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Investment Control Act: New Rules for foreign Direct Investments in Austrian

07/29/2020 - Reading time: 4 minutes


Florian Kranebitter


The new legal framework for the control of foreign "direct investments" in Austrian companies operating in the area of critical infrastructure and certain sensitive areas is in force since 25 July 2020 and brings new challenges for the investment and transaction practice.

With the entry into force of the Federal Act enacting an Investment Control Act and amending the Foreign Trade Act 2011 (Bundesgesetzes, mit dem ein Investitionskontrollgesetz erlassen und das Außenwirtschaftsgesetz 2011 geändert wird) on 25 July 2020, the FDI-Screening Regulation (Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union) was implemented in Austria. The prior “lean” national investment control regime anchored in Section 25a para 2 et seq. of the Foreign Trade Act has been consolidated in the new Investment Con-trol Act (Investitionskontrollgesetz - InvKG) and significantly expanded both in terms of scope and procedure, and in particular by a more comprehensive, Europe-wide coordinated control of third country investments in system-relevant Austrian companies. Legal transactions requiring approval under the InvKG are deemed to be concluded ex lege subject to the condition precedent that the relevant approval is granted.

The Federal Minister for Digitization and Business Location (Bundesministerin für Digitalisierung und Wirtschaftsstandort) is responsible for approval, and the Committee for Investment Control (Komitee für Investitionskontrolle) is assigned to advise thereto.

Authorization Requirement for a Foreign Direct Investment

Pursuant to Section 2 InvKG, a “foreign direct investment” is subject to the approval of the Federal Minister of Digitization and Business Location (a) if the target company is active in one of the sensitive or system-relevant areas listed in the Annex to the InvKG and (b) if certain voting rights are reached or exceeded or otherwise a controlling influence is acquired or a controlling influence on parts of the company is acquired through the acquisition of significant assets.

“Direct investment” is defined as the direct or indirect acquisition of an Austrian enterprise (registered office and head office in Austria); i.e. by acquisition of voting rights, a controlling influence or of material assets.

A “direct investment” becomes a “foreign” direct investment if at least one of the acquirers involved is a third-country national (no citizenship of the European Union,  of an EEA state or Switzerland, or no registered office or head office outside the EU, the EEA and Switzer-land). With the extension of the scope of application to indirect acquisitions, acquisitions of a company based in the EU/EEA/Switzerland but controlled by a third-country national are therefore also covered.

Micro-enterprises and start-ups with less than 10 employees and an annual turnover or balance sheet below EUR 2 million are generally exempt from the authorization requirement. In addition, the InvKG provides for a general exemption from the authorization re-quirement if EU or international law provisions conflict with an authorization requirement.

Pursuant to Section 27 InvKG, legal transactions that require an InvKG approval are deemed to have been concluded subject to the condition precedent that the corresponding approval is granted. In this respect, the legislator has chosen an approach for example from the merger control regime by not ordering the invalidity of the agreement per se as a sanction if parts of the agreement contradict the prohibition on implementation. Moreover, an execution prior to approval constitutes an offence punishable by imprisonment.

Affected Business-Areas

The application of the InvKG requires that the Austrian target company is active in one of the areas listed in the Annex to the InvKG distinguishing between:

  • „Particularly sensitive areas“: Part 1 of the Annex contains an exhaustive list of particularly sensitive areas, namely defence equipment and technologies, the operation of critical energy infrastructure and critical digital infrastructure, water, the operation of systems to ensure data sovereignty and - COVID-19 driven - research and development in the fields of pharmaceuticals, vaccines, medical devices and personal protective equipment; and
  •  “other areas” (Part 2 of the Annex to the InvKG) covering areas in which a threat to security or public order (including crisis and emergency preparedness), such as critical infrastructure, critical technologies, security of supply of critical resources, access to or control of sensitive data and freedom and plurality of media, may arise.

With the entry into force of the InvKG, the new act also covers areas that were previously not subject to approval (in particular critical infrastructures and technologies, the supply of critical resources, the preservation of Austrian data sovereignty, and the development and supply of drugs and vaccines).

It is noteworthy that the InvKG, in comparison to the prior legal situation, no longer explicit-ly mentions infrastructure facilities in the area of education and training as areas relating to public safety and order.

Relevant Voting Rights Thresholds

In the case of the (direct or indirect) acquisition of voting rights, the obligation to obtain approval under the regime of the InvKG depends on whether certain thresholds are exceeded. Section 4 InvKG distinguishes between the following minimum thresholds:

  • if the target company is active in the “particularly sensitive sectors”: 10%, 25% und 50%;
  • if the target company is active in other areas that may pose a threat to security or public order, including emergency or general interest services: 25% und 50%.

