Czech Foreign Investment Screening: New Rules from August 2024 for Non-EU Deals
Foreign investors from non-European countries often underestimate legal and security screening when entering Czech companies. As of August 2024, the Foreign Investment Screening Act has been tightened, especially in the digital, energy, and healthcare sectors. Management must anticipate mandatory notifications, project delays, and the risk that the state may prohibit the investment. This article will guide you through the threats and how to prepare for inspections by state authorities in the Czech Republic.
Table of contents
- Who is a foreign investor and what does “effective level of control” mean
- Amendment effective from August 2024: Exponential expansion of screened sectors
- Tax and legal tools: What is changing for foreign investors
- How to prepare properly: Practical steps for management
- Rights and obligations after approval: What will change in company management
Quick summary
- As of 24 August 2024, mandatory notification of foreign investments has expanded significantly due to its linkage with the Cybersecurity Act. Companies in the digital, energy and healthcare sectors are now automatically subject to enhanced screening.
- A foreign investor means a natural or legal person who is neither a citizen nor has its registered office in the Czech Republic or another EU Member State. Their investment in the Czech Republic, including the acquisition of as little as 10% of voting rights, may be blocked by the state unless prior approval is obtained from the Ministry of Industry and Trade (MPO).
- In the mandatory regime, the MPO has at least 45 days to decide. In the case of conditional approval, strict restrictions may be imposed on the investor regarding technologies, access to data, or hiring employees from third countries.
- Lack of awareness of the obligation to report an investment or failure to file a notification may result in a fine of up to 10% of the affected company’s net annual turnover, or up to CZK 100,000,000 if turnover cannot be determined. A retroactive ban on the continuation of the investment and a forced sale are also possible. Our Prague-based attorneys help you identify risks already at the preparatory stage.
Who is a foreign investor and what does “effective level of control” mean
The Act on Screening of Foreign Investments draws a clear distinction: a foreign investor is a natural or legal person who is neither a citizen nor has its registered office in the Czech Republic or another EU Member State.
If such an investor is in a position to control a company, whether in the Czech Republic or through an EU subsidiary, and brings capital or decision-making rights, it constitutes a foreign investment. The Act is not limited to majority stakes; even the acquisition of 10% of voting rights in a company subject to security regulation requires state approval in many cases.
An effective level of control is not limited to ownership. The Act recognises a range of ways in which an investment may manifest itself, for example membership in a company body or the right to directly or indirectly dispose of the company’s assets. In transactions where an investor’s entry into corporate bodies or the setup of control rights is being addressed, it is often necessary to align the investment documentation and internal governance rules, which is supported by our contracts and negotiations service.
This also includes “another level of control, the consequence of which is the ability of a foreign investor to gain access to information, systems or technologies that are important from the perspective of safeguarding the security of the Czech Republic.” This means the investor does not need to have formal control; if a practically influential voting stake or access to sensitive technological data is sufficient, screening is triggered.
Management often makes the mistake of thinking that if the new owner is a minority shareholder or entrusts management to a Czech person, everything will be fine. It will not. Screening is triggered based on actual participation in management or control, regardless of the formal structure. In practice, it is therefore worthwhile to carry out a preliminary legal review (especially of rights to technologies, data and corporate governance), similarly to the transactions described in the article how not to let the buyer drive down the company’s price during due diligence. The attorneys at ARROWS advokátní kancelář can help you clarify how to approach this situation and when notification is required.
Amendment effective from August 2024: Exponential expansion of screened sectors
Until the end of August 2024, Czech rules for screening foreign investments were relatively lenient. Only a handful of transactions per year were subject to mandatory notification. Most historical approvals automatically ended with unconditional clearance – however, the Ministry of Industry and Trade (MPO) has on several occasions in the past completely prohibited entry by foreign investors, underscoring the seriousness of the screening process.
Now everything is changing. As of 24 August 2024, an amendment to the Act entered into force, systematically linking the screening of foreign investments with the new Cybersecurity Act, specifically with the implementation of the NIS2 Directive. If an investment targets digital infrastructure, it is often also necessary to address regulatory impacts in the financial market (e.g., for fintech projects), where advice under CNB licences and investments typically applies. As a result, tens of thousands of additional companies have automatically fallen within the mandatory screening regime.
The newly screened sectors include in particular digital infrastructure and ICT services, such as internet service providers, telecommunications operators, data centres, cloud service providers, or domain name registries. This also includes energy and utilities (gas and electricity distributors, heat suppliers, renewable energy sources).
