Legal Alerts/29 Nov 2019
Foreign Investments Under Increased Scrutiny in Finland
Due to the deterioration of the security environment in the Baltic region, the Finnish Government has been applying the Finnish Act on the Monitoring of Foreign Corporate Acquisitions more strictly. In addition, it will make real estate acquisitions by non-EU and non-EEA nationals subject to a permit in Finland as of 1 January 2020.
Another factor that should be taken into consideration is Brexit. In a possible no-deal situation, the Finnish Government will also require British individuals and entities to notify the appropriate public authorities of their corporate and real estate acquisitions similarly to all other non-EU and non-EEA nationals. This would certainly lead to a further increase in the number of notifications.
The Finnish Act on the Monitoring of Foreign Corporate Acquisitions
Pursuant to the Finnish Act on the Monitoring of Foreign Corporate Acquisitions, acquisitions in the military and dual-use sector require an advance authorisation from the Ministry of Economic Affairs and Employment. The mandatory filing of an application applies to all non-Finnish entities, including EU and EEA residents, who obtain either 10%, 1/3 or 50% ownership of or corresponding actual influence over the company. A new application must be filed each time a foreign owner’s portion of shares reaches any of these thresholds.
In addition to the military sector acquisitions, the Ministry of Economic Affairs and Employment can examine acquisitions where the new ultimate owner comes from outside the EU and EEA and where the Finnish target company offers goods or services or has other commitments that are considered critical for securing the fundamental functions of the society. The ownership thresholds are the same: 10%, 1/3 and 50%. The foreign owner can file a voluntary notification of the acquisition and get a clearance from the Ministry. The voluntary notification protects against post-closing ex-officio investigations.
Since the enactment of the Act in 2012, the number of cases has multiplied. In the first years, the Ministry of Economic Affairs and Employment received 4 to 5 notifications per year. In 2018, the number of notifications rose to 14 and this year yet another record will be reached. Altogether, the Ministry has considered 64 acquisitions. The number of pre-notifications is not known. All notified acquisitions have been cleared, which is well in line with the Act’s aim to encourage foreign investment and a general positive attitude to foreign ownership in Finland. However, it is possible that some acquisitions have been withdrawn as a result of the pre-notification discussion with the Ministry.
Certain Real Estate Acquisitions Becoming Subject to Permit
At the beginning of 2020, Finland will be adopting various new legal provisions in order to further improve and ensure national safety. As a result, foreign ownership of Finnish real estate will be monitored and controlled more strictly than before by way of new legislation.
One of the legislative changes regards implementing the Act on Certain Real Estate Acquisitions subject to Permit on 1 January 2020. This results in certain real estate acquisitions in Finland (excluding Åland Islands) being subject to a permit granted by the Finnish Ministry of Defence. Firstly, the permit is required when a person or entity established outside the EU or EEA wishes to acquire a property within the Finnish territory. Secondly, the permit must be obtained when the buyer of the property is established within the EU or EEA, but another person or entity having its domicile outside the EU or EEA area holds at least 10% of the voting rights or control over the company. Thus, depending on the ownership structure, even a company registered in Finland may be obligated to apply for a permit. The implications of Brexit also need to be taken into account in this respect. The application for a permit must include information of the parties involved in the transaction, the real estate in question as well as the intended use of the real estate.
The legislation will apply to all real estate transactions that have been performed by a buyer meeting the requirements stipulated under the aforementioned act and that have been notarised on or after 1 January 2020. The application for the permit should be filed no later than 2 months after the notarisation. According to the Ministry of Defence, the filed applications are confidential and thus it is advisable to file the application as early as possible in order to avoid any unnecessary delay with regard to the transaction, as the processing of the permits will take approximately 3 months. Should the permit for the acquisition be denied, the buyer will be obligated either to sell the real estate to someone entitled to perform the acquisition or to request an annulment of the purchase. Thus, applying for the permit as early as possible can minimise uncertainty with regard to the future of the transaction and is recommendable due to the fact that if the permit is denied, the state has no obligation to redeem the real estate.
It is noteworthy that only the real estate acquisitions stipulated under the Finnish Land Code will fall within the scope of the legislation. Thus, the purchase of a share in a housing company or a real estate company, for example, will not be subject to permit, nor will a permit be required in certain transfers of real estate between family members or spouses, as further stipulated under the respective act.
New legislation will also be enacted regarding the right of first-refusal of the state and the expropriation of certain immovable property and special rights in areas of importance e.g. to the national defence, security of supply, or infrastructure. The regional scope of application concerning the right of first-refusal is however fairly limited and the expropriation will be applied as a last resort requiring the authorisation from the respective ministry. Along with certain acquisitions being subject to permit, the aforementioned new laws are mechanisms that are meant to supplement each other. Their function is to create means by which the state can, if necessary, take a hand when it comes to foreign ownership of real estate in Finland.
Borenius’ lawyers are available to assist in addressing any questions you may have regarding the amendments to legislation. They will also gladly assist in applying for any permits that the acquisitions and real estate transactions you are performing may require.