The Danish FDI regulation at a glance

The Danish foreign direct investment (FDI) regulation was implemented in July 2021, but many are still not fully aware of the scope.

The Danish Investment Screening Act was implemented on 1 July 2021 with new amendments coming into force on 1 July 2023. However, many are still not fully aware of the scope of the Danish Investment Screening Act. This article will provide a short overview of the Danish FDI regulation.

Scope of the Act

According to the Danish FDI regulation, the Danish authorities can prohibit investments in Danish targets (including establishments) and the completion of certain contracts, if the acquisition poses a threat to the national security and/or public order in Denmark.

The scope of the Danish Investment Screening Act comprises:

1. Mandatory screening of investments made by foreign investors (directly or indirectly) in a Danish company or special financial agreements with companies within one of the particular sensitive sectors.
2. Mandatory screening of contracts regarding establishments, joint ownership and operations of the North Sea Energy Island if the contracts are entered into in accordance with the Act on Planning and Construction an Energy Island in the North Sea.
3. Optional screening of investments (directly or indirectly in a Danish company and special financial agreements outside of the particular sensitive sectors, if the investment potentially can pose a threat to the national security and/or public order in Denmark.

Investment and special financial agreements in particular sensitive sectors

Whether or not an investment (meaning both investments and establishments in the following) is comprised by the mandatory screening process and requirement to obtain a prior authorization depends on three (3) factors:

1. The foreign investor,
2. The investment/special financial agreement, and
3. The sector and activities of target

The three factors are cumulative and will be considered jointly. This entails that all three factors will have to be fulfilled, in order for the investment to be subject to the mandatory screening process and requirement to obtain an authorization prior to the investment.

The determination of whether the investment is comprised by the mandatory screening process is a buyer-obligation, however in reality (like merger control) seller will be affected by it.

Factor 1 will be fulfilled if the foreign investor is a foreign entity or citizen, or a Danish entity owned by a foreign entity or citizen. This entails that not only the direct investor should be considered, but the entire owner chain. This also entails that a Danish company can be subject to the requirement of obtaining prior approval, if the company is owned or controlled by a foreign entity or citizen.

Factor 2 will be fulfilled if the contemplated investment entails that the foreign investor either directly or indirectly acquires 10% of the shares in the Danish entity or acquires similar control – or if the foreign investor contemplates to enter into a joint venture agreement, supplier agreement, service agreement or operating agreement whereby the foreign investor gains control of the company.

When considering this factor, it is important to note that it is the contemplated control that is measured. Consequently, an investor who acquires less than 10% of the shares, but actually controls more e.g., through a voting agreement, will still fulfill factor 2.

Factor 3 will be fulfilled if the target operates within the sectors/activities set out below:

1. The defense sector
2. IT security functions or the processing of classified information
3. Dual-use items
4. Critical technology (e.g., drones, robots and the like)
5. Critical infrastructure (e.g., the energy sector, the medical sector etc.).

Contracts regarding establishments, joint ownership and operations of the North Sea Energy Island