This also covers transport and traffic management (airport, port and rail network operators, public transport operators), healthcare and pharmaceuticals (hospitals, pharmacies, manufacturers of medicinal products and medical supplies). The chemical industry and facilities subject to major accident prevention are also subject to screening.
This also includes financial services and market infrastructure, such as banks, insurance companies or stock exchanges. Regulatory requirements in these sectors are also linked to licensing matters, which are practically summarised in the follow-up text why financial institutions turn to ARROWS for CNB licences.
Companies in these industries are now automatically considered sensitive targets for screening purposes if they meet the legal criteria set by the new cybersecurity legislation. A foreign investor from a non-European third country therefore cannot access these companies without prior approval from the ministry, and the timeline may stretch for months.
How the screening itself works: Deadlines, procedures and possible outcomes
Once a foreign investor notifies its intention or the Ministry of Industry and Trade (MPO) obtains information, the MPO initiates the screening phase. Here, the MPO has 45 calendar days to assess whether the investment is acceptable from a security perspective. During this period, the ministry reviews:
During this period, the Ministry verifies whether the investor is linked to a non-EU state (for example, a government, a state-owned enterprise, or the armed forces), its track record, whether it has breached conditions in other transactions, and whether it appears on sanctions lists. It also assesses the threat to the security of the Czech Republic, in particular with regard to technologies, data, and infrastructure, as well as the impact on internal order and public peace.
If the Ministry of Industry and Trade (MPO) believes that security could be threatened, the proceedings move to Phase II, which lasts at least a further 45 days (up to 90 days in total from the start of Phase I). In such a case, decision-making is elevated to the level of the Government. Political and security aspects are decisive at this stage, and consultations are held with the intelligence services.
The outcome of the review may be an unconditional clearance, meaning the transaction may proceed, or a conditional clearance (so-called “mitigation measures”). In that case, the investor may enter, but only subject to strict restrictions—for example, it may be prohibited from developing certain technology in the EU, from accessing sensitive data, or from hiring employees from third countries. The third option is an unconditional prohibition, meaning the investment may not be carried out at all.
Management must take into account that conditional approvals tend to be very strict. In the case of one telecommunications group entering another, the European Commission imposed a restriction on the investor that it could not finance the target company. For an investor seeking to modernise the company and fund its growth, this is almost prohibitive. Similar restrictions may also be imposed by the Czech Ministry of Industry and Trade (MPO) under the Czech investment screening legislation.
Related questions on the screening process and ministerial time limits
1. How long does it take for the Ministry to decide whether the investor must notify the investment?
Formally, the Ministry has up to 45 days to decide in Phase I, and in Phase II (with the Government) a further 45 days. In total, therefore, up to 90 days. During that time, the transaction is blocked—you cannot close it without clearance. If this is structured in the share purchase agreement as a condition (closing condition), the investor may withdraw from the agreement in the event of delay or a negative outcome. The attorneys at ARROWS, a Prague-based law firm, can help you structure the time limits in the share purchase agreement correctly.
2. What happens if a foreign investor simply completes the transaction without notification?
They face a fine of up to 10% of the net annual turnover of the affected company for the last closed accounting period, or up to CZK 100,000,000 if turnover cannot be determined. Much worse, however, is that the Ministry may retroactively decide to prohibit the continued existence of the investment and, in extreme cases, order a forced sale of the stake. Such measures may also apply to transactions that are already years old. An unlawful investment also makes it more difficult to exercise shareholder rights and, in practice, may lead to a de facto cancellation of the transaction’s effects and the need to return the consideration.
3. How long do I have for the transaction to require notification—or is it already too late?
The Act allows the Ministry to review any foreign investment up to 5 years after its completion. If, during this period, it finds that the investment should have been notified and was not, it may reopen the matter. This means that many years after closing the transaction, the Ministry may suddenly notify you that the investment is unlawful or must be divested. This represents an enormous legal and commercial risk.
4. What happens if the foreign investor changes its mind during screening and no longer wants to invest?
Correctly: nothing happens to them. Screening is not mandatory—it is a review process. If the investor withdraws its rights, everything stops. However, if it closes the transaction and the Ministry challenges it later, it can no longer be undone. Proper structuring of the share purchase agreement is therefore crucial, so that closing cannot occur until the Ministry has granted its consent.
Tax and legal tools: What is changing for foreign investors
A foreign investor entering a Czech company does not face only security screening. There is a whole range of tax and legal situations that may significantly increase the cost of the transaction or complicate it.
