On 30 October, the House of Representatives enacted the Law for the Establishment of a Framework for the Screening of Foreign Direct Investments 194(I)/2025 (the “FDI Law”) in line with Regulation 2019/452 (the “FDI Screening Regulation”), which will enter into force on 02 April 2026. The new law introduces a regime for the screening of foreign direct investments (“FDI”) on the grounds of national security and public order.
Existing restrictions
The regime operates alongside existing restrictions or limitations in connection to foreign investments into Cyprus. Specifically:
- Under the Movement of Capital Law 115(I)/2003, the Council of Ministers (“CoM”) retains a residual power to restrict direct investments by EU nationals where such measures are justified on grounds of public order, national security, public health or in relation to the manufacture or trading of weapons, firearms or other war material. The CoM may also impose limitations on direct investments from foreign nationals based on policy considerations.
- Pursuant to the Immovable Property Acquisition (Aliens) Law, Cap. 109, the prior authorisation by CoM is required for foreign investors to acquire real estate in Cyprus or shares in a company holding Cyprus property.
- Finally, acquisition of shares or control of certain regulated entities is also subject to bespoke statutory restrictions, subject to sector-specific regulations.
New notification obligation for foreign investors
Foreign investors intending to engage in FDI are obliged to notify the Ministry of Finance (“MoF”) before the materialisation of the transaction if all of the following conditions are cumulatively met: (i) the FDI is in relation to an acquisition of a qualifying holding (i.e. 25% of share capital and/or voting rights, or equivalent control), (ii) the investment has a value of at least EUR 2 million; and (iii) it relates to an entity of strategic importance. Notification is also required, irrespective of deal value, where the foreign investor increases its holding so as to cross the thresholds of either 25% or 50%.
Critical sectors deemed to be strategically important include, amongst others: energy, transport, media, data processing and storage, education, healthcare, defence, real estate of critical importance, and banking services.
The FDI Law further includes an anti-circumvention provision to cover legal entities directly or indirectly controlled by a foreign investor, or in which it directly or indirectly holds at least 25% of the share capital or voting rights.
It is worth noting that the qualifying holding threshold to trigger notification requirements is one of the highest across the EU. Other countries have opted for lower thresholds, with notification requirements kicking in at the 10% mark in any strategic sector (e.g. Denmark, Finland) or in specifically designated sensitive sectors, such as energy and defence (e.g. Greece, Austria, Belgium).
The notification must include, inter alia, the corporate structure of the foreign investor and the target of strategic importance, an estimate of the transaction value and anticipated closing date, a description of the products, services and operations of both parties, details of their economic activities in Cyprus, information on how the investment will be financed and the source of funds, as well as the annual revenues and number of employees of each party.
The MoF retains the right to review any FDI ex officio, even if it does not fall within the mandatory notification regime, where there are reasonable grounds to believe that the investment may affect national security or public order. The MoF may exercise this power within 15 months of the investment’s completion for non-notifiable FDIs, and within five years from the date of completion for notifiable FDIs that were not duly notified.
Screening process and timelines
The MoF decides whether the proposed FDI transaction is subject to screening within 20 business days of receiving a duly completed notification (with this period suspended if further information is requested) and must inform the foreign investor of its decision within five business days thereafter. If the transaction is deemed subject to screening, the MoF has 65 business days to assess whether it poses a risk to national security or public order (which again is paused if further information is required) and must inform the foreign investor of its decision within a further five business days thereafter. For each decision, the MoF consults a 7-member Advisory Board comprised of personnel from seven different ministries.
In its assessment of whether the FDI may pose a risk to national security or public order the MoF will, among others, consider its potential effects on critical infrastructure, access to sensitive information, media freedom and pluralism, and supply of critical inputs (including energy, raw materials and food security). The possibility of the foreign investor being involved in illegal or criminal activities, having been involved in activities affecting the security or public order in another EU member state, or being directly or indirectly controlled by a foreign government, are also taken into account.
Where a transaction is deemed to pose a risk, the MoF may conditionally approve, prohibit or reverse the FDI transaction in question.
Practical effects and guidance
Based on the above, obtaining FDI screening authorisation from the MoF should be set as a condition precedent in transaction documents of cross-border M&A targeting entities of strategic importance. Fulfilment of this condition is expected to add 4-6 months to the closing timeline of such deals.
Where a transaction also involves merger control notifications to the Commission for the Protection of Competition, it is advisable to coordinate the merger control and FDI filings to streamline the process, ensure consistency and avoid duplication of efforts (given the significant overlap in documentation and information required).
Also, although not expressly stated in the FDI law and given the anti-circumvention spirit of the overarching FDI Screening Regulation, we expect asset deals involving entities of strategic importance which meet the deal value and qualifying holding requirements to be notifiable to the MoF.
Finally, the EU is expected to amend the FDI Screening Regulation in 2026 to further harmonize screening regimes across Member States and impose certain minimum requirements. As at the date of this publication, the proposed amendment would establish specific assessment timeframes for notifications in connection to certain strategic sectors. These timeframes are slightly shorter than those under the existing national regime, and the Cypriot regime may follow suit and reduce its assessment periods in all strategic areas. The recitals to the proposed amendment also clarify that the FDI screening framework “should not cover the acquisition of company securities intended purely for financial investment without any intention to influence the management and control of the undertaking (portfolio investments)” reflecting the language of the CJEU in Joined Cases C-282/04 and C-283/04. It remains to be seen whether this clarification will prompt local legislators to expressly carve out portfolio investment from the scope of FDI Law which currently does not, for example, distinguish between acquisitions of voting and non-voting shares.
Disclaimer: The information in this article has been prepared on a non-reliance basis and does not and is not intended to constitute legal advice. Please contact our team for more information.