CZECH REPUBLIC Law and Practice Contributed by: Petr Mlejnek, Robert Klenka, Matěj Manderla, Jan Wagner, Ivo Hartmann and Arbër Balliu, Tenacta, advokátní kancelář, s.r.o.
“effective degree of control” over the target’s econom - ic activity. For the purposes of the FDI Screening Act, an effective degree of control includes, in particular: • the ability to dispose of at least a 10% share of voting rights in the target entity, or to exercise cor - responding influence over the target entity, includ - ing through persons acting in concert or subject to common control with the foreign investor; • membership of the foreign investor, or a person closely connected to the foreign investor, in a cor - porate body of the target entity; • the ability of the foreign investor to exercise owner - ship rights over assets through which the relevant economic activity is carried out; or • any other level of control enabling the foreign investor to gain access to information, systems, or technologies relevant to the protection of the security of the Czech Republic or its internal or public order. Attention is generally paid to investments involv - ing strategic or security-sensitive sectors. Pursuant to Section 7 of the Czech FDI Screening Act, prior approval of the Ministry of Industry and Trade is man - datory in particular where the foreign investment con - cerns: • entities active in production, research, develop - ment, innovation or life-cycle management of military material; • critical infrastructure operators; • providers of regulated services subject to a higher level of cybersecurity obligations; • dual-use goods and technologies listed under applicable EU export control regulations; and • other activities or assets considered essential from the perspective of the security or public order of the Czech Republic. The assessment focuses primarily on the substance and practical effects of the transaction rather than purely formal ownership structures. Competent Authority Foreign investment reviews are conducted primarily by the Ministry of Industry and Trade of the Czech Republic.
The Ministry may also co-operate with other govern - mental authorities depending on the nature of the transaction, including: • security authorities; • intelligence services; • defence authorities; • cybersecurity authorities; and • other specialised regulatory bodies. As a result, the review process frequently includes legal, economic and security considerations. Timing Considerations Where approval requirements apply, investors gener - ally need to obtain clearance before completing the transaction. Parties commonly address regulatory approval requirements through transaction documentation by including: • conditions precedent; • co-operation obligations; • information-sharing requirements; • long-stop dates; and • termination mechanisms. Failure to identify applicable review requirements at an early stage may significantly affect transaction timing and completion certainty. Failure to comply with the FDI Screening Act can result in severe sanctions. The Ministry may prohibit the continued existence of the foreign investment and order the sale of the target entity or asset. Furthermore, carrying out an invest - ment without the required approval or consultation proposal may result in a fine of up to 1% of the inves - tor’s total net turnover, while violating conditions or a prohibition decision can lead to a fine of up to 2% of the turnover. 2.2 Procedure to Obtain Approval and Sanctions for Non-Compliance Introduction Where a transaction falls within the foreign investment review framework, investors are generally required to submit an application for approval or a proposal for
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