1.What is the current legal landscape for Foreign Direct Investment Law in your jurisdiction?

In Belgium, all foreign direct investments (FDIs) are welcomed into the country. Belgium used to not have an FDI screening mechanism at federal level, but only at the level of the region of Flanders, which allows for annulment of FDIs in certain public institutions. It is not until 2023 FDIs into the country were screened from the perspectives of national security, public order and strategic interests.

On 30 November 2022, different levels of governments in Belgium entered into the Cooperation Agreement (hereinafter, the “Cooperation Agreement”) establishing a FDI screening mechanism. The Cooperation Agreement entered into force on 1st July 2023 .In addition to the Cooperation Agreement, the Regulation (EU) 2019/452 of 19 March 2019 establishing the framework for screening foreign direct investment in the European Union (hereinafter, the “FDI Regulation”) also directly applies in Belgium. The two legal instruments consist of the legal framework for FDIs in Belgium.

The Inter-Federal Screening Commission (hereinafter the “ISC” or “Committee”), consisted by representatives from different level of governments, and chaired by the Ministry of Economy, is responsible for the screening of FDI files.

Foreign investors, defined (in short) as any person with main residence or principal activity outside of the EU, is required to notify the ISC if its investment may have an impact on security, public order or the strategic interests.

Such transactions include FDIs which enable the foreign investor to gain, directly or indirectly, at least:

(i) 10% of the voting rights in companies established in Belgium whose activities are related to: defense (including dual-use good), energy, cybersecurity, electronic communication, or digital infrastructure, and the turnover in the financial year preceding the acquisition is more than 100 million EUR; or

(ii) 25% of the voting rights in companies established in Belgium whose activities are related to:

a. critical infrastructure (both physical and virtual) for energy, transport, water, health, electronic communication, digital infrastructure, media, data processing and storage, aerospace and defence, elections or financial infrastructure and sensitive installations, including land and real estate that are crucial for the use of such infrastructure, including infrastructures listed in several EU regulations;

b. technology or raw materials of essential importance for: security (including health security); defence or the enforcement of public order whose disturbance, failure, loss or destruction would have significant consequences for Belgium, an EU Member State or the EU; military equipment subject to export control rules and national controls; dual-use goods; and technology of strategic importance such as artificial intelligence, robotics, semi-conductors, cyber security, aerospace, defence, energy storage, quantum and nuclear technologies and nano-technologies (and their related intellectual property);

c. the supply of critical inputs including energy or resources and the security of food supplies;

d. access to sensitive information, and personal data or the ability to control such information;

e. the private security sector;

f. freedom and plurality of media; and

g. technologies of strategic importance in the biotechnology sector, on the condition that the company’s turnover in the financial year preceding the acquisition of at least 25% the voting rights is more than 25 million euros.

The screening procedure consists of the following phases: (i) the notification by the foreign investor, (ii) the assessment phase, and (iii) the screening phase.

The notification is the starting point of the screening procedure, where the foreign investor will submit a list of documents which essentially include information on the foreign investor, the target company, the activities, the transaction, the financing (etc.) through an electronic portal on the website of the ISC.

Upon receipt of the file and during the assessment phase, the ISC will review, in principle, within a period of 30 days (with possibilities of suspension and extension), all the documents. If the ISC considers the investment does not impact national security, public order or the country’s strategic interests, the transaction will be cleared, and the procedure will be terminated. If the ISC considers the transaction is likely to pose risks, the screening procedure will start.

During the screening procedure, the entire file will be shared with the European Commission and other Member States for their comments and opinions on the transaction. The ISC makes its final decision but shall take utmost consideration of any comment or opinion from the Commission and other Member States.

The final decision of the ISC could be either (i) the transaction is cleared, (ii) the transaction is cleared with corrective measures, or (iii) the transaction is refused. In case of cleared with corrective measures, the foreign investor shall sign a written agreement with the ISC to commit its compliance with the measures.

The decision delivered by the ISC is subject to an appeal in front of the Belgian Court of Market. If the Court overturns the decision, the file will return to the ISC for a second review.

Apart from the above-mentioned notification by the foreign investor, the ISC also has the right to start a screening procedure at its own initiative (i.e., ex officio), if at least one of its members deems it necessary for reasons of public order, national security, or strategic interests. The screening can happen within 2 years after the foreign investor acquires control and can also be extended to 5 years in certain cases.

In case of non-compliance by the foreign investor of notification obligations under the Cooperation Agreement, it may receive an administrative fine of 10% to 30% of the investment amount.

2. What three essential pieces of advice would you give to clients involved in Foreign Direct Investment matters?

For non-EU investors, it is important to prepare for the national security review procedure.

In particular, we highly recommend our clients conduct a specific due diligence on the target company with the purpose of identifying the applicability of the national security review regime. The sector-based review threshold requires a deep dive into the businesses and activities of the target company, as well as its critical technologies. A due diligence on business and technology are therefore essential, and this should be conducted prior to any negotiation of transaction documents.

In addition, we recommend our clients insert responsibility clauses in the transaction documents in respect of roles and collaborations between the parties in the national security review procedure. It is true that the investor is the person who bears the ultimate responsibility for the filing, however, a lot of filing documents will need to be provided by the target company, in particular in respect of technology, market position, R&D, and government subsidies (etc.). the accuracy and completeness of the filing information will affect the final outcome of the approval. The Investor will need full supports from the seller and the target company to go through the filing processes, in particular for any investor who has little knowledge on the ecosystem of Belgium.

