Austrian FDI: Managing heightened scrutiny, Phase II proceedings and policy shifts

Broad in scope, proactive in enforcement, far-reaching in practice

Austria has established itself as one of the EU's most active FDI screening jurisdictions. For investors looking to invest in an Austrian company or its assets, FDI analysis is not a box-ticking exercise. The regime's broad scope, expansive interpretation and the Federal Ministry for Economy, Energy and Tourism's (BMWET) active enforcement approach all require a cautious, case-by-case assessment.

An FDI filing under Austria's Investment Control Act (ICA) is triggered when a non-EU, non-EEA or non-Swiss investor (foreign investor) acquires, directly or indirectly, an Austrian company, control over such a company or its substantial assets, or voting right shares in such a company that meet or exceed specific thresholds. These thresholds are 10% or 25%, depending on the sector, or a general threshold of 50%, provided the company operates in a sector falling within the scope of the ICA.

In practice, the Austrian regime reaches further than a first reading of the ICA might suggest.

• Far-reaching "foreign investor" criterion. A filing obligation can arise even where neither the buyer nor the ultimate owners are from outside the EU, EEA or Switzerland. It may be enough for a non-EU/EEA/Swiss person or entity to sit anywhere in the acquisition chain.
• Voting rights aggregation. Even where no single investor meets the relevant voting rights threshold, voting rights may need to be aggregated with those of other investors. 
• Broad interpretation of sensitive sectors. The sectors covered by the ICA extend beyond those expressly listed in its annex, which is non-exhaustive, and also captures upstream and downstream activities. Security services, for instance, fall within scope despite not being listed. Finance captures core activities such as payment services and electronic trading platforms as well as gambling, while Traffic and Transport extends to motor vehicles and cable cars.

Notably for dealmakers, asset deals can trigger a filing obligation just as share acquisitions can. Approval is required when a foreign investor acquires substantial assets of an Austrian company. The BMWET interprets “substantial” broadly: customer lists, inventory, marketing authorizations or employee transfer obligations may be sufficient to bring an asset deal within scope.  

Austrian FDI review process

The Austrian screening process has two main phases, preceded by an EU cooperation mechanism, often referred to as “Phase 0.” During this stage, the European Commission and other Member States may comment or raise questions. The length of Phase 0 depends on whether any such input is received.

Once the EU cooperation mechanism is complete, Phase I begins. Within one month, the BMWET will either clear the transaction, having concluded that there is no “reasonable suspicion” of a threat to security or public order, or initiate an in-depth Phase II review. Before opening Phase II, the BMWET must convene the Investment Control Committee. This advisory body provides a non-binding recommendation, but its views carry considerable weight in the review process.

If Phase II is opened, the BMWET is subject to a hard two-month deadline, which is not suspended by information requests. At the end of the process, it may approve the transaction unconditionally, approve it subject to conditions or prohibit it.

A strict standstill obligation applies throughout both phases. Closing before clearance constitutes a criminal offence. Investors should therefore build the relevant timelines into transaction planning, deal documentation and long-stop date negotiations from the outset.

Heightened scrutiny in practice

According to the most recent activity reports for 2022 and 2023, 68-79% of cases were cleared in Phase I, conditional approvals accounted for 5.5-7.5% and no prohibitions were issued.

The position has since shifted with a clear uptick in both prohibitions and voluntary withdrawals by investors anticipating a negative outcome. Transactions are attracting particular scrutiny where investors are based in countries whose laws require, or may require, disclosure of sensitive information relevant to Austria's security or public order. Targets of particular strategic importance are also receiving closer attention. 

This stricter approach to intervention is being mirrored at EU level. Those still at the proposal stake, the Industrial Accelerator Act (IAA), if enacted, would signal a significant shift beyond traditional FDI screening. It would target investors from countries without an EU free trade agreement, particularly those with dominant global manufacturing capacity in certain sectors, such as China. 

Rather than focusing only on whether a transaction threatens security and public order, the IAA would make market access conditional on technology transfer, the sharing of know-how and intellectual property, and local value creation commitments.

Managing Phase II proceedings

The two-month Phase II deadline can be challenging, particularly in complex cases where a prohibition or conditional approval is under consideration. With no statutory mechanism to extend the timeframe, the BMWET typically investigates intensively, engages with other ministries and federal provinces and issues targeted information requests to the parties.

Given the limited time available, investors must be proactive. This may include regularly requesting access to the file, addressing concerns raised by the members of the Investment Control Committee or the BMWET, responding in detail and promptly to information requests and seeking to resolve any doubts about potential threats to security or public order.

Most conditions imposed by the BMWET have related to security of supply. These include commitments to maintain a local presence, to continue supplying certain customers or to sustain agreed supply levels. Patent protection is another common focus, particularly where the transfer of patents could affect the continued manufacture of essential products. Data security and cybersecurity risks have also been addressed through conditions in a number of cases. Other conditions may include reporting obligations to the BMWET or restrictions on the investor's influence over the target company.

Where conditions are likely, investors should be prepared to engage constructively. The BMWET and the investor will typically discuss the proposed conditions, and investors should seek to ensure that any commitments are proportionate, targeted and capable of practical compliance. Conditions are always case-specific and vary considerably.

Purely economic considerations are not sufficient to justify a prohibition or conditional approval. A prohibition should be imposed only as a measure of last resort, where no set of conditions would adequately address the relevant threat. With the right strategy, investors should generally be able to address concerns that might otherwise lead to a prohibition or withdrawal.

With thanks to Freshfields Stephan Denk, Lukas Pomaroli and Marcel Neuhauser for their contributions to this update.