The Law on the Establishment of a Framework for the Screening of Foreign Direct Investments of 2025
by Anna Pillakouri, Corporate Lawyer
The Law on the Screening of Foreign Direct Investments implements the Regulation (EU) 2019/452 of the European Parliament and of the Council of March 2019, establishing a framework for the effective and transparent screening of foreign direct investments in order to safeguard national security and public order, while providing a stable institutional environment.
The competent authority for screening foreign investment is the Ministry of Finance, which is empowered to approve, impose conditions on, prohibit, or reverse investments that may affect security or public order.
According to the legal provisions, a foreign investor, defined as any natural person from a country outside the EU, the European Economic Area, or Switzerland or a third-country enterprise that intends to make or has made a foreign direct investment, shall be required to notify the competent authority in advance of their intention, prior to the implementation of the investment.
Notification Obligation for Foreign Direct Investment (FDI)
On the ground of the relevant legal provisions1, the obligation to notify applies only when all of the following conditions are cumulatively met Article 3(2):
2 (a) The foreign direct investment results in the acquisition of a special participation, that means the acquisition, whether directly or indirectly, individually or in coordination with other persons, of shareholding representing at least 25% of the company’ s shares capital and or voting rights, or equivalent ability to exercise decisive influence over the company activities.
2 (b) The value of the foreign direct investment, either individually or together with other transactions between the same parties within a period of twelve (12) months from the date on which the investment is planned to take place, equals or exceeds two million euros (€2,000,000).
2 (c) The foreign direct investment concerns a strategically important enterprise, as is defined in this Law including infrastructure in the fields of energy, transport, water supply, health, education, tourism, communications, media, data processing or storage, airspace infrastructure defence, electoral or financial services including systemic credit institutions, sensitive facilities, as well as land and real estate that are of critical importance for the use of these infrastructures.
3(4) Any further increase in a special participation resulting in the investor’s shareholding and/or voting rights changing:
(a) from less than 25% to 25% or more
(b) from less than 50% to 50% and more,
creates an obligation to notify regardless of the value of the foreign investment.
Any enterprise, organization, foundation, or other type of legal entity in which at least twenty-five percent (25%) of the share capital and/or voting rights is held by a foreign investor and/or where the beneficial owner is a foreign investor and/or in which a foreign investor holds, directly or indirectly, control of the relevant enterprise, organization, foundation, or other type of legal entity, intends to carry out a foreign direct investment in an enterprise of strategic importance to the Republic of Cyprus, shall be subject to the obligation to notify as well.
At the same time, the law also empowers with broad discretion the competent authority to examine, any foreign direct investment within fifteen (15) months from the date on which the investment was made, despite the fact that does not falls within the scope of mandatory notification, as long as there are reasonable grounds to believe the investment may affect security or public order of the Republic of Cyprus.
While, in any case where any person related to a foreign direct investment that falls within the above legal provisions fails to proceed with the notification to the competent authority, that foreign direct investment shall automatically be deemed to be in violation of the provisions of this Law, and the competent authority may, within five (5) years from the date that the investment occurs, and when it deems the circumstances require so, to prohibit, terminate, or reverse the foreign direct investment in question.
Disclosure Information and Screening Procedures
Furthermore, the legal framework for screening foreign direct investment requires extensive disclosures about the parties involved. Indicatively, we note that these include, but are not limited to, parties’ identities, registered addresses, ownership and beneficial ownership structures, as well as the value and financing of the investment. Information is also required on the business activities of both the foreign investor and the strategic enterprise, covering their economic activities in Cyprus, along with their financing arrangements and source of funds. Finally, the competent authority may request any further information or verification necessary to assess the investment.
The requirement to provide and submit such extensive information inevitably increases bureaucratic procedures and imposes additional burdens on the investor, potentially slowing down or complicating the investment process. The process remains demanding even after the submission of the complete application, as the competent authority may request further information or verification to assess the investment. This also creates challenges for lawyers, who must diligently guide and inform their clients from the outset, ensuring that all required information is accurately prepared and submitted, while also acknowledging that they cannot provide definitive assurances regarding the progress or outcome of client’s applications, rendering the process inherently somewhat uncertain.
