Cyprus lagging behind in implementing the EU’s FDI regulation

Cyprus is still lagging behind when it comes to implementing the EU's Foreign Direct Investment (FDI) regulation, one of just two EU nations that has yet to introduce the measure.

The objective of the FDI regulation is to make sure that the EU is better equipped to identify, assess and mitigate potential risks for security or public order, while remaining among the world’s most open investment areas. It fully applies since 11 October 2020 but has yet to be implemented in Cyprus and Bulgaria.

Although almost three years have passed, in Cyprus the relevant bill has been going back and forth between the Finance Ministry and the Parliament, and is currently in the process of consultation and reformulation. Parliament hopes to be in a position to vote on the regulation before its summer recess while Invest Cyprus had indicated that, in its opinion, the regulation should have been voted on by now. Invest Cyprus is the national investment promotion agency of Cyprus with the mandate to enhance the nation's investment appeal abroad.

Although the Regulation does not require member states to establish a national control mechanism, the European Commission encourages member states, both on a political and technical level, to establish, adapt and implement one.

How things stand in the EU

Nevertheless, and according to the second annual report of the European Commission to the European Parliament and the Council on the control of foreign direct investments in the Union, made public in September 2022, Cyprus, together with Bulgaria, remained during the time under review (2021) the only EU countries that had not made public any relevant progress towards implementing the FDI Regulation.

In 2021, three member states introduced a new control mechanism and six member states modified their existing mechanism. By the end of 2021, seven member states had already launched consultation or legislative procedures to establish a national control mechanism. Overall, in 2021 two thirds of all EU member states had legislation to control FDI.

More specifically, 25 of the 27 EU member states either had a national FDI control mechanism, established a new national FDI control mechanism, modified an existing mechanism, or initiated a consultation process or a legislative process that is expected to lead to the establishment of a new mechanism or to modifications of an existing mechanism.

According to the report, in 2021, Austria, Finland, Malta, Poland, Portugal, Slovenia, Spain had a national FDI control mechanism. France, Germany, Hungary, Italy, Latvia, Lithuania modified an existing mechanism. Czech Republic, Denmark, Slovakia established a new national FDI control mechanism. Belgium, Croatia, Estonia, Greece, Ireland, Luxembourg, Sweden had a consultation process or a legislative process expected to lead to the establishment of a new mechanism. And, Bulgaria and Cyprus had not made public an initiative in progress.

Cyprus’ actions

As InBusinessNews has been informed, with regard to the actions of Cyprus to comply with the Regulation in question, the Ministry of Finance proceeded to prepare a relevant bill, which was submitted to the Parliament and discussed in the parliamentary Finance Committee.

Through discussion and the taking into account of the views expressed by MPs and other relevant stakeholders, the bill was returned to the Ministry of Finance for amendments.

At the present stage, according to the same sources, the bill is being reformulated, with the aim, after receiving the necessary legal and technical vetting by the Legal Service, to be re-submitted to Parliament for referral to the Plenary for voting.

It should be noted that the Ministry of Commerce is also directly involved in the formulation of the bill, by submitting specific positions and proposals.

From the point of view of the Finance Committee of the Parliament, on the other hand, what we were told by the authorities is that the issue is high on the agenda and that the goal is for the bill to be discussed and voted on in the Plenary before the completion Parliament’s summer recess.

However, for this to happen, we have been advised, the Finance Ministry must first return the revised bill.

Invest Cyprus wants the mechanism in place

Speaking to InBusinessNews, the Chairman of Invest Cyprus, Evgenios Evgeniou, expressed the need for enacting legislation and setting up a control mechanism for direct foreign investments.

"We as Invest Cyprus, as a matter of principle, are in favour of the enactment of legislation and we support the existence of such a thing. It is something that should have already been done, as it will help Cyprus to protect itself from possible problems in the future," Evgeniou emphasised.

As he further explained, it is a process of control as to what investments are made. "It is more of a mechanism to protect the country from possible future problems and we are unreservedly in favour of its adoption", underlined the president of Invest Cyprus.

(Source: InBusinessNews)