Stricter Oversight of FDI in Tech

Heightened scrutiny of foreign direct investments (FDI) in companies is an increasing trend at both national and European levels. It is essential for the General Counsel to be aware of these developments and to potentially adjust their approach to investments and transactions accordingly.

FDI in the Netherlands
The Investments, Mergers and Acquisitions Security Act (Wet veiligheidstoets, investeringen, fusies en overnames, Vifo Act) came into force in the Netherlands on 1 June 2023. Under this legislation, both the acquirer and the target company must notify the Bureau for Investment Screening (Bureau Toetsing Investeringen, BTI) in advance when investments involve businesses that are vital service providers, operators of corporate campuses, or active in the field of sensitive technology. If such an investment results in a change of control or significant influence over the target, it will be assessed for potential risks to national security.

The term "sensitive technology" is defined in a separate decree (Besluit toepassingsbereik sensitieve technologie) and currently includes:

• Semiconductor technology
• Photonic technology
• Quantum technology
• High-assurance products
• Dual-use/military goods

Additionally, the decree specifies when certain technologies qualify as "highly sensitive technology," covering areas such as cryptographic analysis systems (hacking), speed interferometers (laser reflection), nuclear technology, and the aforementioned semiconductor, photonic, and quantum technologies, high-assurance products, and dual-use/military goods.

Upcoming Expansion of the "Sensitive Technology" Category
On 19 December 2024, the Dutch government announced via an internet consultation its intention to expand the scope of the Vifo Act. The proposal aims to include the following technologies within the definition of "sensitive technology":

• Biotechnology
• Artificial intelligence (AI)
• Advanced materials and nanotechnology
• Sensor and navigation technology
• Nuclear technology for medical applications

The consultation closed on 31 January 2025, and the effective date has yet to be determined.

FDI in Europe: Proposed Revision of the FDI Regulation
The Vifo Act and its expansion are part of a broader European context. On EU level, the Foreign Direct Investment Screening Regulation (2019/452) has been in force for several years. This regulation led to the introduction of the Vifo Act and sets out requirements that EU member states must follow when implementing, amending, or enforcing national FDI screening mechanisms.

As part of the European Commission’s communication of 24 January 2024, titled “Advancing European Economic Security,” a revision of the FDI Regulation was proposed. The proposal includes a list of sensitive sectors that should be subject to the national FDI screening, including:

• Dual-use/military goods
• Critical technologies (such as advanced semiconductor and AI technologies)
• Critical medicines
• Critical entities
• Activities essential to the EU financial sector

FDI in Europe: Outbound Screening
The same EU communication of January 2024 also introduced the concept of Outbound Investment Screening, focusing on investments made outside the EU by companies based in the EU.

On 15 January 2025, the European Commission published Recommendation 2025/63, requesting EU member states to monitor outbound investments in three critical technology sectors: semiconductors, quantum technology and AI. Member states are expected to collect information on:

• The parties involved in the investment
• The type and estimated value of the transaction
• The products, services, and technologies concerned
• Relevant contractual arrangements
• The planned or actual completion date of the investment
• Previous and announced transactions by the parties
• Public funding received from an EU member state or another country

This monitoring obligation applies to both new and ongoing investments as well as transactions completed in the past four years (from 1 January 2021). Similar to the Vifo Act, it encompasses not only acquisitions but also mergers, asset deals, and joint ventures.

Based on the collected data, EU member states, including the Netherlands, will conduct qualitative risk assessments. These assessments will evaluate potential vulnerabilities by considering factors such as the context of the transaction, the current stage of technological development, the availability of the technology in the target country, supply chain dependencies, global interconnectivity of the technology ecosystem, and the company’s involvement in EU-funded projects.

The European Commission has requested EU member states to provide an update by 15 July 2025 and submit a final report on their risk assessments by 30 June 2026. The specific implementation of this recommendation in the Netherlands remains unclear at this stage.

Impact on Businesses and General Counsel
With the potential expansion of the sensitive technology scope, an estimated 1,015 to 1,730 additional companies would fall within the scope of the Vifo Act. It remains to be seen whether this increase will align with the BTI’s current capacity and processing times. The BTI’s 2024 annual report, expected to be published soon, may provide further insights.

The European Commission’s recommendation could lead to a dual screening mechanism within the EU, with outbound monitoring in the investor’s home country and inbound monitoring in the target company’s jurisdiction.

Businesses should prepare for the possibility of stricter FDI notification requirements at both national and European levels. The General Counsel must be aware of the implications for corporate investment and transaction planning, particularly in cross-jurisdictional deals.

This article was originally published on the website of GCN General Counsel Netherlands.