The state will start assessing the reliability of certain foreign investments made in Estonia


Triin Antsov

In January 2023, the Riigikogu adopted the Foreign Investment Reliability Assessment Act (FIRAA), on the basis of which the state will start assessing the reliability of certain foreign investments made from non-EU countries to Estonia, to ensure the security and public order of Estonia and other Member States of the EU. The Act will enter into force only on 1 September 2023, however it is important for the undertakings already now, when planning to involve investments from outside the EU. 

For the purposes of the Act, in certain cases a foreign investment requires an authorisation from the Consumer Protection and Technical Regulatory Authority (CPTRA), which is granted by assessing the impact of the foreign investment on the security and public order of Estonia or another Member State of the EU. The completion of a foreign investment subject to an authorisation is prohibited before the authorisation is obtained. 
Which foreign investors are affected by the FIRAA?
FIRAA applies to a foreign investor of a third country, i.e., from outside the EU, regardless of whether the investor is a natural or legal person. If the foreign investor is a natural person, the Act applies if the investor holds a citizenship of a third country or several citizenships, at least one of which is the citizenship of a third country; or if a natural person is a stateless person. For a legal person, the Act applies to an investor, who is established on the basis of the law of a third country; and also, an investor, who is controlled by the aforementioned natural or legal persons, regardless of the place of establishment of the foreign investor itself (e.g., an undertaking, who is a foreign investor, is established in a Member State of the EU, however, it is controlled by a legal or natural person of a third country). 

Which investments are covered by the FIRAA?
FIRAA is applied to transactions, through which a foreign investor:
1) acquires direct or indirect qualifying holding in the target undertaking, which represents 10 per cent or more of the share capital of the company, of all rights related thereto or of the voting rights in the company or which makes it possible to exercise a significant influence over the management of the company in which that holding subsists;
2) achieves direct or indirect control over the target undertaking, in which case the foreign investor holds the majority of the votes represented by shares or, has the right to appoint or remove the majority of members of the supervisory board or management board of the company or, controls alone the majority of votes pursuant to the agreement entered into with other shareholders, or exercises or has the power to exercise dominant influence or control over the target undertaking;
3) acquires a part (e.g., assets, an enterprise or installation) of the target undertaking.

A foreign investor may acquire a qualifying holding or control over the target undertaking under a contract of sale of shares; however, also under a shareholder’s agreement or, upon merger or division of undertakings.

As a foreign investor may hold the qualifying holding also indirectly, the FIRAA also applies to such transactions, under which a foreign investor acquires a qualifying holding or control for example in the target undertaking’s parent company, which may have been established outside Estonia. 

Which sectors are affected by the FIRAA?  
The group of target undertakings for which the impact of the foreign investment on security and public order is to be assessed is delimited in the Act and covers the following:
– a provider of a vital service; 
– undertakings 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 material; 
– undertakings keeping the state’s operation stockpile; 
– undertakings owning the infrastructure of certain communication and broadcasting masts; 
– owners of national defence objects; 
– certain media undertakings;
– managers of transport infrastructure (public railways, certain aerodromes and seaports, air traffic service). 

In order to obtain a foreign investment authorisation, a foreign investor submits an application electronically to the CPTRA. The duration of the authorisation procedure is 30 days; the CPTRA may extend this time limit once by up to 90 days. The CPTRA shall coordinate the granting of authorisation with the Foreign Investment Committee, which consists of the representatives of various ministries, Estonian Internal Security Service, Police and Border Guard Board, Financial Intelligence Unit, Estonian Foreign Intelligence Service and State Chancellery. The authorisation shall be refused if the foreign investment may endanger the security or public order of Estonia or another Member State of the EU.

You can read more about the Act HERE.