Dutch Investment Screening Regime
Dutch investment screening regime consists of a general investment screening act and sector-specific screening instruments for the energy and telecom sectors. The Dutch government has also proposed a new sector-specific screening regime for investments in the defence sector as part of a proposal to boost the resilience of the Dutch defence industry (see an earlier blog post on this proposal here). Since 2023, the general investment screening regime, the ‘Act on security screening of investments, mergers and acquisitions’ (the Act) (Wet veiligheidstoets investeringen, fusies en overnames, in short Wet Vifo) requires a prior mandatory screening of qualifying investments in certain critical (‘vital’) suppliers, managers of corporate campuses and companies that are active in the area of designated sensitive technologies (see an earlier blog post on the Act here).
The Act designates export-controlled military goods and dual use items as sensitive technologies. In addition, the Act provides that the Dutch government may adopt decrees that designate additional technologies as sensitive technologies. In 2023, the Dutch government designated quantum, photonics and semiconductor technologies and high assurance information security products as highly sensitive technologies under the Decree on the Scope of Application of Sensitive Technologies (the Decree) (Besluit toepassingsbereik sensitieve technologie).
On 19 December 2024, the Dutch government announced its intention to expand the number of technologies that are subject to an investment screening obligation under the Act by proposing to amend the Decree (the Proposal). The Proposal designates artificial intelligence, advanced materials and nanotechnology, sensor and navigation technology, biotechnology and nuclear technology for medical use as highly sensitive technologies. The explanatory memorandum to the Proposal considers that these advanced technologies play an important role in the future security environment, not only due to their applications in weapon systems and defence capabilities, but also due to their broader implications for economic value creation and for addressing societal challenges. The relevant advanced technologies notably of significant importance to the security of supply of energy, food and medicine (advanced materials and biotechnology) and may pose threats in the area of misinformation and repression (AI). The explanatory memorandum considers that the expansion of the investment screening regime is required because these advanced technologies do not (yet) qualify as export controlled dual use technologies.
Scope of Application
The Proposal sets out specific applications that are designated as sensitive technologies. In doing so, the Proposal aims to balance national security interests with maintaining a favourable investment climate. Below is a summary of the proposed sensitive technology designations:
- Artificial intelligence: Systems and underlying models that are designed for: (i) identification or impersonation and analysis of persons, groups, and objects via image, speech, or biometric applications, (ii) identification of persons, groups, or objects based on the analysis of geography and sensors connected to a network, notably information from GPS, Wi-Fi, cameras, 4G networks, and (iii) supporting military deployment or security organizations in general.
- Advanced materials: (i) Technologies for producing materials enabling energy storage, transport, or conversion of energy forms/carriers, for which the reliability, energy storage capacity, or temperature range is greater or higher than commercial standards, (ii) technologies for two-dimensional (2D) materials (one or two atoms thick) enabling deliberate adjustment and production of optical, electronic, magnetic, or acoustic properties, and (iii) High-Entropy Alloys (HEA) with at least five chemical elements in nearly equal atomic concentrations.
- Nanotechnology: (i) Technology for developing and creating artificial materials based on nanoparticles/nanostructures that can be programmed with one or more desired properties and (ii) micro-/nanoreactor technology.
- Sensor and navigation technology: (i) Simultaneous localization and mapping (SLAM) technology enabling autonomous systems to map their environment, (ii) sensor fusion and array technologies enabling systems to combine and display signals from different types of sensors, (iii) sensor network and ambient technologies that are used to send information from a group of individual sensors to a central location for further storage, display, and analysis; and (iv) signature management and pattern recognition technology applied to predict, measure, and mitigate more or less unique patterns of objects or events from sensor information.
- Biotechnology: (i) Synthetic cell technology for the artificial development of living cells, (ii) stem cell technology for the cultivation and manipulation of stem cells, (iii), gene editing and (iv) genomics to gain insight into how hereditary traits translate into the functioning of a cell, and ultimately an entire organism.
- Nuclear technology for medical use: Technologies, which are used for the development, production and application of medical isotopes.
Practical implications
The Proposal will result in a greater number of transactions requiring mandatory prior screening by the Investment Screening Bureau of the Ministry of Economic Affairs. The screening obligation applies if the target company is active in the designated sensitive technology areas within the Netherlands. A filing obligation applies to all investors, including other EU and Dutch investors. The explanatory memorandum estimates that approximately 1015 to 1730 companies fall under the scope of application of the Proposal.
The relevant technologies are proposed to be designated as “highly sensitive technologies”. As a result, lower notification thresholds and a broad scope of application applies. The Act generally applies to acquisitions of control, mergers, the creation of joint ventures and acquisitions of assets. For investments in companies that are active in highly sensitive technologies, a filing obligation also applies to acquisitions of “significant influence”, which arises at an acquisition of 10%, 20% and 25% of the voting rights and/or when the investor obtains right to appoint one or more board members. Transactions that increase significant influence in companies that are active in highly sensitive technologies (e.g. from 10% to 20%) or transform significant influence to control also trigger a notification obligation.
