Background
It is an undeniable fact that Foreign Direct Investments (the ‘FDI’) are a key contributor to the Union’s growth as they enhance its competitiveness, create jobs and economies of scale, bring in capital, technologies, innovation, expertise, and open up new markets for the Union’s exports. While maintaining an open investment environment, the EU has committed to upholding and promoting its values and interests and contribute to the protection of its citizens.
With the above in mind, and since it is mandatory for Member States of the European Union to adopt restrictive measures relating to foreign direct investment on the grounds of security or public order under Regulation EU 2019/452 (the Regulation), Member States must create a screening mechanism to make it possible for to assess the relevant risk to their security or public order.
Cyprus’ Council of Ministers approved the relevant bill “Law on the establishment of a framework for the control of foreign direct investments of 2025” (the ‘Bill’) on the 2nd of July 2025, sharing the same with the Parliament on the 10th of July 2025 for voting.
While the Bill not yet a law, and therefore is subject to changes and being enacted, it is worth examining the key aspects of the Bill, as it has the potential to impose large changes to the investment landscape of Cyprus.
Scope and applicability
The regulation is applicable to ‘foreign investors’– natural persons of a third country or a legal undertaking of a third country, intending to make or having made a foreign direct investment, and to ‘strategic enterprises’ - an enterprise that carries out activities that fall under particularly sensitive sectors defined in the annex to the Bill, such as energy, transport, health, defence, communications, tourism, financial services, dual-use technologies, etc.
The competent authority for this matter is Ministry of Finance, which has the power to approve, impose conditions, prohibit, or reverse investments that may affect security or public order.
Need for notification of investments
Any foreign investor is required to share their intention in writing to the competent authorities at least 10 days before the investment takes place, which requires pre-approval before it is carried out.
The need for notification is applicable if all the following criteria take place for the FDI:
1) It results in receiving special participation, which can take place through the acquisition, directly or indirectly, individually or in coordination with other persons, of a percentage amounting to at least 25% of the share capital and/or voting rights, or a corresponding ability to exercise decisive influence over the activities of the enterprise,
2) The value, whether in itself or in combination with other transactions that will take place within 12 months of the planned investment date, is greater or equal than €2,000,000 (two million euros).
3) It is related to strategic enterprises.
The competent authority still retains the right to examine any FDI, regardless of whether it falls under the framework of mandatory notification, in cases where there are justifiable reasons to consider that the FDI might affect the security or public order of the Republic.
Exempt from the above are FDIs related to ships under construction or ships that are the subject of purchase and sale, except Floating Storage and Regasification Units (FSRUs).
Factors determining whether the FDI might affect security or public order
In determining whether the FDI might be detrimental to security or public order, the evaluation considers the following factors, amongst others:
a) Whether the sector in which the FDI will take place is sensitive, including the sectors of energy, transport, health, education, tourism, communication, processing or storing of data, defense, electoral or financial services, land and assets, amongst others,
b) Whether the foreign investor is checked directly or indirectly from a third country government,
c) If the foreign investor has been involved in activities which affect the safety or public order of an EU Member State,
d) The degree to which the FDI affects or might affect the security or public order of a Member States other than the Republic of Cyprus or the EU as a whole,
Required information for screening of a FDI
Under Article 4 of the Bill, some of the key points that will need to be for the effective screening of the FDI are:
• Details of the parties in the transaction and their corporate details,
• The approximate value of the investment,
• The products, services, and business activities of the foreign investor and the strategic enterprise,
• The nature of economic activities being undertaken by the parties in Cyprus,
• The date at which the investment is planned to take place.
Penalties
Under Article 12, the competent authority may impose administrative fines according to the related violations in cases of:
a) failure of the investor to notify regarding the FDI, administrative fine not less than €5,000 (five thousand euros) and not more than €50,000 (fifty thousand euros),
b) submission of falsified or misleading information, administrative fine of up to €100,000 (one hundred thousand euros),
c) failure of submission of information, administrative fine of up to €50,000 (fifty thousand euros),
d) lack of compliance within the specified time period for rejected FDIs, administrative fine up to €100,000 (one hundred thousand euro) and additional administrative fines of up to €8,000 (eight thousand euro) per day of continuous violation.
All fines are imposed with a fully justified decision, according to the severity and duration of the violation, while in every case the affected party will have the opportunity to be heard.
Overall, in our view the Bill has managed to incorporate the ambit the EU regulators into a Cypriot framework – all that remains is to see whether it will be approved as a law or whether it will be amended to further cater to the economic system of Cyprus.
This article does not constitute legal advice. For more information and professional advice, feel free to contact any of our team members at Elias Neocleous & Co LLC which authored this piece: Demetris Roti, Partner; Emilios Charalambous, Associate; Maria Aristidou, Associate.