On 12.03.2024 the Act on Amendment and Supplement to the Investment Promotion Act entered into force, which introduces a screening procedure for certain types of foreign direct investments in accordance with Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investment into the Union. Screening is a procedure allowing foreign direct investments to be assessed, investigated, authorised, conditioned, prohibited or unwound. The so-called Inter-agency Council to the Council of Ministers will be competent under such procedures.
Criteria and thresholds have been introduced, the fulfilment of which requires screening to be carried out prior to the implementation of the investment plan. These criteria relate to certain fields of activity, the size of the investment (general threshold of EUR 2 million), and its origin (non-EU country, including financing by a public authority of a third country).
Notwithstanding the general rules, all foreign direct investments are subject to screening: 1) that carry out activities related to the production of energy products from petroleum and products of petroleum origin in facilities that are part of or adjacent to strategic infrastructure of national security importance in the energy sector; 2) that have a foreign investor from Russia or the Republic of Belarus; 3) that are proposed for screening by a member of the Inter-agency Council; 4) regarding which a reasoned request has been made by the State Agency for National Security or the State Intelligence Agency when there is evidence that the investment may have an impact on security or public order.
There are certain low-risk non-EU countries, whose list is still to be completed, to which the EU country screening rules will apply.
It is a mandatory prerequisite for the foreign investor to obtain permission from the Inter-agency Council before proceeding with the investment. For this purpose, the investor shall submit an application to the Inter-agency Council through the Bulgarian Investment Agency. The Inter-agency Council is obliged to decide on the application within 45 days of its receipt or the rectification of any discrepancies therein. The time limit may be extended once for a period not exceeding 30 days. It is provided that failure to act on an application within the time limit shall be deemed to be acquiescence.
The Inter-agency Council may authorise the investment, including subject to compliance with restrictive measures by the foreign direct investor, but if it considers that the investment affects the security or public order of Bulgaria or is likely to affect projects or programmes of interest to the European Union, it may refuse to grant authorisation. The acts of the Inter-agency Council are subject to appeal under the Administrative Proceedings Code.
In case of violation of the legal requirements, including making an investment without prior authorisation, submitting inaccurate, incomplete or misleading information in an application, a fine or a pecuniary sanction of 5 percent of the value of the investment, but not less than BGN 50,000 shall be imposed. Notwithstanding the fine or pecuniary penalty, the Inter-agency Council, after negotiations with the foreign investor, may impose restrictive measures necessary to ensure security or public order, including change of control, change and/or suspension of activities, termination of foreign direct investment and other appropriate measures.
For the implementation of the new regime, the adoption of rules of procedure of the Inter-agency Council (within 6 months) is foreseen, and no application shall be submitted for investments that commenced after the entry into force of the regime, but before the implementation of the rules of procedure of the Investment Promotion Act and the adoption of the rules of procedure of the Inter-agency Council.
With the introduction of the new rules, Bulgaria is effectively creating a sui generis dual investment screening regime, simultaneously introducing specific national rules, as well as rules within the framework of Regulation (EU) 2019/459.
A question is also raised what happens with the international treaties to which Bulgaria is a party and which have as their object the promotion of investments (e.g. the Agreement between the Republic of Bulgaria and the State of Kuwait for the reciprocal promotion and protection of investments). In all cases, Bulgaria should ensure that the new rules are in line with International investment law.
We are likely to see more frequent disputes between EU countries and investors, including an increase in the number of disputes pending before the International Centre for Settlement of Investment Disputes (ICSID).