Furthermore, it should be noted that the Investment Screening Bureau issued a manual, in which the Investment Screening Bureau determined that a target company is not just “active” in the area of highly sensitive technologies if it directly develops, processes or produces the relevant technologies, but also if it provides products, machines, know-how or services that are, with respect to their aim, function or technical characteristics specifically tailored to R&D, production, processing or operation of highly sensitive technologies. Therefore, a screening obligation may arise even if the target company may be viewed as a mere supplier to other companies that are active in such sensitive technology areas.
Investments are assessed on grounds of national security. National security is defined as pertaining to three interests at the intersection of security and the economy, namely (i) maintaining the continuity of critical processes, (ii) maintaining the integrity and exclusivity of knowledge and information that is of critical or strategic importance to the Netherlands, and (iii) preventing undesirable strategic dependencies of the Netherlands on third countries. Restrictions on investments remain rare. In its latest annual report (available here), the Bureau for Investment Screening reports that out of 44 investigations in 2023, no transaction was prohibited, one was approved under conditions, and one notification was withdrawn.
An investment can only be restricted or prohibited if it results in a threat to national security. A prohibition decision can only be adopted if the national security risk cannot be sufficiently mitigated by means of remedies. Mitigation measures can, amongst others, consist of additional security protocols, policies or commissions, behavioural restrictions on commercial conduct, a reduction of the voting interest or a partial prohibition. For investments involving sensitive technologies, mitigating measures could furthermore consist of an obligation to store certain technology, source code or genetic codes with a third party, prior approval rights for the Minister regarding a decision to terminate or move part of the business to a third country, or FRAND licensing access for certain IP rights to third parties.
standstill obligation applies to transactions that fall under the scope of application of the Act, requiring the parties to obtain approval prior to closing. The Minister of Economic Affairs has eight weeks to decide on a notification but can extend this period by six months (phase 1). If a formal screening decision must be taken (phase 2), the Minister has an additional eight weeks to decide, but can extend this period by six months, provided that the time extension used in phase 1 will be deducted, so that the total extension may not exceed six months. Furthermore, a stop-the-clock provision applies when the Investment Screening Bureau requests information from the parties. Moreover, the timeline can be extended by another three months if the cooperation framework under the EU FDI Screening Regulation 2019/452 applies. Based on the 2023 Annual Report, investigations take an average of 40 days.
Relationship to Proposed Revision of EU FDI Screening Regulation
The Proposal is in line with broader international developments that have placed an increasing number of global investments under government scrutiny. Investments in companies that are active in artificial intelligence, advanced materials, nanotechnology, sensor and navigation technology, biotechnologies, and nuclear technology for medical use are already subject to investment screening obligations in multiple jurisdictions, including in various EU Member States.
In January 2024, the European Commission proposed a reform of the EU FDI Screening Regulation 2019/452 (see an earlier article here). In its proposal, the European Commission amongst others proposed a minimum sectoral scope of national foreign investment screening, covering areas such as artificial intelligence, advanced sensing, advanced materials and biotechnologies. The Proposal by the Dutch government largely follows the Commission’s proposal, but more specifically defines the designated sensitive technologies. Furthermore, the Dutch Proposal does not cover all areas proposed for mandatory screening by the European Commission. The Proposal notably does not include certain technologies in the area of computing, data analytics, internet of things, virtual reality, space and propulsion, energy, robotics and autonomous systems, manufacturing and recycling. The explanatory memorandum to the Proposal considers that the proposed revision of the EU FDI Screening Regulation is still under negotiation and that a new legislative track will be started in due course to implement the revised Regulation under Dutch law. A further amendment of the Decree may be required depending on the outcome of the adopted revised EU Regulation.
Conclusion
Proposal represents a significant expansion of the Dutch investment screening regime, expanding the scope of sensitive technologies to include artificial intelligence, advanced materials, nanotechnology, sensor and navigation technology, biotechnologies, and nuclear technology for medical use. Investors and selling shareholders should assess upfront whether a transaction involving a target company that is active in these areas may trigger a filing obligation. If a transaction triggers a notification obligation, investors and sellers should consider the implications for the transaction timeline, assess the risk of the transaction being restricted, and negotiate appropriate contractual arrangements.
Public consultation on the Proposal is open until 31 January 2025 (accessible here). Subsequently, the Proposal will be submitted to the Dutch Parliament for consideration and to the Dutch constitutional advisor, the Council of State for advice.
Please reach out to us if you would like to discuss how the Proposal may impact your business.
