Bulgaria: Upcoming introduction of a foreign direct investment (FDI) screening mechanism under Regulation (EU) 2019/452

Amendments to the Bulgarian Investment Promotion Act creating an FDI screening mechanism under Regulation (EU) 2019/452 are about to be reviewed by the Parliament.

The draft amendments foresee an authorization regime for all direct investments, from foreign investors, with a value exceeding EUR 1 million (or its equivalent in BGN), which concern:

• Critical infrastructure (physical or virtual);
• Critical technologies and dual use items (incl. artificial intelligence, robotics, cyber security, etc. according to Art. 2, item 1 of Council Regulation (EC) 428/2009);
• Supply of critical inputs, including energy or raw materials, as well as food security.
• Access to sensitive information, including personal data; or
• The freedom and pluralism of the media.

"Foreign investor", which investments could be subject to screening, under the draft law means a person (natural or legal) established out of the EU or a legal person whose registered office is in the EU, but the control over it is exercised directly or indirectly by a person out of the EU (natural person, legal entity or other form of organization).

Making an FDI fulfilling the above conditions prior to obtaining the respective authorization shall be prohibited.

The objective of the introduction of the screening mechanism is to protect the EU as a whole and, the Bulgarian economy, from investments, which could harm national security and public order in Bulgaria, as well as the security of the Euro-Atlantic Allies of Bulgaria.

At this stage the creation of an Interinstitutional FDI Screening Council (the “Interinstitutional Council”) to the Minister of Innovations and Growth is contemplated. The Interinstitutional Council shall be in responsible for issuing such authorizations and shall serve as a contact point with the EU Commission and the competent authorities of the other member states.

The draft amendments provide for an exception, under which an FDI though not exceeding the above threshold, “may be” subject to examination and authorization by the Interinstitutional Council if “by its nature and potential consequences in relation to the criteria laid down in Article 4 of Regulation (EU) 2019/452, it may have an impact on or create risks for security and public order”.

The proposed sanctions for infringements of the new requirements amounts to 5% of the value of the investment but not less that BGN 50,000 (≈ EUR 25,596).

The EU Commission made publicly available a List of screening mechanisms notified by Member States which is updated based on the progress of their implementation. All persons, contemplating to invest in a member state could consult the list and find useful information for the particular mechanism and regulations in the respective countries at: circabc.europa.eu

EY's Law practices already gained experience with the screening procedures of foreign direct investments in the states where the mechanism has been introduced, and we are available for questions and assistance during and after the implementation of the Regulation in Bulgaria as well, with a view to the optimal planning and realization of the processes of investments related to your activity.