In particular, the competent authority has twenty (20) working days from receiving a complete application to decide whether a foreign direct investment is subject to screening. Before making this decision, the authority consults the Advisory Committee. During this stage, the authority may request any additional documents, information, explanations, or clarifications from the foreign investor, and the twenty-day period is suspended until the requested material is submitted.
Once the authority decides that the investment is subject to screening, it informs the investor within five (5) working days. It then has sixty-five (65) working days to assess whether the investment could affect the security or public order of the Republic of Cyprus. This sixty-five-day period is also suspended if further information is requested from the investor. In deciding whether the investment affects public order or security, the authority consults the Advisory Committee. While it is noted that the European Commission’s shall be also notified of any foreign direct investment undergoing screening, and may issue an opinion, as well as EU Member States has the right to submit observations, in accordance with Regulation (EU) 2019/452. Finally, if the authority concludes that the investment does pose risks, it may impose conditions, prohibit, or reverse the investment and informs the investor of its decision.
Similarly, under the cooperation mechanism between Member States in relation to foreign direct investments, where a Member State considers that a foreign direct investment planned or completed in the Republic of Cyprus, which is not subject to screening, is likely to affect its security or public order, or where it possesses relevant information regarding that investment, it may submit observations to the Republic of Cyprus and to the European Commission. In such cases, the European Commission may issue an opinion, in accordance with Regulation (EU) 2019/4522.
It seems that the law establishes a legal framework for the effective and transparent screening of foreign direct investments, aiming to safeguard national security and public order, while at the same time providing a stable institutional environment. However, a question arises regarding the practical implications for investors intending to proceed with a strategically important investment. Taking into consideration the assessment process, the cumulative effect of the timeframes involved and the delays raising considerations as to how these practical challenges can be addressed effectively.
Moreover, significant uncertainty for investors arises from the fact that, even where a foreign direct investment is not subject to mandatory notification, the competent authority may still exercise its powers within fifteen (15) months from the date the investment is completed and subject the investment to a screening process. Additional uncertainty and potential delays are further introduced by the possibility that other EU Member States may request information and submit observations regarding the investment, which may extend the timeframe for reaching a final decision. This is particularly relevant in cases where the competent authority considers that the investment does not fall within the scope of mandatory screening, as other Member States may nevertheless submit observations or request information in pursuit of the framework’s objective of safeguarding security and public order within the European Union.
Practical Considerations for Effective Implementation of the Screening Mechanism
While comprehensive disclosure is essential to assess risks to security and public order, the breadth of information obligations may place significant strain on administrative resources and affect the efficiency and timeliness of the screening process. In this context, it would be a real challenge for the Ministry of Finance to implement best practices in order to be able to process applications within the prescribed statutory timeframes.
The Ministry of Finance should properly organise and adequately train its officials, ensuring that sufficient and trained staff are available to competently collect, analyse, and evaluate the required information, as well as to examine applications within the timeframes prescribed by the legislation without undue delays. Technological infrastructure, specifically modern IT systems to manage the collection, storage, and analysis of investment-related information will be a critical ally in addressing these challenges, supporting the efficient and accurate implementation of the screening mechanism. Simultaneously, it will be of great importance, officials to be able to inform and guide applicants whenever necessary through communication channels (email updates, portals, FAQs) help investors understand the process, timelines, and additional requirements. The issuance of secondary legislation/ provided for in the legislation, would also be an important and helpful step in terms of the best practical implementation of the legislation.
These practical challenges suggest that legislative amendments and the issuance of secondary legislation by the Ministry of Council it would be significant and helpful in order to clarify information requirements, and enhance the effectiveness of the screening mechanism without compromising its scope. In parallel, the preparation and publication of a detailed guidance manual by the competent authority would be highly beneficial. Such guidance including standardised forms, checklists, and examples of required documentation could provide clarity on the scope of information required, indicative timelines, thereby assisting investors and their advisers in preparing complete and accurate notifications from the outset.
