Cyprus to retain 15-month review period for key foreign investments

The House finance committee on Monday continued its article-by-article discussion of the harmonising bill establishing a national framework for screening foreign direct investments.

The Finance Ministry requested more time to examine how to handle cases of natural persons holding dual nationality from an EU member state and a third country who wish to make strategic investments in Cyprus.

During the session, ministry representatives explained that they had contacted the European Commission about the issue.

They said that the commission had responded that “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,” meaning they do not fall under the provisions of the bill.

However, the ministry’s representative added that “there are also member states that approach this issue differently, and the commission leaves open the possibility for a member state to choose to subject such individuals to screening.”

The ministry representative said that research conducted by the ministry showed that countries such as Estonia apply screening to natural persons of this type even if they hold EU nationality, whereas Austria does not conduct screening in such cases.

She added that the ministry had therefore asked for additional time to study the matter before a final decision is made.

The ministry also requested that the ability to screen such investments be retained within a 15-month period from the day of expression of interest for investment.

“It will become clear over time whether they acted reasonably or in bad faith,” the ministry representative noted.

Meanwhile, a representative of the Cyprus Bar Association and the Cyprus International Businesses Association (CIBA) stressed that “it is extremely important that the 15-month period remains” and added that European institutions are considering extending this timeframe in the future.

He said that it is necessary to ensure legal certainty for investors while at the same time safeguarding the state.

In this context, the representative called for the “establishment of clear criteria“.

He added that there are innovative companies that might raise specific issues under the current framework.

“We request that natural persons be included in the protection and control network and not only legal persons,” he emphasised.

On the subject of critical infrastructure, a ministry representative said that the EU has legislation defining “what constitutes critical infrastructure” and added that “we will issue guidance to direct potential investors to the directive where these infrastructures are recorded.”

Dipa MP Alekos Tryfonides said that the bill is intended to create a framework and procedure for controlling foreign direct investment in the European Union.

He explained that the bill replaces and improves the provisions of a previous bill that had already been examined, while incorporating suggestions from stakeholders.

Tryfonides stressed that the bill introduces strict safeguards that allow the state to intervene in the acquisition of large companies, organisations or financial institutions, especially systemic ones, if a transaction could threaten security or public order in Cyprus.

“From the article-by-article discussion, it has become clear that the new bill is indeed improved and it is a fact that the concerns expressed by many about a possible loss of foreign investments already made in Cyprus, as well as the view that the adoption of the law could make attracting new investment more difficult, have been mitigated, though we are not entirely certain,” he said.

He added that one controversial point concerns the retroactive effect of the legislation, which allows the screening of foreign direct investments up to 15 months back and provides for the possibility of cancelling a transaction if irregularities are found.

Tryfonides also said that there may be further exemptions from the scope of the law and questioned whether the threshold of €2 million is reasonable.

The issue will return to the House finance committee for further discussion.