Executive Summary/Highlights:

• On 15 July 2020 the Austrian Parliament adopted a new Investment Control Act (Investitionskontrollgesetz, “ICA”).
• The new Act transposes the requirements under the EU FDI Screening Regulation and replaces the existing liberal regime under the Austrian Foreign Trade Act. Investment transactions lacking the required ICA approval will inter alia be null and void.
• Under the broadened scope of the new legislation, all non-EU, non-EEA and non-Swiss investors will need to check whether an intended transaction meets the threshold (10% or control in highly sensitive sectors and 25%, 50% or control in other sectors) requirement and whether the target business is carried out in one of the sectors defined under the Act. If the requirements are met, an approval requirement under the ICA will apply.
• In many cross-border M&A transactions relating to Austrian targets this will newly require a pre-transaction determination on whether approval under the Austrian ICA is required. The ICA newly also covers indirect acquisitions by a foreign investor.
• If an approval requirement under the ICA applies, a condition precedent in the transaction or the public offer documentation and a filing for approval and clearance by the Ministry of Digitalization and Economic Affairs will be required to allow closing of a transaction.

Transactions subject to FDI approval under the new ICA

Under the ICA a mandatory filing requirement is triggered if:

• a foreign investor, i.e., non-EU, non-EEA, non-Swiss individual/entity, intends to carry out an investment directly or indirectly in an Austrian undertaking. This includes:
  • the acquisition of shares reaching/exceeding 10%, 25% and 50% (voting rights);
  • the acquisition of control;
  • the acquisition of essential/all assets of an undertaking (asset deals);
• the undertaking is active in a sector listed in an Annex to the ICA; and
• the undertaking is Austrian, i.e., has its seat or its central administration in Austria (local nexus).

No approval is required for an investment in an undertaking with fewer than 10 employees and an annual turnover or balance sheet total of less than EUR 2 million (start-up exception).

The 10% share threshold (voting rights) applies for investments in certain highly sensitive sectors. These sectors are listed (exhaustively) in Part I of the Annex of the ICA  and include:

• defence equipment / defence technology;
• critical energy infrastructure;
• critical digital infrastructure (in particular 5G infrastructure);
• water;
• systems that enable data sovereignty of the Republic of Austria; and
• research and development in the fields of pharmaceuticals, vaccines, medical devices and personal protective equipment. For this sector, the 10% threshold is temporarily introduced until 31 December 2022 in light of the COVID-19 crisis.

For investments in other sensitive sectors for public order and/or security the triggering threshold remains at 25% and 50% (voting rights). Part II of the Annex of the ICA contains a non-exhaustive list of these sectors, including:

• critical infrastructure such as energy, information technology, transport, health, food, telecommunications, etc.;
• critical technologies and dual use items as defined in Regulation (EC) No 428/2009; these include artificial intelligence, robotics, cybersecurity, quantum and nuclear technology, nano and biotechnology, etc.;
• supply of critical resources, including energy or raw materials, as well as food security, medicines, vaccines, medical devices and personal protective equipment, etc.;
• access to sensitive information, including personal data, or the ability to control such information; and
• the freedom and pluralism of the media.

What is new as to Austrian FDI control

The new features under the ICA include:

• Indirect acquisitions are covered, contrary to the situation under the (former) Foreign Trade Act 2011;
• While the notification obligation rests primarily with the acquirer, the ICA foresees (in subsidiarity) a reporting obligation for the target company. In addition, the Authority can assume jurisdiction ex officio if it becomes aware of a transaction subject to approval that has not been notified;
• The ICA foresees the possibility of requesting a non-objection ruling from the Ministry of Digital and Economic Affairs confirming that an investment is not subject to approval;
• The filing for approval can be submitted post signing of a transaction (private M&A) or post announcement of the intention to launch a public offer for an Austrian target; and
• Timing: The one-month Phase I review by the Austrian Ministry only starts after the six to nine weeks cooperation mechanism-review under the EU FDI Screening Regulation has been completed. In practice this means that the time-line for approval will take two to three months.

Implications of the new FDI regime for cross border M&A relating to Austrian targets

Cross border deals by foreign investors defined as non-EU/non-EEA (EU plus Norway, Iceland and Liechtenstein)/non-Swiss relating to Austrian targets will require a pre-transaction determination whether approval under the Austrian ICA is required. Clearly all overseas investors, including from the US, Australia, Asia and Central Europe (if not EU) and CIS and Middle Eastern countries need to review whether a particular intended investment into a specific Austrian target requires advance approval by the Austrian Minister of Digital and Economic Affairs.

• The pre-transaction determination on whether an ICA approval applies and a subsequent filing is warranted given the sanction threats for transactions lacking approval. Transactions lacking approval will be deemed null and void. Moreover, administrative fines apply and willful or negligent implementation without approval could even constitute a criminal offence. The ICA also allows for later invalidation of an already consummated transaction by the Ministry of Economic Affairs.
• Given the documentation and procedural requirements and time-line for obtaining a non-objection ruling from the Ministry of Economics and confidentiality concerns, obtaining such a ruling will not be practical for most transactions.

The list of sectors concerned and the definition of infrastructure including installations, systems processes, networks and parts thereof under the new ICA are very broad. No precedents are available. If there is a possibility for an approval requirement it will thus be mandated to provide for a condition precedent in the transaction documentation (private M&A) and upon announcement of a public offer (public M&A) and to subsequently file for an approval under the ICA.