Corporate / M&A

New Approval Requirement in the Austrian Foreign Investment Regime

Ever thought about investing in Austria? Well, foreign investors beware. At the end of 2011, an amendment to the Austrian Foreign Trade Act (FTA) entered into force. It requires advance approval by the Austrian Ministry of Economic Affairs for an acquisition of a relevant stake in enterprises in certain industries, comprising a wide range of sectors.

Foreign investment control – Austria in good company

Foreign investment control is not unusual. Even the Economist (October 6, 2012, “The state advances”) acknowledges that it is not uncommon for countries to have foreign investment review regimes. America is judged as having “a murky security-review process which has been used to chase away Chinese energy and telecoms investors”. However, with the exception of China, which is criticised in the article for its protectionism of state enterprises, foreign investment approval regimes are typically national-security related.

This is not necessarily so under the new Austrian regime.

The scope of relevant industry sectors under the FTA is quite wide. It covers not only industries concerning internal and external security, such as defence and security services, but also public order and safety, and procurement and crisis services. The latter include hospitals, ambulance and emergency medical services; fire fighters and civil protection services; energy and gas supply; water supply; telecoms; railways; road traffic; universities; and schools of various types and pre-schooling institutions.

Is a transaction caught by the FTA?

Apart from the question whether a relevant industry sector is affected, whether a potential transaction is caught by the FTA depends primarily on two factors.

  • Is the acquirer a “foreign investor”? Only investors who are non-EU, non-EEA or non-Swiss citizens, or have their corporate seat outside this geographical region, are considered “foreign” for the purposes of the FTA regime (pursuant to the parliamentary materials, indirect investments via EU or EEA acquisition vehicles are not caught; however, such structures may be investigated ex officio under circumvention considerations).
  • Does the transaction result in the acquisition of an enterprise, of a participation of 25% or more or of a (co-)controlling interest in a (relevant) enterprise with corporate seat in Austria?

There are two different procedures under the FTA: (i) an ex ante approval, and (ii) an ex officio review. The ex ante approval procedure takes one month from submission of the application for approval (phase I) and, in case of in-depth review, an additional two months (phase II).

Under the ex ante approval regime, the potential acquirer must submit the application before (i) entering into a legally binding commitment to acquire the relevant stake or (ii) announcing the launch of a public tender offer with respect to such target.

During a phase I review, the transaction must be approved or a phase II review must be initiated. If the Ministry of Economic Affairs issues no decision during the one-month timeframe, the transaction is deemed approved. The FTA does not, however, provide for any procedure for a (non-binding) assessment or a negative clearance. An investor would thus have to initiate the formal approval process to obtain legal certainty.

When can a deal be blocked?

A transaction can be blocked only during a phase II review. Alternatively, the Minister can issue an unconditional approval or approve the transaction subject to conditions to mitigate risks associated with the deal. If a transaction is prohibited, the decision can be appealed. Whether that is a commercially feasible remedy and really helps an investor is a different story. One just has to consider, for example, the overall timeline and the negative publicity that will likely come with a blocked deal.

The ex officio procedure applies only in limited circumstances (internal and external security sectors), but the requirements and triggers are not entirely clear. Based on the wording of the FTA, it is aimed at circumvention structures and requires a reasonable suspicion as to a threat to certain protected interests. Unfortunately, the FTA does not provide for a time limit within which this procedure must be initiated.

If a deal falls under the FTA and is entered into without the necessary approval, it is invalid and, if implemented, can be unwound. Additionally, even negligent violations of the approval requirements are subject to fines of up to 360 days of income or up to one year imprisonment of the managers of the acquirer. Wilful violations are subject to up to three years imprisonment.


Time will tell how the new foreign investment regime is handled and what its practical consequences will be to transactions considered by foreign investors. It is hoped that the Austrian Ministry of Economic Affairs will consider the economic importance of investment activity and, as the Economist concludes with respect to its example China, that (foreign) investment “can kick-start the flagging economy in a way that shovelling cash at inefficient state-owned enterprises cannot”.

If a deal falls under the FTA and is entered into without the necessary approval, it is invalid and, if implemented, can be unwound.