If the seller is a non-resident outside the EU/EEA, the buyer—i.e., the future foreign investor—must generally withhold 10% of the purchase price as security for tax vis-à-vis the tax authority. This tax security applies to income from the sale of an ownership interest in a Czech company.
However, there are exceptions—for example, if the seller provides a certificate of tax residence for the purposes of a double tax treaty that allocates taxation of such income solely to the seller’s country of residence, or if the seller proves that the tax has been secured in another way. In large acquisitions, however, this in practice means tied-up capital and administration.
If a Czech company pays a dividend to a foreign investor, withholding tax of 15% is automatically deducted. In some countries, additional taxes are then applied in the investor’s home jurisdiction—for example, in the USA additional taxes on dividends are commonly withheld. The result is effective taxation that may reach high levels, although it is usually mitigated by applying double tax treaties. The attorneys at ARROWS, a Prague-based law firm, can help you optimise the structure of financial flows.
When acquiring a Czech company, a foreign investor must review what contracts the company has, including contractual penalties and reservations, what tax and legal issues affect it, whether it is part of any insolvency proceedings, and whether its liabilities are in order. The attorneys at ARROWS, a Prague-based law firm, carry out legal due diligence and tax due diligence to uncover risks hidden in the company’s history for the investor.
Practical risks and how to address them
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Risks and sanctions |
How ARROWS helps (office@arws.cz) |
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Transaction blocked by the Ministry or a retroactive ban – the investor does not know in advance whether approval will be granted, deadlines drag on for months, or the government may prohibit the entry. |
We provide legal advice at the preparatory stage. We will assess whether your company falls within sensitive sectors under the new cybersecurity legislation; we will file the application with the Ministry of Industry and Trade (MPO) with professional reasoning; we represent you in negotiations with the Ministry. |
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Conditional approval with unacceptable restrictions – the Ministry allows the entry only on the condition that the investor cannot finance the business, transfer technologies outside the EU, or hire employees from third countries. |
We negotiate with the Ministry to ease the conditions. We structure the transaction so that it is acceptable to both parties; we prepare mitigation measures meeting the state’s security requirements. |
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Fine and ex post finding that the transaction is unlawful – even if the transaction went through without issues, the Ministry may challenge it retroactively years later, impose a significant fine, and order a forced sale of the stake. |
We ensure the transaction is properly notified and that no formal or procedural errors occur. In a retrospective review by the Ministry, we represent the client and defend them against unfounded legal claims. |
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Tax issues and double taxation – the foreign investor may not be aware that special withholding taxes, transfer pricing rules, or an international transactions regime apply in the Czech Republic. |
We provide tax advice. We set appropriate transfer pricing; optimise dividend taxation; negotiate with the tax authority; apply double taxation treaties. |
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Legal uncertainty when buying shares versus buying assets – the choice between a share deal (purchase of a stake with all hidden risks) and an asset deal affects both legal and tax consequences. |
We will advise which structure is most advantageous for your situation. We prepare a robust Share Purchase Agreement with representations, warranties, and indemnities; we review the company’s history. |
Two typical real-life scenarios
Case 1: A Chinese investor wants to acquire 51% of a technology company in the Czech Republic.
The company operates cloud services and falls under the new Cybersecurity Act. The investor cannot simply buy the shares and take over management, but must first notify the Ministry of Industry and Trade (MPO).
The new regime effective from 24 August 2024 means this is automatically a sensitive investment. The MPO has 90 days to decide. During that time, the acquisition is blocked.
If the MPO approves, it will most likely be subject to conditions. For example, the investor may not develop certain technologies, must appoint an auditor, and may not transfer certain sensitive data outside the Czech Republic. The acquisition becomes more expensive due to legal advice, is extended by months, and the final investment is tied to restrictions.
Case 2: A Singapore fund wants to acquire only a 15% stake in an energy company.
It may seem like a minority investment, so it could be without screening. Wrong.
From 24 August 2024, energy companies are automatically sensitive, and even the acquisition of a 10% stake requires notification. If the fund completes the transaction without notification and the Ministry later discovers it, it faces a fine of up to 10% of net annual turnover, a retroactive ban, and a forced sale of the stake.
The fund thus finds itself in a situation where a public authority may force it to sell its stake on unfavourable terms.
Related questions on the tax and legal aspects of foreign investment
1. Do I have to notify the Ministry only if the transaction has not been closed yet, or also later?
Notification is required before closing the transaction – this is the so-called standstill obligation. You cannot acquire the ownership interest until the Ministry decides. If the investor fails to realise this and closes the acquisition, and the Ministry later uncovers it, this is a breach of the law with serious consequences. The attorneys at ARROWS, a Prague-based law firm, will ensure you file the notification on time and in compliance with all requirements.