The (first) voting right threshold for the “particularly sensitive areas” has thus been signifi-cantly lowered (from 25% to 10%) compared to the legal situation before the InvKG came into force.

Section 5 InvKG contains detailed rules for the determination of voting rights, whereby in the case of an acquisition by several foreign persons the voting rights in the company must be added together.

Procedure for Approval

The application for approval must be submitted immediately after the conclusion of the agreement (signing / commitment transaction) or, in the case of a public offer, immediately after the announcement of the intention to acquire. In addition to information on the acquirers (including the beneficial owners), the target company and the transaction structure, as well as information on the business activities of the acquirers and the target company (including a description of the market and competitors), the application for approval must also contain information on the financing of the transaction and the origin of the financial sources, as well as – if foreseeable – information on whether effects on “programs of European interest” are to be expected (see in detail Section 6 para 4 cif 1 to cif 10 InvKG).

Pursuant to Section 6 para 1 InvKG, the obligation to submit an application generally applies to the acquirer(s). However, if the target company becomes aware of an “intended acquisition subject to approval and no information on an application for approval has been provided to it”, the target company is obliged to notify this circumstance without delay (whereby the notification must include all information in accordance with Section 6 para 4 cif 1 to cif 10 InvKG, insofar as this information is known to the target company at the time of notification). If the target company fails to comply with such notification obligation, an administrative penalty of up to EUR 40,000 may be imposed.

The timeline for the completion of the procedure to obtain approval is essentially as follows:

  • Phase 1 - Procedure: within one month after receipt and expiry of the EU consultation deadlines (see in detail Section 12 para 5 InvKG; 35 calendar days' deadline for comments by the European Commission) or “in cases of particular urgency” (see Section 12 para 9 InvKG) within one month of receipt, (a) notice that an approval procedure will not be initiated due to obligations under EU or international law which conflict with such a procedure or due to the absence of concerns that security or public order will be endangered or (b) notification that the  in-depth assessment procedure (Phase 2) will be initiated; if the one-month period expires without notice or notification, the transaction is deemed to be ap-proved;
  • Phase 2 - Procedure (in-depth assessment procedure): within two months of no-tification of the initiation of the idepth investigation procedure, approval by decision (with or without conditions) or refusal in case the threat to security or public order cannot be mitigated by conditions; if the two-month period expires without a decision, approval is deemed to have been granted.

Alternative Clearance Certificate

In some transaction-scenarios – in order to achieve the safest possible transaction perspective at an early stage – the possibility of obtaining a clearance certificate (Unbedenklichkeitsbescheinigung), as provided by Section 9 InvKG, can be a viable alternative to an application for approval after signing. Within two months of receipt of the complete application for a clearance certificate, either a clearance certificate is issued or a notifica-tion is given that the application will be treated as an application for approval. If no decision is issued or notification is given within this two-month period the clearance certificate is deemed to have been granted (Section 9 para 4 InvKG).

The flip side: Like the application for approval pursuant to Section 6 InvKG, the application for a clearance certificate must already include all information pursuant to Section 6 para 4 cif 1 to cif 10 InvKG (in the early stages of the transaction, this information might be simply not available or difficult to obtain; e.g. information on the financing of the transaction and the source of funds).

Key-Take-Aways for the Transaction Practice

Some key-takeaways for the transaction practice are:

  • The voting rights threshold for particularly sensitive business areas has been significantly reduced to 10%, which considerably broadens the scope of applica-tion in practice.
  • Investments in certain assets of companies in the relevant areas may also be subject to approval pursuant to the InvKG.
  • The merely demonstrative enumeration of “other areas” in which a foreign investment might constitute a threat to security or public order, including crisis management and services of general interest, leads to a considerable uncertainty of assessment, which can practically only be eliminated by a clearance certificate or a confirmation  that the transaction is not subject to approval under the regime of the InvKG.
  • Depending on the structure and strategy in relation to a specific transaction, a choice will have to be made between the options of an application for approval or an application for the issuance of a clearance certificate.
  • As in the past, the provisions of the InvKG must also be taken into account in the case of supply and service relationships as well as financing and, in the case of the latter, in particular the associated provision of collateral (including liquidation options)
  • The extent to which aspects of a transaction agreements, such as call and put options, rights of seizure and preemption, repurchase rights or forward purchase agreements that fall (or may fall) within the scope of the InvKG can be covered “in one approval run” is left open by the law, but will also have to be assessed on a case-by-case basis when submitting an application for approval or an application for a clearance certificate.


Florian Kranebitter