Investment Screening in the Netherlands: Still an Open Economy, But Not at Any Price

The Netherlands has long been an attractive destination for foreign investment, thanks to its stable democracy, strategic location, robust infrastructure, well-educated workforce and free market economy. What perhaps also helped was the absence of any screening mechanism for foreign direct investment (FDI): with the exception of certain regulated industries, any foreign investor could basically buy any company in any sector in the Netherlands without the Dutch government being able to prevent this on national security grounds.

This has changed – for good.

The newly appointed Prime Minister of the Netherlands is a former spy chief, and recently confirmed that the Dutch “opportunistic trader mentality” had come to an end and that – with increased threats from countries such as China – issues such as security, law and order were now higher on the political agenda.

The Wet veiligheidstoets, fusies en investeringen or Vifo Act (Investments, Mergers and Acquisitions (Security Screening) Act) came into force on 1 June 2023. It introduced a general national security test for investment activities in certain vital sectors, for operators of business campuses and in the case of (highly) sensitive technology. This new regime complements similar screening mechanisms already in place for certain specific regulated industries, such as telecommunications, gas and electricity.

In screening investments, the Minister (or the Bureau for Investment Screening (BTI)) will conduct a vulnerability and threat assessment. Vulnerabilities may relate to

In assessing the threats, the BTI or Minister will consider a number of factors, including the ownership structure and relationships of the acquirer, the acquirer’s criminal record (if any), any international sanctions imposed, and the security situation in the acquirer’s country of domicile.

So far, the impact on the investment climate in the Netherlands appears to be limited. The new general investment screening regime is part of a global trend, its scope is relatively narrow, and, in the first few years, the regulator has taken a sensible and pragmatic approach in most cases. As far as we are aware, there have been no prohibition decisions to date.

The investment screening regime does, however, entail longer transaction timelines, some additional deal uncertainty, and a greater administrative burden for transaction parties (although the BTI does not charge a filing fee). In particular, the lack of transparency can be a challenge. For transactions in sensitive technology sectors, information is often highly confidential. As a result, not much information is published. However, the BTI is very open and willing to provide guidance on the applicability and procedural aspects of the regime(s). On request, the BTI will also provide updates on its review process.

The focus of the BTI seems to be on high-tech sectors such as semiconductors and cybersecurity. Whilst the regime applies equally to Dutch and foreign investors, investors from China, Russia and certain countries in the Middle East have been identified as high-risk countries and will therefore be subject to closer scrutiny. Indirect investors and limited partners in private equity will not be able to stay off the radar.

Recent experience with the BTI has taught us that it is essential to provide detailed information in the notification about the ownership structure of the investor and the activities of the target. This will go a long way to minimising delays, as it will reduce or even eliminate the need for additional information requests from the BTI.

In July 2024, the Dutch government started a public consultation process for a new law introducing an enhanced review regime for the defence industry.

The forthcoming Energiewet (Energy Act) will lower the notification thresholds for investment activities in the gas and electricity sectors.

The current scope of the Vifo Act may be extended to other sectors in the near future. In February, the Dutch Parliament passed a motion to bring the vegetable and seed breeding industry within the scope of the Vifo Act. The revised EU FDI Screening Regulation may also lead to an extension of the Vifo Act, but this is not expected before 2027.

In addition, the European Commission intends to start monitoring the risks associated with outbound investment to determine whether there is a need for policy responses in this area, such as an outbound investment screening regime. The Dutch government has responded positively to this initiative.

The new Dutch government aims to expand the investment screening framework by designating more technologies as highly sensitive, which will require more investments in companies to be reported and potentially prohibited if they pose national security risks. This expansion, targeting areas such as artificial intelligence and biotechnology, is part of a broader strategy to enhance national resilience and safeguard economic prosperity​.

It is clear that investment screening is here to stay. Practical experience is removing some of the uncertainties, but ultimately it remains a politically sensitive process with insufficient transparency. To facilitate a smooth M&A and review process, companies are advised to plan ahead, know their shareholders and potential investors, be prepared, and not withhold information in their FDI notifications.