2. What role does it play that the investor is from the EU, but is owned by a Singapore company?
The decisive factor is the beneficial owner. If a legal entity in the EU is in fact controlled by an entity from a third country outside the EU, the law applies the rules for a foreign investor. This means a formal EU “disguise” will not save you. Verifying beneficial ownership is key, and the attorneys at ARROWS, a Prague-based law firm, will help you set up the structure transparently.
3. Am I just out of luck if I am a small investor and have to wait months for approval?
Unfortunately, yes. The law does not distinguish between large and small investors – everyone is subject to the same deadlines. The only advantage is that the MPO may consider small investments “non-risk” and decide faster or not open Phase II at all. The best approach is to engage with the Ministry in advance and discuss whether your investment is truly “sensitive” or not. With the attorneys at ARROWS, a Prague-based law firm, you can arrange this.
How to prepare properly: Practical steps for management
If, as management or the owner of a company, you know that a foreign investor from a country outside the EU is preparing to invest in you, you should:
Verify whether your company is subject to screening. Find out whether you operate in one of the sensitive sectors (IT, energy, healthcare, transport, finance). From 24 August 2024, this is more precise – if you are a provider of a regulated service under the higher-obligations regime pursuant to the Cybersecurity Act, you are automatically a sensitive target.
Engage a lawyer early, ideally at the preparatory stage when the investor is still in negotiations. The attorneys at ARROWS, a Prague-based law firm, will help you assess the risks and prepare the company and the transaction for screening.
Structure the purchase agreement with a clear screening condition. The content must clearly state that closing is conditional upon the Ministry’s approval. Without this, the investor may withdraw from the agreement if issues arise.
Prepare documents for the Ministry – information about the company, its assets, contracts, employees, and foreign links. The Ministry will want to request details, and if you are prepared, you will speed up the process.
Arrange tax advice. A foreign investor will want to optimise the tax structure. The attorneys at ARROWS, a Prague-based law firm, will help you configure the transaction so that it is tax-efficient for both parties while remaining compliant with Czech and international rules.
Rights and obligations after approval: What will change in the company’s governance
If the Ministry approves the transaction subject to conditions, this may mean substantial restrictions for the investor. It is not just a formality – these are limiting rights embedded in the Ministry’s decision, which must then be reflected in internal agreements (SHA, articles of association) and in the day-to-day management of the company.
Examples of conditions the Ministry typically imposes include a ban on developing certain technologies outside the EU. The investor therefore cannot move development capacity to its parent company outside the EU.
There are also restrictions on access to data, where sensitive data (personal data, technical secrets) must not leave the territory of the Czech Republic or the EU. In such a case, the investor must appoint auditors from the state security agency.
Restrictions on employees from third countries are often imposed, meaning that the investor cannot hire senior managers from the parent company outside the EU if they would have access to sensitive information.
This may also include a consultation obligation, under which the investor must consult further changes—such as new investments, a sale of the shareholding, or a change of business activity—with the Ministry of Industry and Trade (MPO).
In practice, this means that the investor may have formal ownership, but a practically limited right to manage. Routine decisions—such as a new production project, leasing premises, or changing service pricing—may need to be approved by the ministry. This makes management more difficult and slows down decision-making.
Related questions on management rights after approval
1. If the ministry approves the investment subject to conditions, do I have any way to defend myself?
You can file an action with the administrative court. However, the action does not automatically have suspensive effect, which means the proceedings continue even during the court process. The court will review whether the ministry complied with the law and whether the conditions are proportionate. In practice, courts are very restrained when it comes to the state’s security decisions—they take the protection of national security into account. It is therefore better to engage with the ministry in advance rather than trying to resolve the matter in court.
2. Are the ministry’s conditions binding forever, or can they change?
The conditions are binding until they are formally revoked or amended. However, the investor may approach the ministry with a request to relax the conditions if circumstances change—for example, if the security threat ends. A request can also be filed if it can be demonstrated that the conditions are disproportionate. The attorneys at ARROWS, a Prague-based law firm, negotiate with the ministry and look for ways to mitigate the conditions.
Final summary
Foreign investment into a Czech company from countries outside the EU is no longer something management can ignore or treat as an ordinary financial acquisition. The new legal reality—especially after the expansion of screening in August 2024—means that state authorities now significantly influence every such transaction. Management must factor in deadlines, uncertainty, possible restrictions, and the serious risk that the government may directly prohibit the investor’s entry.
