Protection of National Security – New Act on Foreign Investment Screening

Protection of National Security – New Act on Foreign Investment Screening

On 24 October 2025, at a session of the Croatian Parliament, a new Act on Foreign Investment Screening (hereinafter: the Act) was adopted under an urgent procedure. The Act was enacted with the aim of implementing Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union within Croatian legislation, and establishing a national mechanism for the screening of foreign direct investments that may in any way affect the protection of national security and public order of the Republic of Croatia, the EU, or its Member States.

The new Act introduces an entirely new regulatory framework relevant to foreign investments in the Republic of Croatia. First and foremost, it introduces the obligation to notify the competent authorities of certain investments prior to their implementation, although the Act also provides for ex post review and even its retroactive application. Its application undoubtedly marks a significant step in strengthening institutional oversight of investments from third countries.

Entry into force of the Act and its retroactive application

The Act entered into force on 13 November 2025, while the adoption of implementing secondary legislation by the Ministry of Finance is expected within 90 days. In addition, the Government of the Republic of Croatia is required to adopt a decision on the establishment of the Foreign Investment Screening Commission within 30 days, and the public authorities (relevant ministries, the Croatian National Bank, the Croatian Financial Services Supervisory Agency, and other bodies) responsible for identifying obliged entities must identify all obliged entities within their competence within 6 months of the entry into force of the Government Regulation on the detailed elaboration of criteria for identifying obliged entities.

It is particularly noteworthy that the Act applies, mutatis mutandis, to existing foreign investments made prior to its entry into force, whereby such reviews must be completed within 3 years of its entry into force.

Scope of application of the Act

A foreign investment, within the meaning of the provisions of the Act, is any direct or indirect foreign investment of any kind in an obliged entity, by which the foreign investor, through the investment of their capital, acquires or increases a qualifying holding (of at least 10% of shares and/or voting rights and/or property rights / total holdings / business shares) or holds a controlling position (actual control over the obliged entity or the holder of a share in the obliged entity through a majority share, majority voting rights, the right to appoint or dismiss members of the management board or supervisory board, veto rights, the exercise of significant influence and the imposition of relevant decisions, or formal/informal agreements with the obliged entity or its shareholders), for the purpose of carrying out an economic activity or the economic use of public or other goods in the Republic of Croatia.

The Act explicitly provides that investments enabling effective participation in the management of an obliged entity carrying out an economic activity or in the control thereof fall within its scope, with the aim of establishing or maintaining temporary or permanent ties with an existing or future obliged entity and effective participation in the ownership structure, management, and/or control of such an obliged entity.

In this context, the Act defines an obliged entity as a trader or company, regardless of its legal form, with its registered office or place of business establishment in the Republic of Croatia, which operates or will be established in connection with a foreign investment in respect of which the foreign investment affects or may affect security or public order.

The definition of a foreign investor encompasses a wide range of subjects included in the statutory definition. In this regard, a foreign investor is considered to be any natural person who does not hold the citizenship of the Republic of Croatia or of any other EU Member State or a state signatory to the Agreement on the European Economic Area (hereinafter: the EEA), as well as any legal person established or otherwise organised under the laws of a third country – any foreign country that is not a Member State of the EU or the EEA.

It is therefore evident that the Act, on the one hand, provides for a wide range of legal transactions, transactions, and undertakings that are considered foreign investments (such as the takeover of an existing company, the transfer of business shares, the establishment of a new company, the conclusion of a concession agreement, and public-private partnership agreements), and on the other hand encompasses a wide range of subjects included in the definition of a foreign investor.

It is particularly noted that the Act requires the identification of beneficial owners in accordance with the standards and regulations governing the area of prevention of money laundering and terrorist financing, thereby seeking to prevent and deter the concealment of actual control within non-transparent, complex ownership structures.

Institutional structure

The Ministry of Finance is the authority responsible for conducting the entire foreign investment screening procedure. It is within its competence to issue decisions on applications for approval of foreign investments, as well as decisions revoking previously granted approvals. It is also the Ministry of Finance that has the authority to initiate a foreign investment screening procedure ex officio.

Additionally, several competent institutions with a decisive influence on the implementation of the Act and the supervision of its application have been designated.

The Foreign Investment Screening Commission, composed of representatives of the Ministry of Finance, relevant ministries, and other public authorities responsible for identifying obliged entities under the Act, coordinates inter-institutional cooperation, issues opinions on the basis of which decisions on the approval of foreign investments are made, and harmonises policies and guidelines.

The National Contact Point, established within the ministry responsible for economic affairs, essentially manages communication with the European Commission and EU and EEA Member States on all matters relating to the foreign investment screening procedure, ensuring transparency and cooperation at the European level.

Certain public authorities have been designated as the competent bodies for identifying obliged entities in strategically important economic sectors, such as certain ministries (for the economy, transport, health, defence, etc.), the Croatian National Bank for obliged entities in the banking sector, and the Croatian Financial Services Supervisory Agency for obliged entities in the financial market infrastructure sector, among others. These bodies, within their competence, identify obliged entities by sector, maintain and update their records, and notify subjects of their obligations.

As supervisory bodies, the Act designates the competent commercial courts, the Central Depository and Clearing Company (SKDD), concession grantors, and the public authority responsible for the protection of market competition, which, within the scope of their powers, implement the supervisory mechanism through registers and records, thereby preventing the completion of foreign investments without a prior foreign investment screening procedure and the obtaining of approval from the Ministry of Finance.

Foreign investment screening procedure upon the applicant’s request

The foreign investment screening procedure is initiated upon an application for approval of a foreign investment filed by the applicant (the obliged entity or the foreign investor), prior to the acquisition, increase, or decrease of a qualifying holding or controlling position, and no later than before submitting an application for entry of the obliged entity in the court register or before any entry in the SKDD depository, as well as before the adoption of a decision to grant a concession, and no later than before the conclusion of a concession or public-private partnership agreement. Accordingly, the application must be filed before the implementation of the transaction or legal act itself.

The application is filed with the Ministry of Finance, which, as the first step, conducts an administrative review, i.e. verifies the completeness of the application and forwards it for further processing to the Foreign Investment Screening Commission and the National Contact Point. The Commission assesses whether the foreign investment poses a risk of adversely affecting the security or public order of the Republic of Croatia, or the EU and EEA or their other Member States, and issues an opinion on the basis of which the Ministry of Finance decides on the approval of the foreign investment.

Foreign investment screening procedure ex officio

Ex post review

The Ministry of Finance may, upon the proposal of any member of the Foreign Investment Screening Commission, initiate a foreign investment screening procedure ex officio after approval has already been granted, as well as in the case of an unreported foreign investment. A subsequent review may be conducted whenever there is a suspicion that the foreign investment has an adverse effect, as well as a suspicion that the obliged entity or the foreign investor is acting contrary to the objectives of the Act.

Consequences of violations

If the ex post review establishes a violation or threat to security and/or public order, or when it is necessary for the protection of the public interest of the Republic of Croatia or the EU and EEA, the Ministry of Finance shall issue a decision revoking the approval of the foreign investment and ordering the sale of all shares, stakes, and/or property rights within a period not exceeding 9 months, with the possibility of extension for up to 6 months. From the enforceability of that decision, the foreign investor is prohibited from disposing of shares, business shares, voting rights, or property rights, except for the purpose of fulfilling the obligation to sell, and the obliged entity is required to provide regular reports on the progress of the sale.