Bulgaria soon to adopt an FDI screening regime

The bill closely follows the Regulation's mechanisms and has been met with clear support by the members of the parliament's ruling majority. The bill may be passed into law as early as September, but its effectiveness will be delayed by about 3 months in order to set up the required administrative capacity. Investors should anticipate that an FDI screening regime in Bulgaria will become effective in the first quarter of 2024. Thus, deals that are bound to close in 2024 (even if signed before) may fall under the new regime and require prior approval.

The mechanism requires prior screening of any foreign direct investment that:

• originates from a non-EU controlled entity (i.e., including from the USA and UK);
• targets any of the industries under Art. 4, item 1 of the Regulation (i.e., critical infrastructure, critical technologies, supply of critical inputs, access to sensitive information and freedom and pluralism of the media); and
• exceeds EUR 1 million in value or, by exception, is below EUR 1 million if the investment could still negatively affect or create a risk for the security or public order in Bulgaria.

The EUR 1 million threshold is likely to be increased as the bill circulates through the various stakeholders in the parliament. The threshold has been criticized for being too low and therefore capturing too many transactions, which is considered burdensome or unnecessary.

Administrative control over the screening process will be vested with a newly created Inter-ministerial Council for Screening of Foreign Direct Investments which will be staffed with representatives from all branches of the government and will be chaired by the Deputy Minister of Innovation and Growth. The screening criteria that will be applied by the Council are listed under Art. 4 of the Regulation for determining if a foreign direct investment is likely to affect security or public order. In the debates, the members of the parliament discussed the screening instrument as a tool to shield the market against "corrosive capital" flows into Bulgaria.

The Council must issue a decision on the investment within 55 calendar days from the notification by the investor. The term will be extended by the time required to supplement the filing in case of deficiencies. By its decision, the Council may approve an investment, approve an investment on the condition that the investor complies with certain behavioural or structural measures, or prohibit an investment.

If an investment is made without the required approval, the investment transaction would be valid, but the investor would be subject to a fine of 5% of the value of the investment though not less than about 25,500 euros and, additionally, may be subject to behavioural or structural measures aimed at restoring the security or public order.