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Introduction
Foreign Direct Investments (“FDIs”) are viewed as a mechanism through which economic growth and competitiveness can be promoted and fostered within a country. However, whilst FDIs may present attractive investment opportunities, it is also important that they are screened prior to their implementation in order to determine whether they are likely to affect the security or public order of the country in which the investment is made.
Cyprus has introduced its first FDI screening regime under the Establishment of a Framework for the Screening of Foreign Direct Investments Law of 2025 (Law 194(I)/2025) (the “Law”), which entered into force on 2 April 2026. The regime establishes a mandatory prior notification and approval mechanism for certain FDIs that may affect the security or public order of the Republic of Cyprus, aligning Cyprus with Regulation (EU) 2019/452 (the “Regulation”).
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Which investments are FDIs
Pursuant to the Law, an FDI is “an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links between the foreign investor and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity in a Member State, including investments which enable effective participation in the management or control of a company carrying out an economic activity.”
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Who is a “foreign investor”
A “foreign investor” pursuant to the Law is (a) a natural person who is not a national of a Member State of the EU, the EEA or Switzerland, and who intends to make or has made a FDI; or (b) an undertaking of a third country which intends to make or has made a FDI.
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Obligation to notify and obtain approval
For the new FDI screening mechanism to be initiated under the Law, a potential foreign investor has to notify the competent authority in Cyprus, which has been designated as the Ministry of Finance (“MoF”) about the FDI and seek approval prior to the FDI’s implementation in the business. The notification is submitted in the form of a written application to the MoF. The obligatory notification of an FDI to the MoF is triggered where the criteria set out in Article 3(2) of the Law are satisfied cumulatively. These criteria are:
a. Acquisition of a ‘special participation’: The FDI will result in the acquisition of a special participation, 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 undertaking. Also, if a foreign investor already possesses share capital and/or voting rights in a company and following an investment their special participation undergoes a further increase moving:
a.From below 25% to 25% or more, or,
b.From below 50% to 50% or more,
This increase in special participation will also give rise to an obligation to notify the MoF of the FDI.
b. Monetary threshold: The monetary value of the FDI either as a single transaction or in combination with other transactions between the parties within a 12-month period exceeds the amount of €2 million.
c. Business of strategic importance: If the FDI will occur in a business of strategic importance which carries out activities in particularly sensitive sectors of the economy concerning critical infrastructure (as defined in the Law) then there is an obligation to notify the MoF.
It is noted that Article 3(7) of the Law provides a list of FDIs which are exempt from the obligatory notification, these are: FDIs in vessels under construction, vessels that are the object of a sale and purchase agreement. However, if a vessel is a Floating Storage and Regasification Unit then the obligatory notification applies.
Finally, it should be noted that Article 3(8) of the Law gives the MoF the authority to screen any FDI transaction, irrespective of whether it falls within the mandatory notification criteria, if there are reasonable grounds for the MoF to believe that the FDI could affect the security or public order of Cyprus. This power can be exercised:
a. Within a 15-month period from the implementation of the transaction for any FDI that is not subject to the mandatory notification
b. Within a 5-year period from the implementation of the transaction if the FDI was subject to mandatory notification but that notification was not carried out.
Furthermore, pursuant to Article 7 of the Law if any person in control of an FDI transaction that falls under the criteria of mandatory obligation to notify, fails to do so, then the FDI will automatically be deemed to be in violation of the provisions of the Law and the MoF has the authority to prohibit, terminate or reverse the FDI transaction.
4.1 Content of Application
Article 4 of the Law establishes the information that must be included in the application for the notification and screening of a potential FDI transaction. The information required includes inter alia the following:
a. The details of the parties involved in the transaction
b. The ownership structure of the company of the foreign investor and the company receiving the FDI including information on the ultimate beneficial owners (the “UBOs”) of each company
c. The FDI value
d. The products, services and business activities of the foreign investor and of the business of strategic importance in which the FDI will be carried out
e. The nature of the economic activities carried in the Republic of Cyprus by the parties in the transaction
f. The source of funding of the investment
4.2 The Review Process
Stage 1 Initial Assessment:
The MoF has 20 business days from the date of receipt of the complete application to decide, after consulting with the Advisory Committee, whether an FDI transaction will be subject to screening due to concerns that the FDI will likely affect the security and public order of Cyprus. During this stage, the MoF has the authority to request further details, information, clarification and/or explanations from the foreign investor for the purpose of reaching their initial assessment. If the MoF requests any of the above, then the 20-day deadline is suspended until all the required information is provided.
The MoF notifies the foreign investor, within 5 business days of making a decision, whether the investment will undergo screening.
Stage 2 Screening of FDI:
The screening stage will be used to assess whether an FDI transaction is likely to affect the security and public order of the Republic of Cyprus and the MoF has 65 business days to reach its decision, after consulting with the Advisory Committee. If any further details, information, clarification and/or explanation is required from the foreign investor, then the 65-day deadline is suspended until all information is received.
