Cyprus will retain a 15-month review period for foreign investments as discussions continue on a new framework for screening foreign direct investments. The House finance committee convened on Monday to review the harmonising bill, which aims to establish a clear process for assessing foreign investments in the country.
- “We request that natural persons be included in the protection and control network and not only legal persons,” he emphasised, advocating for a comprehensive approach to screening.
Finance Ministry Seeks Additional Time
During the session, representatives from the Finance Ministry expressed the need for more time to evaluate cases involving individuals who hold dual nationality from both an EU member state and a third country. This matter is particularly relevant for those looking to make strategic investments in Cyprus. The ministry has been in contact with the European Commission regarding this issue.
Clarifications from the European Commission
The ministry reported that the European Commission clarified its position on dual nationals, stating, “as long as a person holds the nationality of an EU member state, regardless of also having the nationality of a third country, they will be considered a European citizen and will not be subject to screening.” This means that such individuals do not fall under the new provisions outlined in the bill.
However, the ministry’s representative noted that various EU member states handle this situation differently. The commission allows for the possibility that individual countries might choose to screen these dual nationals if they wish.
International Comparison and Screening Practices
The ministry’s research revealed differing practices among EU nations. For instance, Estonia subjects dual nationals to screening despite their EU citizenship, whereas Austria does not enforce such measures. Given these discrepancies, the ministry has requested additional time to assess how best to approach the issue before finalising the bill.
Retaining the 15-Month Screening Period
In addition to evaluating dual nationality cases, the Finance Ministry emphasised the importance of retaining the 15-month review period for screening investments. This timeframe begins from the date of expression of interest for investment. “It will become clear over time whether they acted reasonably or in bad faith,” the ministry representative explained.
The Cyprus Bar Association and the Cyprus International Businesses Association (CIBA) have underscored the necessity of maintaining this 15-month period. Their representatives highlighted that European institutions are considering the potential for extending this timeframe in the future.
Balancing Investor Certainty and State Safeguarding
During the discussions, stakeholders stressed the need to ensure legal certainty for investors while protecting the interests of the state. A representative from CIBA called for the establishment of clear criteria in the investment screening process, noting that innovative companies might present specific challenges under the current framework.
“We request that natural persons be included in the protection and control network and not only legal persons,” he emphasised, advocating for a comprehensive approach to screening.
Defining Critical Infrastructure
On the topic of critical infrastructure, a ministry representative stated that the EU has existing legislation that outlines what constitutes critical infrastructure. The ministry plans to issue guidance to direct potential investors to the relevant directive where these infrastructures are recorded, helping to clarify the scope of investments subject to scrutiny.
A New Legislative Framework for Foreign Investments
Dipa MP Alekos Tryfonides indicated that the bill aims to create a robust framework and procedure for controlling foreign direct investment within the EU. He noted that this proposed legislation replaces and improves upon a previous bill that had already undergone examination, incorporating feedback from various stakeholders.
Tryfonides emphasised that the bill introduces strict safeguards allowing the state to intervene in the acquisition of large companies, organisations, or financial institutions—especially those deemed systemic—if a transaction poses a threat to security or public order in Cyprus.
Concerns and Further Discussions Ahead
From the ongoing discussions, it has become evident that the new bill is indeed an improvement. Concerns regarding the potential loss of existing foreign investments in Cyprus, as well as fears that the law could hinder the attraction of new investments, appear to have been alleviated, although uncertainty remains.
One contentious point remains the retroactive effect of the legislation, allowing for the screening of foreign direct investments made up to 15 months prior and including the potential cancellation of transactions if irregularities are detected. Additionally, further exemptions from the scope of the law may be considered, and the appropriateness of the €2 million threshold for scrutiny is under question, with discussions set to continue in the House finance committee.
Looking Forward
The ongoing conversations in the House finance committee reflect Cyprus’s commitment to establishing a clear and effective framework for foreign direct investment. While the 15-month review period remains intact, the ministry’s request for additional time to study dual nationality cases indicates a cautious approach to ensure that the screening process aligns with both national and EU standards.