Furthermore, clients need to be aware of the impact the approval process may have on the timeline of the transactions. Although the Cooperation Agreement imposes deadline on the review process, many exceptions remain which could delay the process, for instance, the deadline can always be extended in case of supplements of information required by the Belgian or EU authorities, or if the file is extremely complicated. This is usually the case when the investor is located in another jurisdiction with extremely different systems than Belgium, such as P.R. China. The investor needs to consider the following impacts a delayed approval process may have such as exchange rate risks (if payment currency and transaction currency are different), market evolvement, and valuation of the company over time.

During the filing process, it is essential for the client to take the lead position in negotiating with the ISC. Very often the target company will intervene, either because questions from the authorities are addressed to them or they are concerned about the completion of the transaction. In particular, if the investor needs negotiation conditions for clearance with the ISC, there could be different considerations, even sometimes conflicts of interest between the target company, seller on one side, and the buyer on the other side. The investor needs to be able to assess, from its own interests, whether such conditions would eventually compromise its investment purpose or changes its evaluation method.

3. What are the greatest threats and opportunities for the Foreign Direct Investment Law in the following 12 months?

Since the national security review regime in Belgium is relatively new as compared to its neighboring countries, ISC and the practitioners are in the process of gaining more experiences. The challenges still lie on the act that due to lack of screening experiences, many questions cannot be fully responded, in particular in terms of clearance conditions, implementation of conditions within the current legal regime in Belgium, as well as future supervisions. The investors would require more certainties and transparencies on the procedure.

From the perspective of legislation, the Belgian regime will very much be impacted by the upcoming revision of the FDI Regulation at the EU level (hereinafter the “Revision”). Based on the latest draft of the Revision:

(i) All Member States will be mandatorily required to introduce national security review mechanism;

(ii) Foreign investment will cover intra-EU investment where EU investors are controlled by third-country person/entity;

(iii) There will be minimum scope for screening: such as dual use items and military equipment, hyper critical technologies (such as AI, space or defence), quantum technologies and semiconductors, critical raw materials, critical entities in energy, transport and digital infrastructure, based on risk-based assessment by MS where the EU target is established, and electoral infrastructure (vote database, voting systems, electoral management systems);

(iv) There will be minimum requirements for national screening regimes, such as two phases process, power to screen un-notified transactions retroactively;

(v) Harmonized deadlines for national screening proceedings are expected;

(vi) There will be improved cooperation mechanisms between the Commission and Member States, as well as between the Member States;

(vii) An EU online portal for filing transaction is expected.

Once the Revision enters into effect, the Belgian regime will need to be adjusted. We do not know if the interaction between the ISC and the Commission on sharing of information and screening of files will be, from a procedural point of view, changed.

In addition, one difficulty in the current Belgian screening regime concerns the interpretation of the sectors and activities mentioned in the Cooperation Agreement, as one condition to assess if the screening procedure will apply. The sectors and activities are not defined and in practice, it creates the effect of expansion of application of the national security review regime. We could understand that it is difficult to define properly the sector and activities, and perhaps the intention of the legislators is to leave this open for interpretation, however, this creates uncertainties for investors. We expect this challenge will remain once the Revision enters into effect which creates minimum list of sectors for screening.

Finally, on the positive side, we see from the Revision that the power of the Commission will be expanded in the screening procedure. We expect more best practices will be shared with the ISC and more interactions with the Commission will sophisticate the screening procedure in Belgium. The central role the Commission is playing will help facilitate the screening processes in different Member States on one or a series of foreign investments, therefore relieving, in certain extent, the burden of submission by investors.

4. How do you ensure high client satisfaction levels are maintained by your practice?

To summarize into one sentence: we stay in the “shoes” of the client, and we try to guide them through the FDI process, especially when the client is an investor new to the Belgian market. We try to think from the point of view of a foreign investor and be proactive in giving our advice.

We guide the client in advising the transaction structure, in obtaining the permits, in explaining the complexity of the Belgian legal regimes, and also in highlighting some of the particular rules in Belgium, such as the use of three official languages (Dutch, French and German) in official documents.

In respect of FDI national security filing we try to help the client in every step of the way. We act as the local point of contact of the investor vis-vis the ISC, we give advice on how to prepare the documents (not only) in the right language (but) in the right reasoning in the filing. In addition, we try to stay proactive and maintain a good communication with the ISC. When negotiating with the ISC on clearance conditions, we give a “crash” course on the representative of the foreign investor before negotiations. The course encompasses legal considerations, technology and market related information (in both jurisdictions, sometimes on a comparative approach), as well as Q&As.

One particular asset we have in our firm, is a dedicated China & ASEAN desk with lawyers who are familiar with both Chinese (Asian) and Belgian jurisdictions. It helps us understand the point of view, and areas of concern of the client.

5. What technological advancements are reshaping Foreign Direct Investment law and how can clients benefit from them?

Technological progress is essential for maintaining a strong economy, and every nation must safeguard its advancements relative to competitors.

In Belgium, and across the European Union, national security reviews of foreign direct investments (FDI) are crucial tools for achieving European Economic Security. As a result, lawmakers in both Belgium and the EU have included sectors involving technological innovation—such as dual-use goods, critical technologies, artificial intelligence, semiconductors, and quantum technologies—within the scope of FDI reviews when foreign investors seek to acquire domestic companies.

We anticipate that Belgium’s FDI national security regulations will be widely applied to takeovers in these strategic industries. The scope of the sectors may be enlarged as new technologies arise. We regularly advise our clients to exercise caution and consider submitting a filing when making investment decisions.

We expect our clients will benefit from more extensive guidance issued by the ISC regarding filings for transactions in these sectors, given the importance of the review as well as the increasing filings on those sectors.

From a procedural perspective, the ISC requires online submissions for all filing transactions. Based on our recent experiences, the portal continues to improve technologically, and we have not encountered any technical difficulties overall.