TerraLex Guide to Foreign Direct Investment - NEW

FDI is regulated at the national level by the Act on the Screening of Foreign Corporate Acquisitions (172/2012, as amended) (the “Investment Control Act”). Under this Act, a foreign investor must apply for advance confirmation when acquiring at least 10% of the voting rights in a Finnish company that is classified as a defence industry company, a security sector company, or a company critical for security of supply in Finland.

Additionally, at the supranational level, the provisions of Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union must also be observed.

The competent authority responsible for implementing FDI rules is the Ministry of Economic Affairs and Employment (the “Ministry”). Should an acquisition pose a potential threat to a key national interest, the Ministry will refer the matter to a plenary session of the government.

It is possible to approach the Ministry informally for guidance regarding the interpretation of the Investment Control Act and the filing requirements. However, it should be noted that the Ministry does not provide formal confirmation as to whether a filing is necessary during informal pre-filing consultations.

The acquisition is subject to monitoring if the following cumulative criteria are met:

1. The target of the acquisition is an entity subject to monitoring

A Finnish company, other entity or business is subject to monitoring if it falls under any of the following categories:

• Defence industry company: Produces or supplies defence materiel or other products or services important for military national defence, or uses in its operations in Finland dual-use goods subject to export control.
• Security sector company: Produces or supplies critical products or services related to the statutory duties of Finnish authorities essential to the security of society.
• Company critical for security of supply in Finland: Considered, when assessed as a whole, critical for securing functions vital to society based on its field, business, or commitments.

An acquisition of a defence industry company or security sector company is subject to a mandatory filing of an FDI application, whereas an acquisition of a company critical for security of supply may be notified voluntarily. However, if no notification is made, the Ministry may investigate the acquisition on its own initiative once informed about the acquisition.

2. Threshold concerning the control in the target is exceeded

An FDI application (or voluntary notification) shall be made if the foreign investor acquires at least one tenth (1/10), one third (1/3), or one half (1/2) of the total voting rights attached to all shares in the company, or obtains equivalent actual influence in a limited liability company or other entity subject to screening.

3. The acquirer is considered a foreign investor

A foreign investor is defined as:

• A foreign national, organisation or foundation not domiciled in the European Union or European Free Trade Association (the “EFTA”) member state; or
• An organisation or foundation domiciled within the EU or EFTA member states in which a foreign national, organisation or foundation not domiciled in the EU or EFTA controls at least one tenth of the aggregate number of votes conferred by all shares in a limited liability company or has a corresponding actual influence in another organisation or business undertaking.

Exemption

The acquisition of a company critical for security of supply is exempt from monitoring if:

• Another foreign owner lawfully holds the influence exceeding the relevant threshold (1/10, 1/3 or 1/2) in the limited liability company subject to screening; or
• The target is acquired from another foreign owner whose ownership is based on a procedure pursuant to the Investment Control Act.

The Ministry shall confirm the acquisition unless it could endanger a key national interest.

A pre-closing filing is required for the acquisition of a defence industry company or a security sector company.

An acquisition of a company critical for security of supply may be notified after completion (post-closing). However, in such cases, the investor bears the risk of a negative decision, which may result in a requirement to transfer the shares to a third party that can secure approval from the Ministry.

The filing fee is EUR 8,000. If the Ministry confirms that the acquisition does not fall within the scope of the Investment Control Act, the fee is EUR 1,500.

The FDI application must include detailed information about the transaction and its financing, as well as comprehensive details regarding the new investor and the target company. In particular, it is essential to provide the ownership structure of the investor and a description of the target company’s business activities in Finland.

There is no specific form required for the application. However, it must include the standard EU form pursuant to Regulation (EU) 2019/452.

The application may be submitted electronically via secure email or by submitting a printed copy to the registry of the Ministry.

The new investor, e.g. the purchaser of shares is responsible for submitting the FDI notification.

Pursuant to the Investment Control Act, anyone who intentionally or through gross negligence fails to apply for the mandatory confirmation concerning an acquisition of a defence industry company or a security sector company may be sentenced to a fine.

If the filing is not made, the Ministry may, upon becoming aware of the acquisition, investigate the matter on its own initiative. If confirmation is not granted, the investor may be required to divest shares in the acquired company to the extent necessary to reduce their voting rights to less than one tenth, or to a share previously approved in an earlier confirmation decision.

The obligation to suspend the transaction applies to acquisitions of defence industry companies or security sector companies. This requirement does not extend to acquisitions of companies critical for security of supply. Nevertheless, it is advisable to submit a voluntary notification before completion in such cases, as the investor may be required to divest shares in the acquired company if confirmation is not granted. In practice, the review process therefore has a suspensive effect also on the completion of transactions involving companies critical for security of supply.

Any investment made prior to approval may result in a similar criminal penalty as failing to make a filing. Since the acquisition would be unauthorised, the investor assumes the risk that, in the event of a negative decision, the investor may be required to transfer the acquired business.

The Ministry may investigate acquisitions of companies critical to security of supply that fall within the scope of the Investment Control Act, even if such transactions are not subject to mandatory filing.

The Ministry may either confirm the acquisition unconditionally or impose conditions. If the Ministry determines that the acquisition could jeopardise a key national interest, it may refer the matter to a government plenary session, which has the authority to approve or prohibit the acquisition.

The Ministry may impose conditions on the acquisition as necessary to safeguard key national interests. Such conditions can only be imposed if the parties to the acquisition agree to comply with them. Additionally, the Ministry may, for a specific reason, require the investor to submit an application regarding any further measures that would increase the investor’s influence, even if these measures do not exceed the notification thresholds.

To ensure compliance with the imposed conditions, the Ministry may impose a conditional fine.

A refusal by the Council of State to confirm the acquisition, or any other decision that has an adverse impact on the investor, may be appealed within 30 days in accordance with the Administrative Judicial Procedure Act (808/2019, as amended). A decision can be challenged on the grounds that it is unlawful.

The mandatory application must be submitted before the transaction is completed.

For defence industry and security sector companies, there is no specific timeframe for the review process. In recent years, the average processing time has been between two and three months.

For other acquisitions, the Ministry must decide whether to undertake a further examination of the matter within six weeks, or propose a referral of the matter to a government plenary session within three months of receiving all the information required to assess the acquisition. If neither action is taken within these timeframes, the acquisition will be considered confirmed. The time limits only begin once the Ministry has received all necessary information regarding the acquisition.

The procedure is confidential and, prior to completion of the transaction, no information regarding the notification process is disclosed to the general public. However, Finland is required to inform the EU Commission and other EU Member States through the EU notification form, which must be completed by the investor as part of the filing process.

Investors are obliged to provide all necessary information and documentation. Following completion of the acquisition, a non-confidential version of the Ministry’s decision will be published on the Ministry’s website. The investor has the opportunity to comment on the confidentiality of the decision. At this stage, the names of both the direct investor and the target are made public.

Under the Act on Transfers of Real Estate Requiring Special Permission (470/2019), a foreign national, organisation, or foundation not domiciled in an EU or EFTA member state must obtain a permit to purchase real property in Finland. This requirement also applies to companies and entities domiciled in the EU or EFTA if a foreign investor, as defined above, holds at least one tenth of the total voting rights in a limited liability company or otherwise exercises equivalent effective influence.