Foreign Direct Investment – Denmark

http://horten.dk/

1. Relevant legislation (foreign investment legislation in force)

Act no. 1256 of 27 October 2023 on certain foreign direct investments etc. in Denmark (hereinafter “The Investment Screening Act“).

Link (DA): The Investment Screening Act.

The Investment Screening Act entered into force on 1 July 2021 (The Investment Screening Act 2021-05-10 no. 842). The Investment Screening Act together with four associated executive orders constitute the legal framework on certain foreign direct investments and special financial agreements.

The Investment Screening Act was amended in 2023. The amendment came into force on 1 July 2023 and concerns agreements related to the energy island in the North Sea in which certain rules applies for the contracting parties. This extended screening mechanism requires all contracting parties regardless of their legal form or whether they are established in EU, to notify the Danish Business Authority (hereinafter “DBA“).

2. Relevant Authority (foreign investment regulator)

The Danish Business Authority (DBA).

Link: DBA.

3. Specific sectors covered (foreign investment regime involving specific sectors of the economy / business activities)

The Investment Screening Act defines a number of particularly sensitive sectors and activities in relation to national security or public order:

Defense sector
IT security functions
Dual use products
Other critical technology (nuclear technology, biotechnology etc.)
Critical infrastructure.

Further, agreements concerning the establishment, ownership, or operation of the energy island in the North Sea are also considered a sensitive sector covered by the Investment Screening Act.

4. Types of transactions caught and notification thresholds (definition of a foreign investor / activities / turnover / assets subject to foreign investment assessment / investment threshold – e.g. % of votes in the target triggering the notification)

The Investment Screening Act covers foreign direct investments in Denmark. “Foreign direct investments” are defined as gaining control or significant influence over a company or entity domiciled in Denmark by direct or indirect possession of or control over the shares or voting rights (25 %) in the company or equivalent control by other means, including the purchase of assets and long-term loans. Foreign direct investments include foreign direct investments and special financial agreements with existing Danish companies, but also the founding of new companies (Greenfield investments).

In addition, the Danish Business Authority screens “special financial agreements”. These are joint venture agreements and certain commercial agreements. A special financial agreement exists if the following two conditions are met:

The agreement must with one of the following three categories:
- a joint venture on research and development,
- a supplier agreement (an agreement to supply raw materials, products, plant or semi-finished products and components, including software),
- an operating or service agreement, i.e., an agreement on the operation or maintenance of buildings, facilities, installations, or systems,
The investor must through the agreement achieve control of or significant influence over a Danish company or entity (e.g., a public authority) or business-critical areas of the company or entity (e.g., development activities).

5. Parties to be included in the foreign investment assessment (notifying parties and protected entities)

The parties to the application are the company being invested in (i.e., the protected entity) and the foreign company making the investment (including group-affiliated companies). The decisive factor is from where the investing company is controlled. The foreign direct investment is only subject to notification if the investing company is ultimately controlled or under significant influence from citizens or companies outside the EU or EFTA.

6. Exceptions

The De minimis-exemption

Although an investment, foundation of a new company or a special financial agreement in a particularly sensitive sector requires authorisation, such activities may be exempt from the requirement for authorisation under a “de minimis” rule.

Conditions:

the foreign investor’s capital inflow to the new company does not exceed DKK 75 million in total for up to three financial years from foundation of the new company,
the newly established company is not a subsidiary of a foreign investor,

Under those conditions, an investment does not require authorisation.

7. Notification / review type (e.g. mandatory, pre-closing, suspensory)

An investment covered by the Investment Screening Act will require a mandatory notification. The notification is suspensory, i.e., the investment/founding of a company cannot be completed before an approval is obtained.

It is possible to notify planned and completed investments. However, if the investment has already been completed, the Danish Business Authority can initiate further investigations up to 5 years from the completion if assessed that the investment may pose a threat to national security or public order.

8. Possibility for third parties to be involved in the review process (requirements, procedural rights etc.)

Notifications to the DBA are not published. Thus, no third parties can comment on the intended investment. The DBA will, however, during their investigation of an application, contact relevant authorities.

In phase 1, the DBA will contact relevant sector authorities. If the investment does not give rise to concerns, the DBA can approve the investment. If the relevant sector authorities have concerns related to the investment, phase 2 can be initiated.

Phase 2 provide DBA with the opportunity to engage further investigations of the investment in order to decide whether it poses a threat to the public order or national security. The notifying party will be informed on this decision together with a request for further questions and documentation. If the notification requires EU hearing, the DBA can send the investment to other European authorities.

9. Filing fee

None.

10. Submission deadline / stand-still obligation

A foreign investor which intends to or has entered a foreign direct investment must notify the Danish Business Authority.

The intended investment must be notified prior to the investment coming into effect. Thus, the parties have to await the approval from DBA before completing the investment (stand-still). The intended investment can at the earliest be notified when the required information in the notification form can be filled out.

