Law could introduce a series of material changes to the (new) FDI regime, including:
Screening of foreign investments remains a hot topic in Romania and in the EU in general, especially given the current challenging geopolitical landscape. In this respect, Romania should aim to strike the right balance between protecting its overarching national security interests and ensuring a welcoming foreign investment environment by putting in place a predictable and proportionate FDI screening mechanism.
Given the recent changes in the local FDI regime, the number of filings may be expected to significantly increase, with the authorities adopting a cautious approach in considering and screening potential investments where the scope of the FDI law is not clear-cut and in the absence of a settled decisional practice. It is therefore all the more important to continue monitoring upcoming changes in the law and secondary enactments, together with the authorities’ approach in dealing with particular FDI-related issues.