Malta has enacted the National Foreign Direct Investment Screening Office Act 2020, implementing EU Regulation 2019/452 establishing a framework for screening foreign direct investment in the European Union. The new law, which came into force on October 11, 2020, applies to foreign direct investment and all persons involved in a foreign direct investment, including non-EU foreign investors who aim to establish or maintain lasting and direct links in order to carry out economic activity in Malta. Also included are investments that allow for an effective participation in the management or control of a company carrying on an economic activity for profit. On the other hand, portfolio investments made or intended to be made in Malta are excluded,
In order to create a control mechanism, the law has established the National Foreign Direct Investment Screening Office, whose functions and duties are set out in article 9 of the law: here is given the power to screen, evaluate, investigate, authorize (or not) and cancel foreign direct investments made in Malta which may affect the security or public order in the country. The main purpose is to protect the EU’s intelligence, knowledge and technologies that involve its security interests.
Through this law, foreign investors and all persons involved in a foreign direct investment are obliged, first of all, to notify the Office of the same investment and provide information regarding the entity making the investment, as well as any other information that may be necessary for the proper compliance with the applicable provisions. The notification form must be submitted online by the beneficial owner or by the respective business service providers and consultants such as Malta Business Agency who will follow the procedure on behalf of the client. Applicants will then be notified in writing of the outcome of their notification form by the Office.
This notification is generally required when:
– the entity in Malta intends to carry out activities that are mentioned in the First Schedule of the Act;
– the entity has or is about to have a non-EU investor who is a beneficial owner or has a direct or indirect controlling interest;
– after making an investment in Malta, the direct or indirect controlling interest in the company or group changes and passes to a foreign investor.
The law also provides for a requirement to notify the Office when there is a change in structure in Malta that would result in a foreign investor owning at least 10 percent of the shares: this places the threshold just below the definition of beneficial owner in terms of the law, and it has yet to be determined how such a case will be treated.
In determining whether the above criteria are met, it is critical to keep the following key definitions in mind:
“Beneficial owner” means any individual who directly or indirectly owns at least 10 percent plus one of the ownership interest in the company. In the event that no owner can be identified in this manner, beneficial owners are those individuals who hold the highest level of officer position.
“Foreign direct investment” means an investment of any kind by a foreign investor for the purpose of establishing or maintaining lasting and direct links for the purpose of carrying on an economic activity in Malta, including investments allowing an effective participation in the management or control of a company carrying on an economic activity and investments made in the context of a public procurement procedure.
A “foreign investor” is defined as a natural person not belonging to an EU member state, or an enterprise from a third country, who intends to make or has already made a foreign direct investment in Malta.
The information required by the Office for the notification and screening process normally includes information on the ultimate beneficial owners, source of funding, activities to be carried out, products, services and business operations of the foreign investor and the enterprise in which the foreign direct investment is intended or has been completed.
Upon receipt of a notification, the Office has five business days to determine whether the investment is subject to screening and, if so, then has 60 days to determine whether the FDI may affect security or public order in Malta: if this is confirmed, the authority will have the power to condition, prohibit or cancel the investment inform the foreign investor in writing and with clear reasoning.
In the event of violations, the law imposes heavy penalties ranging from 500 to 100,000 euros for failure to comply with the provisions of the law. These penalties can be imposed on any person, including those who work alongside direct beneficiaries.
It is therefore advisable to rely on professional advisors who are familiar with the provisions of the Act, so as to keep a close eye on the extent to which the conditions for mandatory reporting are met. The staff of Malta Business Agency is at your disposal.