In brief, the new mechanism is an authorisation regime through which certain investors specified in the Act have to pass when intending to make a new investment or expand an existing one in the country. For example, if a company incorporated in Switzerland, which has a production base in Bulgaria, wants to invest BGN 10 million in the opening of a new production line in the base, it will fall under the new regime. Similarly, if a Turkish national investor wishes to acquire 20% of the capital of a Bulgarian company that develops technologies based on artificial intelligence, the proposed transaction will be subject to screening under the new provisions.

In line with the recent trend in the transposition of European acts into Bulgarian legislation, the fact that the legislator has exceeded the scope of the measures compared to those provided for in the cited EU Regulation is also impressive here, as the new regime is yet to be refined through amendments to the implementation of the Act and other bylaws. The requirements and procedure are discussed in more detail below.

What is a foreign direct investment?

The definition of a foreign direct investment is broad and covers investment of any kind by a foreign investor, including:

• an investment aimed at establishing or maintaining lasting and direct relations between the foreign investor and the entrepreneur or enterprise to whom or which the capital to carry on business in Bulgaria has been granted;
• an investment that enables effective participation in the management or control of a company carrying on business;
• the expansion of an existing investment, including the expansion of the capacity of an existing enterprise, the diversification of an enterprise's production with products not previously produced, and the establishment of a new place of business;
• the capital increase of the object of investment on condition that the shares are acquired by the foreign investor.

What is a foreign investor?

The Act specifies three alternative hypotheses when there is a foreign investor. What is common to all three categories of foreign persons is that they are:

• related to a country outside the European Union and
• have made or intend to make a foreign direct investment in Bulgaria.

Foreign investors within the meaning of the Act are:

• A natural person who is not a national of a Member State or a legal person whose registered office is not in a Member State;
• A legal person established in a Member State in which control is exercised directly or indirectly by either of the persons referred to in item 1;
• A legal person established in a Member State in which, by virtue of a treaty or internal rules, one or more natural or legal persons established in countries outside the European Union have direct or indirect control over the specific investment, or which, by virtue of a treaty or multilateral transaction, makes a foreign direct investment but on account of a person referred to in items 1 and 2.

Which foreign investments are subject to prior authorization by the Interаgency Screening Council?

General hypothesis

The Act provides that a foreign investor intending to make a foreign direct investment is required to apply for authorization in advance.

In order to be subject to prior authorization, the foreign investment must have as its object the following fields of activity:

• Critical infrastructure, physical or virtual, including such related to energy, transportation, water, health, communications, media, data processing or storage, aviation, defence, electoral or financial infrastructure, sensitive facilities, and land and real property critical to the use of such infrastructure;
• Critical technologies and devices, including artificial intelligence, robotics, semiconductors, cyber security, aerospace and defence, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies;
• the supply of critical resources, including energy or raw materials, and on food security;
• access to sensitive information, including personal data, or the ability to control such information;
• media freedom and pluralism.

In addition to the above general condition, the investment must meet at least one of the following conditions:

• The investment acquires ownership of at least 10% of the capital of an enterprise operating in the country, or
• The value of the investment exceeds the threshold of EUR 2,000,000 or their equivalent in BGN; or
• The investment acquires ownership of at least 10% of the capital of an enterprise operating in the country and carrying out high-technology activities; or
• The investment is a new investment that exceeds the threshold of EUR 2,000,000 or their equivalent in BGN.

Exceptions to the general hypothesis

The Act also provides for foreign investments that do not meet the above general conditions but are nevertheless subject to prior authorization:

• Individual investments as proposed by a member of the Interagency Screening Council with expertise in the sector in which the investment will be made;
• Foreign direct investment when made by persons in facilities and activities related to the production of petroleum energy products and petroleum products in facilities that are part of or adjacent to critical infrastructure;
• Foreign direct investment with a foreign investor from Russia or the Republic of Belarus;
• Foreign direct investment that may have impact on security and public order;
• Where there is direct or indirect participation of a non-EU country in the capital of the foreign investor, including significant financing by a public authority.

In addition, the Act seemingly prescribes that foreign investors originating from countries that are included in a special list approved by the National Assembly, as well as for the United States of America, the United Kingdom of Great Britain, Canada, Australia, New Zealand, Japan, the Republic of Korea, the United Arab Emirates and the Kingdom of Saudi Arabia, remain outside the scope of the national screening mechanism. They are subject to the screening rules for European Union Member States.

Investments in progress

The Act provides that no application for prior authorisation shall be made in respect of foreign direct investment commenced after its entry into force and pending compliance with the bylaws.  Although rather vague, this provision essentially postpones the starting point of application of the new regime by up to 6 months, as the deadline for the adoption of the regulations on the organisation and operation of the Interagency Screening Council and the amended regulations for the implementation of the Act is 6 months.

What is the procedure for applying for prior authorization?

The proceedings are initiated by means of a sample application (which will be available in Bulgarian and English) submitted by the foreign investor through the Bulgarian Investment Agency to the Interagency Screening Council. It may also be initiated ex officio when an opinion from the European Commission or an alert is received, in which case screening may also be carried out on an investment already made and started up to two years before the opinion or alert was received.

The period for consideration of the investment is 45 days, which may be extended once for up to 30 days by decision of the Interagency Screening Council.

The proceedings shall result in a decision of the Interagency Screening Council on one of the following options:

• Authorization for foreign direct investment;
• A conditional authorization for foreign direct investment that imposes restrictive measures on the foreign investor, such as limiting the right to acquire up to a certain percentage of a company's capital, depending on the case.
• Refusal to issue an authorization for foreign direct investment where the foreign direct investment affects the security or public order of Bulgaria or is likely to affect projects or programmes of interest to the European Union.

There is also an option for tacit consent, i.e. in the absence of a decision within the time limit in one of the above-mentioned ways, the investment is considered approved.

The decision constitutes an individual administrative act, in view of which it is subject to appeal under the procedure of the Administrative Procedure Code.

What are the possible administrative penalties for violation of the new regime?

For violations, the new Act provides for substantial penalties - a fine or pecuniary sanction of 5% of the value of the investment, but not less than BGN 50,000. The types of violations include:

• Providing inaccurate, incomplete or misleading information in an application for foreign direct investment;
• Making a foreign direct investment without an authorization issued under the terms of this Act;
• Making a foreign direct investment in violation of the terms of a conditional authorization;
• Failure to comply with a restrictive measure.

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