The Ministry of Finance should also establish clear procedures for timely and effective communication with other EU Member States and the European Commission, in accordance with Regulation (EU) 2019/452, by appointing a single central contact point for all foreign direct investment screening matters. This contact point would be responsible for sending and receiving information, coordinating requests and responses, and ensuring that all communications are handled within the required timeframes. A centralised contact point can facilitate the exchange of information, submission of observations, and receipt of opinions, ensuring that the screening process remains transparent and well-coordinated.
Experiences from the Application of Foreign Direct Investment Screening Mechanisms in Other Countries
The competent authority assesses whether a foreign direct investment may affect the security or public order of Cyprus by considering factors such as the target enterprise’s operation in sensitive sectors, including critical infrastructure in areas like energy, education, tourism, transport, defence, communications, financial services, and essential facilities, land, or real estate. The assessment also examines potential impacts on access to or control of sensitive information and media freedom3. Further it evaluates the investor’s background, including any control by a third-country government or involvement in activities harmful to EU Member State security or public order.
As an illustration, and for a better understanding of the practical experience and implementation of foreign direct investment screening mechanisms in other countries, references may be made to the decision of 27 August 2024, whereby the Spanish Council of Ministers decided not to approve the public takeover bid submitted by the Hungarian consortium Ganz-Mavag for the acquisition of the Spanish train manufacturing company Talgo4. The consortium is partially controlled by the Hungarian State. The decision was taken on the grounds of risks to national security and public order.
Αnother example is encountered in Hungary, where the acquisition of 100% of the shares of the dairy company, Alföldi Tej Kft by a Greek company was rejected. Alföldi Tej Kft represents approximately one fifth of total milk production in Hungary and is owned by Hungarian investors. According to reports in the international press5, the decision was based on the company’s significant market position, which was considered capable of causing substantial disruption to domestic milk production and distribution, as well as posing significant risks to the security of milk supply.
As demonstrated by the examples above, an undertaking of strategic importance may encompass a particularly broad range of investments in sensitive sectors and must therefore be assessed in light of its potential impact on public security. Given both the breadth of such investments and the variable nature as well as the extent of their potential effects, it is not always possible to predetermine whether a given transaction will raise public security concerns in an individual case. This inherent uncertainty is reflected in the manner in which national authorities apply the framework in practice, as illustrated by the following example.
The Pirelli case6 shows that companies in traditional industries, like tire manufacturing, can become strategically important when they incorporate advanced technologies. Italy intervened against Sinochem, a company linked to the Chinese state that owns a 37 per cent stake in Pirelli, on the grounds of national security concerns. The government emphasized that Pirelli’s tires, equipped with advanced sensors, can collect sensitive data such as road layouts, geolocation, and the condition of infrastructure, making this technology critical for public safety. Italy expressed concern that Sinochem could potentially misuse this technology or access sensitive information, influencing strategic decisions. Under its “golden power” law7, Italy restricted Sinochem’s ability to appoint the CEO, make major corporate decisions (including mergers, acquisitions, and sales), or set company strategy, highlighting that the strategic importance of a company depends not only on its products but also on the sensitive technology it controls.
The scope and limits of challenging competent Authority Decision
It should be also noted, that the Foreign Direct Investment screening framework, preserves the right of any investor to challenge in Court, the decisions taken by the competent authority. In assessing the scope and limits of that right, important guidance may be drawn from recent UK case law, in particular the High Court judgment in the firstchallenge to a forced divestment order issued under the UK’s national security screening regime established by the National Security and Investment Act 2021 (NSIA)8.
This case concerned a Final Order requiring LetterOne Group to force the divestment of its shareholding in Upp, a UK fibre-broadband company. The Ultimate Beneficial Owners (UBOs) of LetterOne were Russian nationals, two of whom became subject to UK sanctions following the invasion of Ukraine. The Secretary of State found that the acquisition constituted a trigger event and gave rise to a national security risk, based on the vulnerability of LetterOne’s Russian Ultimate Beneficial Owners to potential influence by the Russian State. The Court accepted that divestment was necessary and proportionate, and that no lesser remedies would adequately mitigate the risk.
