Estonia adopts FDI legislation

On 25 January 2023, the Estonian Parliament passed a law establishing a foreign direct investment screening mechanism (the FDI Act). The FDI Act regulates the screening of foreign investments into companies operating in pre-defined economic sectors or that meet certain criteria with the purpose of preventing adverse effects on the security or the public order of Estonia or any other EU country.

Entry into force

The FDI regime will become effective as of 1 September 2023. The regime will apply to transactions that have not yet closed at the time the FDI Act enters into force.

Investors

The FDI regime applies to foreign investors. The definition of a “foreign investor” includes all non-EU individuals and legal persons as direct or indirect acquirers.

Transactions

The FDI regime captures transactions involving the acquisition of (i) direct or indirect control, (ii) direct or indirect qualifying holding (≥10%), or (iii) a part of an undertaking (significant assets, enterprise, etc.).

The FDI regime applies regardless of the size of the investment.

Sectors / target companies

The FDI regime captures, among others, providers of vital services (electricity supply, natural gas supply, liquid fuel supply, ensuring the operability of national and local roads, phone and mobile phone service, data transmission service, digital identification and digital signing, payment services, cash circulation, district heating, water supply and sewerage), companies in which the state has a qualified holding, certain companies in the media and telecommunications sector, certain infrastructure companies, certain companies producing, supplying or providing technical services regarding military and dual-use goods.

The FDI regime applies regardless of the size of the target company (subject to one exception regarding certain companies in the media sector).

Notification

A foreign investor should make an FDI notification to the Consumer Protection and Technical Regulatory Authority after an agreement regarding the foreign investment has been signed or any other transaction regarding the foreign investment has been made, but before the respective foreign investment is completed.

The FDI review process is mandatory and suspensory – a standstill obligation applies until clearance is obtained and the parties should be cautious to avoid “gun-jumping”.

The Consumer Protection and Technical Regulatory may be consulted in advance regarding whether an FDI notification is mandatory in a particular case.

Review process timeline

The review process takes 30 calendar days from the submission of a complete filing. The Consumer Protection and Technical Regulatory Authority may extend the review process in certain cases. If remedies need to be negotiated with a foreign investor, the review process may take up to 180 calendar days.

Sanctions

In case of failure to comply with the mandatory notification requirement, the Consumer Protection and Technical Regulatory Authority may request that the transaction be reversed and may impose a periodically recurring monetary penalty in the amount of up to EUR 100,000 (each single penalty) to secure such reversal.