The MoF notifies the foreign investor, within 5 business days of making a decision.
Following its assessment, the MoF may:
a. Approve the FDI; or
b. Approve the FDI subject to specific conditions; or
c. Prohibit, terminate or reverse the FDI.
Appeal
If a foreign investor or person in control of the FDI is not satisfied with a decision reached by the MoF during the review process, Article 18 of the Law gives the power to appeal that decision. This appeal will be in the form of an administrative recourse before the Administrative Court.
4.3 Factors considered during the Review Process
A non-exhaustive list of factors that the MoF will take into account when deciding whether a potential FDI transaction is likely to affect the security and public order of the Republic of Cyprus have been set out in the Annex of the Law, noting that these factors are separated into two categories, as follows:
Factors relating to the investment:
a. Whether the business in which the foreign direct investment is planned to be made operates in a particularly sensitive sector, which concerns critical infrastructure, whether physical or virtual, including infrastructure in the sectors of energy, transport, water, health, education, tourism, communications, media, data processing or storage, aerospace, defence, electoral or financial services, including systemic credit institutions, facilities of a sensitive nature, as well as land and real estate, or crucial importance for the use of these infrastructures.
b. the potential consequences of a FDI in terms of access to information of a sensitive nature, including personal data, or the ability to control such information
c. Media freedom and pluralism
d. Critical technologies and dual-use items and as defined by Article 2(1) of Regulation (EC) 428/2009 including the technologies in the sectors of artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, storage of energy, quantum and nuclear technology as well as nanotechnology and biotechnology.
e. The supply of production factors of critical importance, including energy or raw materials, as well as food security
Factors relating to the foreign investor:
a. Whether the foreign investor is controlled directly or indirectly by the government of a third country, including state bodies or armed forces, through the ownership structure or the provision of significant funding
b. Whether the foreign investor has already been involved with activities that affect the security or public order of a Member State of the EU
c. Whether there is serious risk that the foreign investor will engage in illegal or criminal activities
d. Where applicable, comments from Member States of the European Union and/or the opinion of the European Commission, as referred to in Article 6, paragraph 9 of Regulation (EU) 2019/452.
e. The extent to which the under screening FDI affected or is likely to affect the security or public order of a Member State of the EU other than the Republic of Cyprus or the EU as a whole.
f. The possibility that the FDI may affect projects or programmes of the Union, as defined in the Annex of the Regulation (EU) 2019/452.
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Advisory Committee
As mentioned above during the review process and before the MoF reaches a conclusion on whether or not to allow the potential FDI transaction to occur it must also consult with the members of the Advisory Committee. Pursuant to Article 9 of the Law, the Advisory Committee consists of 7 members and the president of the Advisory Committee is the Director General of the MoF or his representative. The rest of the Advisory Committee is comprised of the Director Generals or their representatives from the following Ministries:
a. Ministry of Defence
b. Ministry of Energy, Commerce and Industry
c. Ministry of Foreign Affairs
d. Ministry of Interior
e. Ministry of Justice and Public Order
f. Ministry of Transport, Communication and Works
The consultation is in the form of a written opinion which the Advisory Committee will provide to the Minister of Finance outlining their conclusions in relation to the likelihood of the FDI being screened affecting the security or public order of the Republic of Cyprus. When preparing the opinion, the Advisory Committee has the authority to call upon the foreign investor or their legal representatives so that they can provide any clarifications that may be needed.
In addition, when conducting its opinion, the Advisory Committee may consult with representatives of other Ministries, Deputy Ministries or other services, as well as representatives from the private sector, professional associations or other bodies. These individuals will provide their expertise on whether the FDI that is being screened is likely to affect the security or public order of the Republic of Cyprus.
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Sanctions for non-compliance.
Administrative fines:
Article 12 of the Law gives the authority to the MoF to impose administrative fines on a foreign investor or any person that exercises direct or indirect control over the FDI, if the person violates or fails to comply with any provision laid out by the Law. The administrative fines are detailed below:
a. A fine between €5,000 and €50,000 for failure to notify an FDI transaction to the MoF if there is a mandatory obligation to do so pursuant to Article 3.
b. A fine of up to €100,000 for providing false or misleading information in the context of complying with an obligation set out by the Law.
c. A fine of up to €50,000 for failing to provide required information.
d. A fine of up to €100,000 for failing to comply with any measure or condition ordered by the MoF within a specified timeframe, supplemented by an additional fine of up to €8,000 for each day the violation continues.
Judicial orders:
The MoF may also, pursuant to Article 17, apply to the competent Court for an injunction which could order:
a. the immediate cessation and/or non-repetition of the violation committed
b. To adopt corrective measures that the Court may deem appropriate for the elimination of the violation, within a specified time-frame
c. Any other act or remedy the Court deems necessary or just under the circumstances of the particular case.
The information contained in this article is provided for general information purposes only and does not constitute legal or professional advice.
For further information or advice, please contact us at info@papakyriacoulaw.com
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