Get Ready For The New Foreign Direct Investment Screening Regime In Bulgaria

• Published date: 01 April 2024
• Subject Matter: Government, Public Sector, Energy and Natural Resources, Inward/ Foreign Investment, Energy Law
• Law Firm: Kinstellar
• Author: Ms Karla Rundtov', Nina Tsifudina and Milka Nikolova

March 2024 - A foreign direct investment screening mechanism entered into force in Bulgaria on 12 March 2024. The mechanism applies Regulation (EU) 2019/452, establishing a framework for the screening of foreign direct investment ("FDI") into the Union. This is a significant development in the regulatory landscape governing foreign investments in Bulgaria, although some uncertainty remains as to its impact. Due to certain lack of clarity in the final text of the legislation, each investment should be carefully analysed on a case-by-case basis, especially during the transition period.

Investments requiring an FDI approval

According to the bill amending the Investment Promotion Act ("IPA"), an investment in Bulgaria is subject to the new FDI screening regime if four cumulative criteria are met: (i) the investment qualifies as FDI; (ii) the investor is a foreign investor under the meaning of the IPA; (iii) the investment concerns one of the economic activities explicitly listed in the new law; and (iv) the investment meets at least one of the statutory thresholds.

Is your investment FDI?

FDI is any investment aimed at the establishment or maintenance of lasting and direct links between the foreign investor and the entrepreneur to whom, or the undertaking to which, the capital is provided for the purpose of carrying out an economic activity in Bulgaria, including investments through: (i) the establishment of a new company; (ii) the effective participation in the management or control of a company carrying out economic activity; or (iii) the expansion of an existing investment. A portfolio (passive) investment is not an FDI.

Are you a foreign investor?

The IPA adopts a broader definition of a foreign investor as compared to Regulation (EU) 2019/452. In addition to natural persons who are not citizens of an EU member state or legal entities with registered seats outside the EU, FDI subject to screening may also include investments made by:

• legal entities from the EU that are directly or indirectly controlled by a natural person who is not a citizen of the EU or a legal entity with a registered seat in a non-EU state; or
• legal entities from the EU that: (i) are directly or indirectly controlled by one or more non-EU individuals or legal entities by virtue of a contractual agreement or internal rules of that entity and (ii) make the investment to the benefit of a non-EU person or to the benefit of an entity directly or indirectly controlled by such a non-EU...