In a move aimed at safeguarding national security and economic interests, Bulgaria has recently implemented a foreign direct investment (FDI) screening regime accordance with the EU FDI Screening Regulation 2019/452. The amended Investment Promotion Act now requires prior review and approval of national security grounds for foreign direct investments in certain key sectors. The regime will apply to investors controlled by non-EU shareholders or themselves constituting non-EU individuals or entities. The new framework is considered a significant step towards enhancing transparency and accountability in the country’s investment landscape while addressing potential risks associated with foreign investments.

Bulgaria’s decision to implement this screening mechanism aligns with the broader trend observed across the European Union (EU), where several member states have strengthened their FDI screening mechanisms in recent years. This concerted effort aims to prevent undue influence, espionage, or control by foreign entities in strategic sectors crucial for national security and economic sovereignty.

Under the new regime, foreign (non-EU) investors seeking to engage in certain sensitive sectors are required to undergo a rigorous screening process. This process entails thorough scrutiny of the investor’s background, financial standing, and the nature of the proposed investment. Additionally, specific criteria are set to assess the potential risks posed by the investment to national security, public order, and essential infrastructure.

The sectors subject to scrutiny include but are not limited to:

1. critical infrastructure (related to communications, media, data processing or storage, energy, water, health, transportation, aerospace, defense, electoral or financial infrastructure and others);
2. critical technology (AI, robotics, semiconductors, cybersecurity, quantum and nuclear technologies, and others);
3. supply of critical inputs (including energy or raw materials, as well as food security);
4. access to sensitive information;
5. the freedom and pluralism of the media.

Investments exceeding a certain threshold (EUR 2,000,000 or, in case of an acquisition, at least 10% of the capital of a target operating in the country) are subject to mandatory screening. Certain investments may be caught by the new regime irrespective of whether the thresholds are met. Thus, FDIs by a foreign investor from Russia or the Belarus, as well as all FDIs related to the production of energy products from petroleum and products of petroleum origin at sites forming part of the critical infrastructure of the country, fall within the scope of the screening regime, irrespective of their amount. FDI made by investor with public participation in its capital from a non-EU country (including significant financing by a public authority), would also be subject to a prior obligation and clearance. A minimum share of 5% by the non-EU country would be required if the foreign investor is a publicly traded company. Moreover, the new authority on FDI screening has ex officio powers to review FDIs in some other exceptional cases.

Certain jurisdictions, including the United States, the United Kingdom, Canada, Australia, New Zealand, Japan, South Korea, the United Arab Emirates and Saudi Arabia will be considered low-risk countries and be exempt from the mandatory screening applicable for other non-EU countries.

The Investments Promotion Act introduces a suspensive screening regime in respect of investments outlined above. The foreign investor is to notify the planned investment and is prohibited to implement it until it has received clearance. The notification will be considered under a regulated procedure, which will end in an explicit clearance (conditional or unconditional), a tacit unconditional clearance, or an explicit prohibition.

Notifications shall be reviewed by the newly formed Interdepartmental Council on FDI Screening constituted by representatives of ministries, regulators and other public bodies related to national security. The procedure will be administered by the Bulgarian Investment Agency (IBA). The assessment criteria are listed in the Investments Promotion Act and may be further specified in a Regulation for its application. The resolution of the Council will be subject to judicial review.

Pursuant to the amended Investment Promotion Act, in the event of non-compliance with the regime, a foreign investor may be imposed a fine amounting to 5% of the investment amount, but no less than BGN 50 000 (EUR 25 000). It may be also subject to restrictive measures, including change of control, change and/or suspension of activity, termination of the investment or other remedies imposed by the Council.

The amended Investment Promotion Act requires from the government to adapt the secondary Regulations within a 6-month period. During this period the notification obligation shall not apply, but investments may still be subject to screening.

In conclusion, Bulgaria’s new foreign direct investment screening regime represents a proactive approach towards safeguarding national security and economic interests in an increasingly interconnected world. By establishing robust mechanisms to assess and monitor inbound investments, Bulgaria demonstrates its commitment to fostering sustainable economic development while protecting its strategic assets and critical infrastructure.