June 2023 – Romania has just introduced additional amendments to its foreign direct investment (“FDI”) screening regime, further broadening the scope of what was already one of the more far-reaching FDI regimes in the European Union.
The changes were enacted under Law no. 164/2023, published in the Official Gazette of Romania on 7 June 2023 (the “FDI Amendment Law”) and applicable as of 10 June 2023, on approving 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 the new FDI framework in Romania in April 2022 and was followed by the enactment of secondary FDI rules on the organisation and functioning of the FDI Screening Commission (“CEISD”) in November 2022.
For additional background on GEO 46/2022 and the general traits of the new Romanian FDI regime, please see our previous update on the matter here.
Main changes brought by the FDI Amendment Law
We summarise below the most significant changes introduced by the FDI Amendment Law:
- The introduction of the concept of “EU investors” and increase of the scenarios where a local FDI filing is required, in what is generally perceived in the market as an overall debatable extension of the scope of the FDI regime to also capture EU investments (whereas only non-EU investments were previously subject to mandatory filing obligations).
- Clarification of the authorities’ powers and the process to unwind a closed transaction – in this respect, the law provides that if a foreign investment was carried out in breach of the FDI rules and affected national security, public order, or projects or programmes of Union interest, the CEISD would issue an opinion proposing that the foreign investment be unwound. The CEISD opinion would also need to include the conditions, criteria, timeline and procedure for unwinding the respective foreign investment. The final say would then vest with the Government, which would issue a decision to unwind the transaction/investment. As can be expected, this will of course raise particular difficulties in practice, and it remains to be seen how the authorities would handle such cases;
- The Romanian Competition Council (“RCC”), which performs secretarial duties for the CEISD and also formally issues the clearance decisions based on the screening made by the CEISD, will issue secondary rules on how the investment value should be determined (this is particularly relevant as the FDI law includes a de minimis investment value of EUR 2,000,000, as one of the filing triggers);
- The lack of any reference to an examination/authorisation fee to be paid by the investor. A previous draft of the law included an examination fee of 0.1% of the investment value, to be paid by the investor upon submitting the FDI filing. This was, however, criticised by the President, who also vetoed the previous version of the law.
End remarks
Despite the changes introduced by the FDI Amendment Law, many questions remain with respect to how various key points of the new FDI legislation in Romania should be interpreted and applied, such as: what is the precise extent to which pure intra-EU transactions are also captured; how the (local) investment value should be determined (this will hopefully be addressed by the upcoming RCC rules in the near future); to what extent direct sales only to Romania would trigger filing obligations; the implications of below-control acquisitions (enabling effective participation in the management of the target, but without any veto or control) and internal restructurings; and the further interplay between sensitive sectors under local FDI law and the factors under Art. 4 of the EU FDI Regulation.
Against this background and to the growing frustration of M&A lawyers and advisors everywhere, who have to deal with more delayed and unpredictable closing timelines, Romania is rising to the top of the list of jurisdictions considered for FDI filings, particularly in case of multi-jurisdictional transactions entailing scrutiny from multiple authorities.
As such, it remains highly relevant to continue monitoring upcoming changes to Romania’s FDI regime and secondary enactments, together with the authorities’ approach in dealing with particular FDI-related issues.