Sarah Wared
Wolf Theiss, Vienna
sarah.wared@wolftheiss.com

Guenter Bauer
Wolf Theiss, Vienna
guenter.bauer@wolftheiss.com

The EU Foreign Subsidies Regulation (FSR) (Regulation (EU) 2022/2560) entered into force in 2023. It is yet another legal instrument that is likely to affect the mergers and acquisitions (M&A) market in Austria (and the EU), although the extent of its impact on M&A deals is not yet entirely clear. The merger control rules and the Austrian foreign direct investment (FDI) regime, however, clearly have a significant effect on cross-border M&A deals. In particular, the Austrian FDI regime has become an important regulatory consideration that requires careful assessment and management in cross-border M&A. Although it may not impede a transaction, it can (and often does) affect a deal’s timeline, the structure of a deal or the valuation of offers in the course of auctions. In the following article, we elaborate on a number of aspects that should be taken into account when planning a deal.

The Austrian Investment Control Act

The Austrian parliament adopted the currently applicable Austrian Investment Control Act (Investitionskontrollgesetz, ‘ICA’) on 15 July 2020.

FDI filing requirements

Pursuant to the ICA, a foreign investment in an Austrian undertaking triggers a mandatory filing requirement when at least one of the investors is a foreign person (ie, non-EU/EEA/Swiss individual/entity) and the Austrian undertaking is active in a sector listed in the Annex to the ICA. More precisely, the FDI regime under the ICA is applicable to:

1. the direct or indirect acquisition
2. by a non-EEA/non-Swiss entity or a non-EEA/non-Swiss natural person
3. of
   (a) voting rights in an Austrian target reaching or exceeding certain thresholds (10 per cent or 25 per cent of the voting rights, depending on the sensitive nature of the industry, or 50 per cent of the voting rights), or
   (b) a ‘decisive influence’ over the Austrian target,
4. if the Austrian target is active in a relevant sector as set out in the Annex to the ICA, provided that:
   (aa) such FDI approval requirement does not conflict with any EU or international law provisions, and
   (bb) the Austrian target undertaking is not a start-up or micro-business having (1) fewer than ten employees (full-time equivalents) and (2) an annual turnover or annual balance sheet total below €2m (de minimis exception).^[1]

Relevant sectors

The Annex to the ICA lists the various sectors of business activities, which, if the Austrian target is active in such sectors, in principle (and subject to the other conditions being met) trigger an upfront Austrian FDI approval requirement.

The Annex to the ICA distinguishes between particularly sensitive sectors, for which an additional threshold of 10 per cent applies (Part 1 of the Annex), and other sectors, for which (besides the ‘decisive influence’ threshold) only the thresholds of 25 per cent and 50 per cent apply, respectively (Part 2 of the Annex).

The particularly sensitive sectors subject to the 10 per cent, 25 per cent and 50 per cent thresholds, exhaustively listed in Part 1 of the Annex, are as follows:

• defence goods and technologies;
• the operation of critical energy infrastructure;
• the operation of critical digital infrastructure, especially 5G infrastructure;
• water;
• the operation of systems securing the data sovereignty of the Republic of Austria; and
• research and development in the fields of medicinal products, vaccines, medicinal devices and personal protective equipment.

Other sensitive sectors subject to the 25 per cent and 50 per cent thresholds are as follows:

• critical infrastructure (ie, facilities, systems, plants, processes, networks or parts of them) in certain fields, such as energy, information technology, traffic and transport, health, finance, chemicals, etc;
• critical technologies and dual-use goods, such as artificial intelligence (AI), robotics, semi-conductors, nano technologies, etc;
• the supply of critical resources, such as energy supply, supply of raw materials, food, vaccines and other medicinal products, etc;
• access to sensitive information or personal data, including the possibility to control such information; and
• freedom and plurality of the media.

The ICA does not provide a definition of the exact scope of these sectors. Neither do the materials on the ICA nor academic writing bring clarity to the exact scope of these sectors. From our experience of numerous cases in the past years, the Austrian FDI authority (the Federal Ministry for Labour and Economic Affairs) generally applies a very broad interpretation of these sectors, in particular concerning the sectors in Part 2 of the Annex. For example, any activities listed in the subcategories of ‘critical infrastructure’ or ‘critical technologies’ are automatically classified as critical, hence (and although the ICA contains a definition of criticality) there is no additional criticality test and the FDI authority considers these activities caught irrespective of whether the activities (eg, due to its scope) are really ‘critical’. The ICA also does not provide for materiality thresholds and the FDI authority extends the scope of application of the subcategories in Part 2 of the Annex to the ICA to accessory activities, for eg, upstream activities.

It should be noted in this regard that the ICA foresees the possibility of requesting a non-jurisdiction letter (Unbedenklichkeitsbescheinigung) confirming that an envisaged investment in an Austrian undertaking is not subject to FDI approval under the ICA, which can help reduce the legal uncertainty.

Timeline

From the experience of the last few years, Phase 1 FDI cases in Austria usually take approximately two and a half months following the submission of the filing. Different to the proceedings under the FDI rules in Germany, the Austrian FDI review process starts with the EU cooperation mechanism. Depending on whether the European Commission or EU Member States raise questions or comments, that process often takes between five and seven weeks. The following Phase 1 review period by the authority takes up to one additional month. If the authority considers it necessary because a case raises potential risks to public order or security, a Phase 2 in-depth review is initiated, which can take up to an additional two months. In the worst case scenario, the process can take as long as approximately five months following submitting a complete filing for clearance. As the review process includes a range of different stakeholders on the side of the authority, often it is difficult for the authority to conclude its review faster.

The practical consequence: in particular, because the Austrian authority interprets the scope of the Austrian FDI regime extremely broadly, the Austrian FDI regime is a regulatory aspect that needs to be adequately assessed and managed in the early stages of deal planning, otherwise it can (and in practice often does) prove to be a bottle neck in international transactions.^[2]

The following statistical data shows how broadly the Austrian FDI regime is applied.

The report by the Austrian FDI authority

On 10 April 2024, the Austrian FDI authority submitted a report^[3] to the Austrian parliament that sets out data on the number of filings that have been submitted during the period between mid-2021 until end of 2022:

• during that period a total of 139 FDI proceedings were completed: 116 of these proceedings concerned requests for FDI approvals (Section 7 ICA); one case was an application pursuant to Section 8 ICA (request by the authority to submit an FDI filing) and 22 proceedings related to requests for non-jurisdiction certificates; and

• a total of 81 proceedings were completed and cleared in Phase 1, ie, FDI approvals were granted. In addition, 15 cases were completed in Phase 2 (ie, after an in-depth review procedure) without the imposition of conditions, whereas in nine of the Phase 2 cases conditions were imposed. Lastly, 12 FDI filings were rejected (for formal reasons) and seven FDI filings were withdrawn by the applicants.

The report underlines that the number of FDI filings has substantially increased compared to the previous period. It also shows that the Austrian FDI authority takes its role seriously and does not shy away from taking an active role in the market and from reviewing cases carefully (often in Phase 2 proceedings).