11. Availability of pre-notification / informal consultation

As a foreign investor, a Danish newly established company or as a Danish company subject to an intended investment or agreement, it is possible to obtain an assessment of whether the intended disposition concerns critical technology or critical infrastructure covered by the Investment Screening Act (so-called pre-screening). Further, it is possible to request a pre-screening of a newly established company to determine whether a disposition is covered by the de-minimis exemption, cf. section 6 above.

Finally, the DBA also provides general guidance to notifying parties.

In order to receive a pre-screening assessment, basic details about the foreign investor, the intended target company and timing must be provided. The DBA also requests and the parties’ considerations regarding if the company can be categorized as critical infrastructure or produces or develops critical technology. If the pre-screening concerns confirmation that the company is covered by the exemption provisions for newly established companies, the Danish Business Authority will ask for details regarding the capital injection and a financing plan.

12. Scope of information / documents required for filing

The following documents must be submitted to the DBA as part of the application process:

Application/notification form
Chart of the ownership structure of the buyer
Chart of the ownership structure of the target company before the transaction
Chart of the ownership structure of the target company after the transaction/how the target company is incorporated.
Contract, letter of intent or similar documents proving the validity of the transaction.

13. Proceedings timetable (timing for review)

Phase 1: the DBA must pass a decision within 45 calendar days from the day of receiving a final application.

Phase 2: the DBA can extend the deadline “in special circumstances” with a 125 calendar days extension and notify other member states through the EU-notification form.

14. Outcome of the review process (clearance, conditional authorisation, possible commitments etc.)

Most applications are cleared without terms and conditions. It is only possible to take action against investments or agreements if they pose a threat to national security or public order.

If the DBA considers that a possible threat can be mitigated by certain conditions, it will contact the foreign investor to negotiate the content of such commitments.

If the foreign investor agrees to carry out the intended investment or agreement in compliance with conditions, the Authority approves the investment or agreement making the commitment binding.

Commitments must be complied with for as long as the respective foreign direct investment or special financial agreement is maintained. The foreign investor must submit an annual statement describing how compliance has been ensured during the year.

If it is not possible to mitigate a threat to national security or public order, the DBA can refuse the investment or agreement and thereby ban the completion.

In the case of an investment or agreement that already has been completed – either as it was completed before the notification was approved, or as it was not notified – the Minister can order the investment or agreement being dismissed. A dismissal entail a deadline for the divestment or termination, if the investment or agreement has already been initiated.

15. Publicity of the decision and confidentiality of the information provided

The purpose of the Investment Screening Act is to prevent foreign direct investments and special financial agreements from posing a threat to national security or public order in Denmark. Information on national security and public order is sensitive and not publicly available.

There is no public access to decisions and no access to files in cases under the Investment Screening Act. There are also special rules regarding confidentiality in judicial review of injunctions, prohibitions and conditions under the Investment Screening Act.

16. Can a decision be challenged or appealed (by whom, on what basis, in which timeframe)

Pursuant to the Investment Screening Act, decisions of the Minister for Industry, Business and Financial Affairs and the Danish Business Authority cannot be appealed administratively.

Legal action against decisions regarding orders, prohibitions or conditions from the DBA can be brought before a court by bringing an action against the Minister for Industry, Business and Financial Affairs. The time frame depends on the case and the specific circumstances, expectedly no less than a year.

17. Sanctions for failure to notify (administrative fines or other administrative sanctions, criminal sanctions, civil law consequences)

The Investment Screening Act comprises sanctions in case of non-compliance, including:

The DBA may revoke the voting rights of the foreign investor’s shareholding.
The Minister for Industry, Business and Financial Affairs may initiate expropriation of private property when necessary to implement precautions according to the Investment Screening Act.
The DBA may publish non-compliance with a decision to dismiss an application.

Finally, the DBA may intervene against any attempt to circumvent the rules in the Investment Screening Act.

18. Other national security review distinct from FDI rules

Besides foreign direct investments and certain financial agreements within five sensitive sectors, the Investment Screening Act also regulates agreements related to the energy island in the North Sea.

Specifically, the Investment Screening Act covers agreements regarding the establishment, ownership, and the operation of the energy island entered following a tender regulated by the Act of design and installation of the energy island in the North Sea.

Thus agreements must be notified to the DBA following the mandatory screening mechanism even though the contracting party is ultimately owned by citizens or companies within the EU and EEA.

The Danish Minister of Industry, Business and Financial Affairs can require that all participants in a tender notify and obtain approval from the DBA to enter the contract.

19. Significant legislative/regulatory developments in the past year and possible proposals for reform

The Danish Investment Screening Act has been amended with effect as of 1 July 2023, broadening the scope and changing the application process. The changes are comprised in this overview.