The Ministry of Finance on Thursday released for public discussion a draft proposal for a law on the review of foreign investments acquiring 10 percent or more of shares, stocks, or voting rights in companies that will be covered by this law, specifically those managing critical infrastructure and resources, thereby incorporating the relevant EU regulation into national legislation, which is also one of the criteria for Croatia’s accession to the Organisation for Economic Co-operation and Development (OECD).
Let us recall that the Deputy Prime Minister and Minister of Finance Marko Primorac emphasized at the end of August, after a meeting with OECD representatives, that the establishment of a mechanism for reviewing direct foreign investments is a very important item from the Ministry of Finance’s portfolio for entering the OECD.
He announced that this legislative proposal would go into public consultation, and it involves the Government’s establishment of a body that will identify, based on criteria, specific entities that manage critical infrastructure and resources, have access to confidential information, or are otherwise identified as strategic sectors.
For them, it will be prescribed, the minister explained at the time, that when receiving a potential offer for acquiring a qualifying stake, which is 10 percent or more, they must first obtain the opinion of the Ministry of Finance, or the commission that will review these direct foreign investments. This particularly concerns investments that may potentially come from third countries, i.e., those that are not EU member states, noted Primorac.
Review and Concession and Public-Private Partnership Contracts
The proposed law, as evident from its justification in public discussion, prescribes the authority of public authorities (ministries, the Croatian National Bank, agencies, etc.) to determine the companies (obligors) to which the provisions of this law will apply. The obligor or foreign investor will be obliged to request a review from the Ministry of Finance for each foreign investment acquiring 10 percent or more of shares, stocks, or voting rights in the obligor. The review of foreign investment will also be conducted for concessions, including public-private partnership contracts, in which a foreign investor appears as the concessionaire.
The proposed law prescribes the procedure for reviewing foreign investment, from submitting a request to the Ministry of Finance, the issuance of an opinion by the Commission for the Review of Foreign Investments, to the issuance of a decision by the Ministry of Finance deciding on the submitted request for foreign investment. The proposed law also prescribes the possibility of initiating the review procedure for foreign investment ex officio.
The proposal also regulates the control bodies that, depending on the scope of their authority concerning the obligor, are obliged ex officio to ensure that the obligor in which the foreign investor intends to conduct foreign investment by acquiring, increasing, or reducing a qualifying stake or acquiring a controlling position first obtains a decision from the Ministry of Finance, which is a necessary condition without which foreign investment cannot be completed.
As emphasized by the Ministry, this legal framework aims to prevent foreign investments only from those foreign investors who are under the direct or indirect control of the governments of third countries, including state bodies or armed forces of third countries, who are already involved in activities affecting security or public order in a member state, where there is a risk of connection with illegal activities, i.e., to proactively assess the risk of foreign investment and preventively eliminate the potential emergence of all negative consequences that could impact national and European security and public order.
Additionally, they add, it is necessary to ensure that the foreign investor invests their capital in good faith for the purpose of conducting economic activities in Croatia, which simultaneously benefits both the foreign investor and Croatia, and consequently the EU, that the source of that capital, or its ultimate holder, can be determined and verified as easily and simply as possible, and that any suspicion of hidden intentions behind such foreign investment is eliminated, as stated in the justification.
The draft proposal of this law is in public consultation until October 3.