Common mistakes that lead to problems include underestimating the need to notify the ministry and the lack of legal advice at the preparatory stage. Another is incorrect structuring of the share purchase agreement without a screening condition. Problems also include not knowing whether the company falls under the new cybersecurity regime. Tax aspects and optimisation for the foreign investor must not be overlooked either.
If, as management, you want to ensure that the transaction goes smoothly and without unnecessary delays, and you want to avoid later surprises or fines, you should contact the attorneys at ARROWS, a Prague-based law firm, already at the preparatory stage, before signing any share purchase agreement.
The ARROWS team focuses on the rules for screening foreign investments, understands how the ministry operates in practice, and can help you assess how sensitive your company is, prepare the notification, negotiate with the authorities, and structure transactions.
Whatever your situation—whether you own a company and are preparing to sell it to a foreign investor, or you represent an investor and are considering how to enter a Czech company—contact office@arws.cz and, during a consultation, you will clarify what risks you face and how to prepare for them.
FAQ - Foreign investments into companies from countries outside the EU
1. From when can I be sure that my company “automatically” falls under screening?
A foreign investor must notify the investment if your company meets at least one of these criteria: (a) it falls within military material, dual-use goods, or critical infrastructure; (b) it is a provider of a regulated service under the higher-obligations regime under the Czech Cybersecurity Act (this concerns IT, energy, healthcare, finance, transport, and the chemical industry). Further, (c) if the foreign investor intends to acquire at least 10% of the voting rights or obtain another effective degree of control. These extended rules have been effective since 24 August 2024. If you want to be sure, the ARROWS team can advise you—just email office@arws.cz.
2. How long can the screening take before I know whether the investment is permitted?
At least 45 days (Phase I). If the ministry finds that it is a more complex case, it moves to Phase II, which lasts at least another 45 days. In total, realistically expect 2–6 months depending on complexity and the ministry’s cooperation. During that time, the transaction is blocked. The attorneys at ARROWS, a Prague-based law firm, can help speed up the process and prepare all necessary documents to reduce uncertainty—email office@arws.cz.
3. What tax aspects should I address with the investor in advance?
Mainly withholding tax on dividends (15% in the Czech Republic plus any potential taxes in the investor’s country), tax security when purchasing shares (typically 10% of the purchase price, unless the conditions for an exemption are met), and transfer pricing if there will be any transaction between the investor and its parent company. Another issue is double tax treaties. Without proper tax preparation, the investor may end up in a situation where they pay more in taxes than planned. The attorneys from ARROWS, a Prague-based law firm, can assist you with tax advisory services – contact office@arws.cz.
4. What happens if I forgot the notification and the ministry finds out later?
You may face a fine of up to 10% of your company’s net annual turnover. The Ministry may retroactively prohibit the transaction and order a forced sale of the stake. If this situation has affected your company, you should immediately contact the attorneys from ARROWS, a Prague-based law firm, who can defend you vis-à-vis the Ministry and look for a solution. Write to office@arws.cz.
5. Can I “bypass” screening by structuring the investment through an EU company?
Formally yes, but only if that EU company is genuinely independent and owned by proper EU entities. If it is merely a “disguise” and the beneficial owner remains a non-EU entity, the Ministry will look into it and apply the rules as if you had notified a direct investment. The Act allows for investments through subsidiaries – this is common, but it must be credible. Proper legal structuring can be ensured by the attorneys from ARROWS, a Prague-based law firm – write to office@arws.cz.
6. How can you tell whether an investor is from a “safe” or “risky” third country?
Officially, no list of countries is defined based on risk. The Ministry assesses each case individually with regard to the specific investor and the impact of the investment. Historically, however, investors from certain non-EU countries are scrutinized more strictly, while investors from other countries, such as the USA, the United Kingdom, Canada, or Japan, may be assessed as presenting a lower level of risk. Nevertheless, it always depends on the specific circumstances. The easiest way is therefore to consult the attorneys from ARROWS, a Prague-based law firm, who know how individual countries are assessed in practice – contact office@arws.cz.
Notice: The information contained in this article is of a general informational nature only and is intended for basic guidance on the topic under the legal framework as of 2026. Although we take the utmost care to ensure accuracy, legal regulations and their interpretation evolve over time. We are ARROWS advokátní kancelář, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client protection we maintain professional liability insurance with a limit of CZK 400,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages arising from the independent use of the information in this article without prior individual legal consultation.
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