Cyprus Foreign Direct Investment (FDI) Law: What International Investors need to Know

Cyprus has recently implemented its Foreign Direct Investment (FDI) screening regime, introducing for the first time a formal framework for the review of foreign investments connected to strategic sectors in Cyprus. The regime aligns Cyprus with the broader European regulatory framework under Regulation (EU) 2019/452 and reflects the increasing focus across the EU on the protection of security, public order, critical infrastructure and sensitive technologies, while reinforcing Cyprus’ position as an established international investment and business hub.

The new framework is expected to have a significant impact on international investors, private equity and venture capital funds, multinational groups, technology companies and cross-border transactions involving businesses operating in strategic sectors connected with Cyprus.

Given the broad scope of the legislation, early assessment of potential filing obligations has become an important component of transaction planning for foreign investors and their advisors.

Scope of the Cyprus FDI Regime

The Cyprus FDI Law applies to foreign direct investments by:

• natural persons who are not nationals of an EU Member State, EEA state or Switzerland; and
• legal entities established outside the EU/EEA or Switzerland.

Importantly, entities established within the EU/EEA or Switzerland may nevertheless be treated as foreign investors where:

• they are directly or indirectly controlled by a foreign investor;
• a foreign investor holds at least 25% of the share capital and/or voting rights; or
• their ultimate beneficial owner qualifies as a foreign investor.

As a result, the legislation may capture a broad range of international structures involving non-EU ownership or control.

Transactions Subject to Notification

The notification obligation is triggered where the following cumulative conditions are satisfied:

1. Investment in an undertaking of strategic importance

The law adopts a broad interpretation of “undertakings of strategic importance”.

The regime applies to entities active in sectors considered particularly sensitive, including:

• critical infrastructure;
• energy;
• transport;
• healthcare;
• financial infrastructure;
• telecommunications;
• media;
• data processing and storage;
• aerospace and defence;
• artificial intelligence;
• cybersecurity;
• semiconductors;
• biotechnology; and
• other critical technologies.

The scope of the legislation is particularly wide as it may also apply to undertakings established outside Cyprus where goods or services are provided into Cyprus.

This potentially extends the application of the regime beyond purely domestic transactions.

2. Acquisition or increase of qualifying participation

The notification obligation arises where a foreign investor directly or indirectly:

• acquires at least 25% of the share capital and/or voting rights in an undertaking of strategic importance; or
• increases an existing participation:
  • from below 25% to 25% or more; or
  • from below 50% to 50% or more.

The legislation is therefore capable of capturing both initial acquisitions and subsequent increases in participation.

3. Investment threshold of €2 million

The notification requirement generally applies where the value of the investment exceeds €2 million.

For the purposes of calculating the threshold, the law aggregates transactions completed within a 12-month period between the investor and the target undertaking.

Broad Powers of the Cyprus FDI Authority

The Cyprus FDI Authority is vested with extensive investigative and supervisory powers.

Among others, the Authority may:

• review non-notified transactions for up to five years following completion;
• request additional documentation, explanations and clarifications;
• initiate ex officio investigations;
• impose mitigation measures or conditions; and
• prohibit transactions where risks to security or public order are identified.

The review process includes:

• an initial screening phase of 20 working days; and
• where necessary, an in-depth investigation phase of up to 65 working days.

The statutory review periods may be suspended where additional information is requested.

Administrative Penalties

The legislation provides for significant administrative sanctions in cases of non-compliance, including:

• fines ranging from €5,000 to €50,000 for failure to notify;
• fines of up to €100,000 for providing misleading information or failure to comply with imposed measures; and
• additional daily penalties for continuing infringements.

The decisions of the Cyprus FDI Authority constitute administrative acts and may be challenged before the Administrative Court pursuant to Article 146 of the Constitution of the Republic of Cyprus.

Practical Implications for Investors and Businesses

The Cyprus FDI framework introduces an additional regulatory layer for cross-border transactions involving strategic sectors connected to Cyprus.

Particular attention should now be given to:

• ownership and control structures;
• ultimate beneficial ownership arrangements;
• investments involving technology, AI, data or critical infrastructure;
• transaction timelines and conditionality; and
• regulatory risk allocation within transaction documents.

The legislation is expected to be particularly relevant for:

• private equity and venture capital transactions;
• technology and AI businesses;
• fintech and digital infrastructure companies;
• healthcare and biotech transactions; and
• multinational groups using Cyprus as part of broader international structures.

Conclusion

The Cyprus FDI Law establishes a broad foreign investment screening mechanism consistent with the wider European regulatory trend towards increased scrutiny of foreign investments in sensitive sectors.

Given the potentially extensive scope of the legislation and the significant penalties for non-compliance, foreign investors and transaction parties should assess potential filing obligations at an early stage of any transaction involving Cyprus-connected strategic activities.

To discuss Cyprus FDI matters, cross-border investments or international transaction structuring, please contact Theo Antoniou