Croatia Proposes New Law for Systematic Screening of Foreign Investments

Croatia Moves to Implement Comprehensive FDI Screening

The Croatian Ministry of Finance has opened a public consultation on a draft law designed to introduce systematic checks on foreign investments in Croatian companies. This significant legislative step aims to establish a full foreign direct investment (FDI) screening mechanism, bringing Croatia's regulatory framework into alignment with European Union (EU) and Organisation for Economic Co-operation and Development (OECD) standards.

Currently, Croatia lacks a national FDI screening mechanism, beyond a national contact point established in 2020 for coordination with the EU. The new draft law addresses this gap, driven by expectations from the EU Commission for all member states to implement such screening processes.

Key Provisions and Scope of the Draft Law

The proposed legislation mandates a comprehensive screening procedure for foreign investments. According to Ana Mihaljevic, an attorney at Schoenherr, the act will apply to any foreign investment that results in the acquisition of 10% or more of the share capital or voting rights in Croatian companies. The screening will specifically target investments in sectors deemed critical for national security and public order.

Critical sectors identified for screening include:

• Energy
• Transport
• Health
• Digital infrastructure
• Defence
• Media
• Financial services
• Research

Furthermore, the law will cover all types of concessions and public-private partnerships involving foreign investors.

Notification Requirements and Enforcement

Under the draft law, both the foreign investor and the Croatian company receiving the investment will be required to notify the Ministry of Finance before completing any transaction that meets the specified thresholds. This notification is crucial for obtaining prior approval.

Several control bodies will be tasked with enforcing the new regulations, including commercial courts, the central depository and clearing company, concession grantors, and the competition authority. These bodies will work to prevent the completion of foreign investments that have not received the necessary approval. In cases of violation, the Ministry of Finance will have the authority to revoke FDI approval and order the divestment of shares or rights within a maximum period of nine months.

Timeline and Retroactive Application

The public consultation period for the draft FDI Act is set to conclude on October 3. Following this, the legislation is expected to be adopted through an expedited procedure, with its entry into force anticipated by the end of October. Notably, the act will also apply retroactively to investments made before its effective date, with authorities mandated to carry out such screenings within three years.