State starts to assess the reliability of foreign investments in Estonia

In January 2023, the Riigikogu adopted the Foreign Investment Reliability Assessment Act (FIRAA), under which the state will assess the reliability of certain foreign investments made in Estonia from countries outside the European Union (EU) in order to ensure security and public order in Estonia and other EU Member States. Although the Act will not enter into force until 1 September 2023, it is already important for companies if they plan to attract investment from outside the EU.

According to the Act, in certain cases, a foreign investment requires an authorisation from the Consumer Protection and Technical Regulatory Authority (CPTRA), which is granted on the basis of an assessment of the impact of the foreign investment on the security and public order of Estonia or another EU Member State. Foreign investments that require an authorisation may not be completed before the authorisation is obtained.

Which foreign investors are impacted by the FIRAA?

The FIRAA applies to foreign investors from a third country, i.e. outside the EU, irrespective of whether the investor is a natural or legal person. In the case of a foreign investor who is a natural person, the law applies if the investor has the nationality of a third country or several nationalities, at least one of which is from a third country, or if they are a stateless person. In the case of a legal person, the scope of the Act includes investors established under the law of a third country, as well as investors controlled by any of the above natural or legal persons, regardless of where the foreign investor is established (e.g. a company who is a foreign investor is established in an EU Member State but controlled by a legal or natural person from a third country).

Which investments are impacted by the FIRAA??

The FIRAA applies to transactions through which a foreign investor:
1) acquires a direct or indirect qualifying holding in the target undertaking that is at least 10% of the share capital or all the rights or votes represented by shares of the company or that grants a dominant influence over the management bodies of the company;
2) achieves direct or indirect control over the target undertaking, in which case the foreign investor holds the majority of the voting rights represented by shares in the target undertaking, or has the power to appoint or remove the majority of the members of the supervisory or management board of the target undertaking, or controls alone the majority of the votes of the target undertaking pursuant to an agreement with other shareholders, or has a dominant influence or control over the target undertaking or the opportunity to exercise it;
3) acquires a part of the target undertaking (e.g. an asset, enterprise or installation).

A foreign investor may acquire a qualifying holding or control in the target undertaking on the basis of a contract for the sale of shares, but also, for example, through a shareholders’ agreement or upon the merger or division of companies.

Since a foreign investor may also indirectly hold a qualifying holding or control, the FIRAA also applies to transactions where a foreign investor acquires a qualifying holding or control, for example, in the parent company of the target undertaking, which may be established outside Estonia.

Which sectors are impacted by the FIRAA?

The circle of target undertakings in the case of which the impact of foreign investments on security and public order is to be assessed is defined in the Act and includes:

providers of a vital services;
companies in which the state has a qualifying holding;
manufacturers and suppliers of military goods or dual-use items;
undertakings holding a geological exploration or extraction permit for the exploration or extraction of certain raw materials;
undertakings maintaining the state’s operation stockpile;
undertakings that own the infrastructure of certain communications and broadcasting masts;
owners of national defence objects;
certain media undertakings;
managers of transport infrastructure (public railways, certain airports and maritime ports, air traffic services).

In order to obtain an authorisation for a foreign investment, the foreign investor submits an electronic application to the CPTRA. The authorisation is processed for 30 days; this period may be extended once by the CPTRA by up to 90 days. The granting of the authorisation is coordinated by the CPTRA with the Foreign Investment Committee, which includes representatives of various ministries, the Estonian Internal Security Service, the Police and Border Guard Board, the Financial Intelligence Unit, the Estonian Foreign Intelligence Service, the CPTRA and the Government Office. Authorisation will be refused if the foreign investment could threaten the security or public order of Estonia or another EU Member State.

You can find out more about the Act HERE.