Czech Republic FDI screening rules: their implementation and evolving practice

Thursday 31 March 2022

Dagmar Dubecká

Kocián Šolc Balaštík, Prague


Jan Bereš

Kocián Šolc Balaštík, Prague


The Foreign Direct Investment Act (the FDI Act), passed by the Czech Parliament in January 2021 and effective from 1 May 2021, has been introduced in response to Regulation (EU) 2019/452, which establishes a framework of screening of foreign direct investments throughout the European Union.

Nevertheless, the screening rules adopted by individual EU Member States vary considerably in scope and operation. The Czech FDI Act introduces a level of vigorous screening for non-EU investments in the Czech Republic, overseen by the Ministry of Industry and Trade. The new FDI rules will materially impact the process of investment and transactions by non-EU investors in the Czech Republic. Although it will take some time to see how application and interpretation works in practice, some early investor ‘litmus test’ experience with these rules is already available, which we address at the end of this article.

Below we set forth a brief introduction to the main elements of screening applicable to foreign investors arising from the FDI Act.

Who is a foreign investor?

A foreign investor is any person or legal entity from outside the EU who makes an investment in the Czech Republic, or a person or legal entity who is established in the EU but who is directly or indirectly controlled by a person/entity from outside the EU.

What constitutes a foreign investment under the new FDI rules?

The FDI rules are aimed at investments which provide the foreign investor with ‘effective control’ of the Czech target. ‘Effective control’ is defined broadly to encompass:

  • acquisition of a stake of at least 10 per cent of voting rights in the target;
  • membership of the foreign investor (or a related party) in the statutory bodies of the target;
  • ownership of assets used by the target to perform its business activities; or
  • any other form of control which gives the foreign investor access to information, systems or technology which are vital for the protection of the security of the Czech Republic or its public safety and order.

It is important to note that acquisition of a shareholding is not essential to trigger the FDI rules, fulfilment of any one of the above conditions is deemed ‘effective control’.

Which industries/areas of investment are affected?

The FDI rules envisage two categories of FDI screening.

Mandatory prior approval/consultation for specified industries

The specified industries are:

  • the manufacturing/research/development/innovation/lifecycle management of military equipment;
  • critical infrastructure – energy, gas, heat, water, food, healthcare, transportation, emergency services, financial markets and public administration;
  • critical information infrastructure/cybersecurity; and
  • development and production of dual use (military/civilian) products (including software and technology).

Mandatory consultation also applies in the event of certain proposed media investments, namely:

  • a national TV or radio licence; or
  • publishing of print media with a minimum daily average of 100,000 printed copies in the last calendar year.

Discretionary retroactive review up to five years after completion

This applies to any investment that has the potential to affect the ‘security of the Czech Republic or its public order and safety’. The Ministry may order such a review on any foreign investment at its discretion.

Foreign investors may seek a voluntary consultation with the Ministry in order to obtain a decision by the Ministry if the specific foreign investment is to be subject to screening. Such a consultation removes the possibility of later ex officio reviews by the Ministry of the same investment, assuming that complete information was provided. Such voluntary consultation provides legal certainty to investors seeking clarity of application of the new FDI rules and assurance that their investment will not be subject to later review.

The screening procedure

The Ministry of Industry and Trade is the government body in charge of reviewing foreign investments that fall within the parameters of the new FDI rules, as well as undertaking consultations from foreign investors.

With respect to mandatory notifications/consultations, the transaction cannot be finalised until clearance has been issued by the Ministry. Unconditional clearances should be issued with 90 days. More complex cases may take an additional 30 days.


The new FDI rules impose significant penalties for breaches and non-compliance. If a foreign investor fails to notify a transaction or request a mandatory consultation, the applicable penalty can be up to 1 per cent of total net turnover for the latest accounting period, or up to CZK 50m if the turnover cannot be calculated.

If the foreign investor proceeds with a transaction irrespective of a negative decision by the Ministry or fails to uphold certain conditions imposed in the decision by the Ministry, the fine can be up to 2 per cent of total net turnover for the latest accounting period or up to CZK 100m if the turnover cannot be calculated.

Practical considerations for foreign investors

The scope of investments or activities triggering review under FDI rules is considerably broad. Foreign investors will need to stay vigilant to maintain compliance, as even activities such as nominating new company directors may trigger FDI rules.

The FDI rules apply not just to the standard ‘third country’ non-EU countries, but will apply to Switzerland, members of the European Economic Area, such as Lichtenstein and Norway, and the post-Brexit United Kingdom.

FDI clearance now needs to be considered, where applicable, as an additional condition for effectiveness of a transaction. Accordingly, transaction negotiations will need to reflect the timeline obligations for FDI clearance, in a parallel fashion to the manner in which anti-monopoly clearance is already factored into timelines.

Early investor experience with the Czech FDI rules

As mentioned above, the Ministry of Industry and Trade is the reviewing authority in charge of reviewing foreign investments. Once a review or consultation request is filed, the Ministry collects and sends all the relevant data to the individual defence and security sector authorities (Police, Ministry of Defence, Ministry of Foreign Affairs, Ministry of Interior, Czech National Bank, the intelligence service and other authorities in charge of the relevant sector) to obtain their opinions.

Only after collecting and considering all of the individual authorities’ standpoints will the Ministry issue a final decision. As the Ministry does not have long-term experience with this kind of process, its approach has been very prudent so far and it has tended to use the whole time period available to it to review individual transactions.

When combined with the Ministry’s right to submit additional questions and suspend the course of the proceedings until the requested answers are provided (and postponing the deadlines), foreign investors should make sure they submit their requests for consultation or review of the transactions as soon as possible and assume that the proceedings will take the whole period anticipated by the law (ie, 45 days of consultation proceedings plus 90 days of review proceedings, with the possibility of further extension by another 30 days). Also, foreign investors should provide as detailed information as possible in their requests to avoid additional questions, which extend the deadlines imposed by law for the Ministry’s final decision. Any information errors in the submitted documents can be taken into account when issuing final decisions.

Given the complex nature of the FDI rules, a careful approach to reviewing each possible investment by a foreign investor in the Czech Republic is highly recommended, along with voluntary consultations with the Ministry where appropriate.