CMS Expert Guide to Foreign Investment Screening Laws in the Netherlands

The primary piece of Dutch legislation governing (foreign) direct investment is the Investments, Mergers and Acquisitions Security Screening Act (Wet veiligheidstoets investeringen, fusies en overnames) ("Vifo Act"), which entered into force on 1 June 2023.

The Netherlands also has screening regimes specific to the gas, electricity and telecommunications sectors. These sector-specific regimes are enshrined in the Gas Act (Gaswet), Electricity Act 1998 (Elektriciteitswet 1998) and Telecommunications Sector (Undesirable Control) Act  (Wet ongewenste zeggenschap telecommunicatie). If an investment falls under any of these acts, it must be assessed under the corresponding regime.

Regulation (EU) 2019/452 (EU FDI Screening Regulation) is applicable in the Netherlands.

This guide will focus on the Vifo Act.

The Vifo Act applies to “acquisition activities”, which are defined as acquisitions, mergers, establishing full functional joint ventures, demergers and asset transfers and any other activity whereby control or significant influence is acquired over a relevant target. Intra-group transactions do not fall within the scope of the Vifo Act, provided that the ultimate shareholder(s) of the target company remain(s) the same. Greenfield transactions are not caught.

The Vifo Act applies to three categories of target companies:

• Vital providers: Vital providers are companies that operate, manage or make available services whose continuity is vital to Dutch society. Companies active in the following sectors are designated as vital providers:
  • Heat transport;
  • Nuclear power;
  • Air transport (the operator of Schiphol Airport, provider of ground handling services and KLM);
  • Port of Rotterdam;
  • Banks with a registered office in the Netherlands;
  • Financial market infrastructure providers, such as trading platforms; and
  • Gas storage.
• Companies active in the field of sensitive technology: In the Vifo Act and in the related Sensitive Technology Decree “sensitive technology” is defined as technology designated as either dual-use (as defined in Regulation (EU) 2021/821), military goods (as defined in the Common Military List of the European Union) or one of the four additional categories laid down in Annex 2 of the Sensitive Technology Decree, namely quantum technology. photonics technology, semiconductor technology and high assurance products.
  The Sensitive Technology Decree also differentiates between “sensitive” technology and “highly sensitive” technology. It identifies quantum technology, photonics technology, and semiconductor technology as examples of highly sensitive technology. As explained below, a lower threshold applies where a target company is active in the field of highly sensitive technology.
• Companies that manage a business campus: The Vifo Act applies to operators of business campuses where there is public-private collaboration on economically and strategically important technology for the Netherlands.

The Vifo Act applies to the acquisition of shares, depending on the level of influence obtained by the investor over the target company:

• If the target company is a vital provider, an operator of a business campus or active in the field of sensitive technology, the Vifo Act applies if the buyer acquires control. The definition of control in the Vifo Act is the same as in the Dutch Competition Act (Mededingingswet) and under EU merger control rules.
• If the target company is active in the field of highly sensitive technology, the Vifo Act applies if the buyer acquires or increases significant influence. The Vifo Act defines significant influence as being able to exercise 10%, 20% or 25% of the voting rights or being able to appoint or dismiss one or more directors. An increase in significant influence to 10%, 20% or 25% is also notifiable. Thus, it is possible that multiple notifications may be required in the case of a staggered acquisition of voting rights.

The Vifo Act can also apply to the acquisition of crucial assets, such as essential intellectual property, personnel or key machinery, where this results in gaining de facto control over the target company.

The Vifo Act does not differentiate between non-EU and EU acquirers. It applies to all acquirers, including those (only) established in the Netherlands. However, public bodies governed by Dutch law, such as the State of the Netherlands, Dutch provinces and municipalities are excluded from the scope of the Vifo Act. 

Notification of the acquisition activity is mandatory if the transaction falls within the scope of the Vifo Act. 

Once a notification has been made, a standstill obligation applies and the transaction may not be implemented until the Investment Screening Bureau (Bureau Toetsing Investeringen) (BTI) has either rendered the decision that a review decision is unnecessary or, if a review decision is needed, until the BTI has issued an unconditional or conditional approval.

The Minister may grant an unconditional or conditional exemption from the standstill obligation once a transaction has been notified. This requires that the public interest is at stake, with a risk of economic, physical or social damage to (parts of) society or adverse effects on financial stability if the exemption is not granted.

The substantive test is whether the acquisition activity poses a risk to national security. The BTI assesses whether the acquisition activity could:

1. lead to a disruption of the continuity of vital processes;
2. affect the integrity and exclusivity of knowledge and information with critical or strategic significance for the Netherlands; or
3. lead to an unwanted strategic dependence of the Netherlands on other countries.

To determine if the transaction means a risk to national security the BTI takes into account several factors, such as:

• the transparency of the ownership structure and relations;
• the existence of restrictive measures posed on the acquirer;
• the geopolitical status of the country or region where the acquirer is established;
• whether the acquirer committed any of the criminal offences;
• the level of cooperation with the review;
• the existence of a motive to supply incorrect information or the actual supplying of incorrect information;
• the acquirer's track record in operating a business or businesses in the same sector, or businesses also within the scope of the Vifo Act; and
• the financial stability of the acquirer.

The Dutch investment screening regime is administered by the BTI on behalf of the minister of Economic Affairs.

The reporting obligation falls on the acquirer and the target company.

If the acquirer cannot know that the transaction falls under the scope of the Vifo Act due to the target company's duty of confidentiality, the acquirer is exempted from the notification obligation. In such cases, the responsibility to notify shifts to the target company once it becomes aware of the transaction.

Transactions must be notified prior to closing of the acquisition.  Following the notification, the BTI has eight weeks to render a screening decision. In this screening decision the BTI either approves the transaction or renders the decision that a review decision is required because the acquisition activity may pose a risk to national security.

The BTI can extend the period to render a decision by a maximum of six months in total for each phase of the screening process. The BTI may extend the period by an additional three months if the transaction falls within the scope of the EU FDI Screening Regulation, to give other EU Member States and the European Commission time to respond to the proposed transaction.

When a review decision is required, the parties must apply for a review decision. This is the second or review phase. The review decision must then be rendered within eight weeks, concluding if the acquisition activity leads to risks to national security.

In addition to the possibility to extend the decision-making period, the BTI may raise questions and stop the clock until the parties have submitted their answers.

There is no notification fee or other administrative fees associated with the review procedure.

The process is confidential. The BTI does not publish screening decisions since the Vifo Act does not require it to do so. However, partial disclosure may possibly be obtained through requests under Open Government Act (Wet open overheid).

Information that needs to be shared with other Member States and the European Commission under the EU FDI Screening Regulation will be shared with the appropriate confidentiality and through secured channels.

If parties fail to notify the acquisition activity or breach the standstill obligation the acquirer and/or target company can be fined up to EUR 1,030,000 or, if this does not result in an appropriate penalty, up to 10% of the turnover of the relevant undertaking. The implementation of a transaction that is prohibited is null and void.