Subsequently, LetterOne appealed solely on the question of whether its rights under Article 1 of Protocol 1 of the European Convention on Human Rights (A1P1) entitled it to compensation beyond the proceeds of the forced sale9. On 28 November 2025, the UK Court of Appeal dismissed that appeal, holding that receipt of the sale proceeds from an open-market sale satisfied the proportionality requirement under Article 1 of Protocol 1 (A1P1) where national security is at stake and that there is no automatic right to full fair value compensation beyond sale proceeds for losses arising from a forced divestment order under the NSIA, reaffirming the wide margin of judgment afforded to the executive in national security cases10.
Revisiting the Cyprus framework, the Cypriot Foreign Direct Investment screening framework provides a comprehensive and transparent mechanism aligned with EU requirements. While, it aims to protect national security and maintain a stable investment environment, the extensive information requirements, broad scope of sensitive sectors, and potentially lengthy review periods including the EU cooperation mechanism under Regulation (EU) 2019/452, generate practical challenges for the all parties involved. Clear guidance and support from the Ministry of Finance, encompassing the effective implementation of procedural timelines, transparent assessment criteria, and communication with investors alongside expert advisory services, will be essential to ensure the law achieves its security objectives while supporting strategically important foreign investments.
- The Law on the Establishment of a Framework for the Screening of Foreign Direct Investments, Law 194(I)/2025 (Republic of Cyprus, 2025), https://www.cylaw.org/nomoi/indexes/2025_1_194.html
↩︎ - Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, OJ L 79 I/1 (21 March 2019), https://eur-lex.europa.eu/eli/reg/2019/452/oj
↩︎ - European Commission and High Representative at the Union for foreign affairs and Security Policy, Joint Communication to the European Parliament and the Council Strengthening EU Economic Security Join (2025) 977 Final, Brussel, 3 December 2025.
↩︎ - “Spain issues first public veto under the FI rules introduced in 2020,” Linklaters (October 29, 2024), https://www.linklaters.com/en/insights/blogs/foreigninvestmentlinks/2024/october/spain-issues-first-public-veto-under-the-fi-rules-introduced-in-2020.
↩︎ - Reuters, “Hungary bans foreign takeover of dairy company citing supply safety concerns,” Reuters (September 16, 2025), https://www.reuters.com/markets/commodities/hungary-bans-foreign-takeover-dairy-company-citing-supply-safety-concerns-2025-09-16/
↩︎ - Amy Kazmin and Silvia Sciorilli Borrelli, “Italy strips China’s Sinochem of its influence as Pirelli’s largest investor,” Financial Times, June 18, 2023, , https://www.hoover.org/research/articles-automakers-trade-tech-economy-state-backed-funding-covid-ai-and-more ↩︎
- “Italy opens procedure against China’s Sinochem for possible breach of Pirelli governance,” Associated Press (November 7, 2024), https://apnews.com/article/italy-golden-power-china-pirelli-sinochem-67a3276b8e391fe0c7903ae8ea9cbc8b. ↩︎
- R(L1T FM Holdings Limited and another) v Chancellor of the Duchy of Lancaster in the Cabinet Office [2025] EWCA Civ 1528, approved judgment (Court of Appeal, Civil Division, 28 Nov 2025), https://www.judiciary.uk/wp-content/uploads/2025/11/L1T-FM-Holdings-approved-judgment.pdf. ↩︎
- Court of Appeal upholds Chancellor of the Duchy of Lancaster’s decision in significant national security case, 5 Essex Chambers (28 November 2025), (28 November 2025), https://www.5essex.co.uk/court-of-appeal-upholds-chancellor-of the-duchy-of-lancasters-decision-in-significant-national-security-case/ ↩︎
- UK Court of Appeal rules no right to full compensation for forced sale on national security grounds, CMS Law-Now (December 11, 2025),
https://cms-lawnow.com/en/ealerts/2025/12/uk-court-of-appeal-rules-no-right-to-full-compensation-for-forced-sale-on-national-security-grounds
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