Estonian FDI regulation has been adopted

On 25th January 2023 the Estonian Parliament adopted the Estonian national FDI law. The law will come into force on 1st September 2023. No retroactive application has been envisaged, so the new law is only going to have an impact on future transactions. Setting up the screening process is going to take some further time and effort from the state, including: a dedicated IT system is currently being developed, internal rules of procedure are being drawn up, filing forms are being prepared, committee members are being selected and appointed, etc. 

Affected target companies 
The number of affected target companies is approx. 350, including  

 

• providers of critical services (~170), 
• all state-owned companies (<50),  
• actors in the defence sector (<30),  
• media-companies having a substantial influence on public opinion (<20),  
• certain mining companies (<5),  
• state stockpiling agency and its co-operation partners (<40),  
• owners of national defence objects (<20),  
• telecoms infrastructure managers involved in providing state communication services (<3),  
• operators of airports, ports, railways (<7).  

 

As many targets belong to larger company groups, the total number of potentially (either directly and indirectly) affected undertakings is, of course, considerably larger. 

Screening process 
In addition to share deals, asset deals will also be subject to screening (e.g. acquisition of the essential assets of a potential target). 
 
The making of green-field investments is not restricted under the new law. 
 
The screening thresholds are quite straight-forward, i.e. a transaction involving direct/indirect acquisition by a foreign investor of a substantial shareholding (at least 10% or rights equivalent to that) or control (at least a 50% shareholding or control with other means; control is understood in the same way as it is in competition law) are caught. Foreign-to-foreign transactions are caught as well, so even parent-level acquisitions could be subject to compulsory screening in Estonia. 
Due to a stand-still obligation, the obtaining of prior clearance is mandatory (with a practical exception relating to trading with listed securities). 
 
The screening process takes up to 120 days in 2 phases. Initial proceedings last for 30 days, which will normally be enough for issuing a clearance, but in more complex cases the proceedings may be extended by an additional 90 days. There is no state fee for the review process. 
 
The grounds for prohibition of a deal are threat/risks to national security and public order in Estonia or an EU Member State. Commitment decisions will also be a possibility for the applicant, provided that the offered commitments properly address the concerns. 
 
No pecuniary sanctions can be imposed in the case of non-compliance, however, the unlawfully implemented transaction(s) will be considered null and void and the previous situation will have to be reinstated.