Screening of investments in Danish companies

As a small open economy, Denmark is dependent on foreign markets and global trade. This includes corporate investments, where the opportunity to receive investments from foreign investors as well as to make investments abroad is crucial for Denmark's growth, productivity and competitiveness.

Foreign investments in Denmark are fundamentally good for the business community and for the benefit of Danish society as a whole. In addition to bringing necessary capital, foreign investment often provides access to valuable knowledge that supports innovation.

In recent years, however, there has been a tendency for foreign investment in the EU to be increasingly directed towards new markets and strategic assets where the investor operates under government influence: In some cases on the basis of a declared strategy on the part of the government in question, in which investments abroad are used by foreign powers to strengthen their security policy position on the global stage. Certain foreign investments in Danish companies or critical infrastructure may thus have underlying non-commercial, strategic intentions.

A need has thus arisen to be able to protect national security interests in connection with certain foreign investment and other economic activities. On this basis, the Danish parliament adopted the Investment Screening Act in May 2021. A number of Denmark's partners and allies in the EU and NATO have introduced similar screening schemes in recent years. The Investment Screening Act must also be seen in the light of the EU regulation on the coordination of national investment screening schemes, which entered into force in October 2020.

The Investment Screening Act and its executive orders entered into force on 1 July 2021. However, the Act does not apply to investments and agreements that have been completed before 1 September 2021. This means that foreign investors only have to apply for authorisation or notify investments and agreements that are planned to be completed by or after 1 September 2021.

Consideration of a complete foreign direct investment or special financial agreement depends on the nature of the investment/agreement:

• In the case of acquisition of shareholdings in a Danish company, in principle it will be the time for notification and registration of the ownership in the Danish Business Authority's company and owner registers, which will be decisive.

• In the case of agreement-based control of or influence over a Danish company, the decisive factor will be the time for concluding the agreement in question.

• The same applies to special financial agreements. Thus, it will not be sufficient that an agreement has been negotiated between the parties, or that there is a final draft of an agreement, the agreement must have been finally concluded.

• If an existing foreign investment constitutes a smaller shareholding than 10%, but after the entry into force of the Act is increased to more than 10%, the investment in the form of the increased share will be covered and therefore require authorisation if the investment takes place in one of the particularly sensitive sectors. However, it will not be possible to intervene against the existing investment of less than 10%, nor will it be possible to intervene against investments and agreements that have been completed before the Act enters into force.

• An increase in an existing investment of a shareholding of more than 10% made after the entry into force of the Act, will be covered if the investment takes place in one of the particularly sensitive sectors and if there is therefore an increase to one of the stated limit values, an application must be made for authorisation to do so.

The purpose of the Investment Screening Act is to prevent foreign direct investments and special financial ageements from posing a threat to national security or public order in Denmark.

The Danish Business Authority can only intervene against investments and agreements that may pose a threat to national security or public order. A concrete and individual assessment of whether an investment or agreement may affect national security or public order will always be made.

The screening scheme is designed as a combination of a statutory authorisation requirement for particularly sensitive sectors (defence, dual-use, IT security, critical infrastructure and critical technology) and a voluntary notification option for other sectors.

It is the foreign investor, i.e. a foreign national, foreign company or other entity that has a duty to apply for authorisation to make an investment or enter into a special financial agreement. It is also the foreign investor who can take advantage of the voluntary notification option.

Application of the scheme to foreign nationals and foreign companies differs, depending on whether it is a foreign investment or special financial ageement, and in relation to which sector the investment or agreement relates.

For investments or special financial agreements covered by the voluntary notification option, but which have not been notified, the Danish Business Authority can investigate and possibly intervene against the investment within 5 years of its completion.

Read more about foreign direct investment

Read more about special financial agreements

Read more about greenfield investments

It is only possible to take action against investments or agreements if they could pose a threat to national security or public order.

If the Danish Business Authority considers that a possible threat can be mitigated by more detailed terms applicable to the completion of the investment or agreement, it may contact the foreign investor to negotiate the detailed content of such terms.

If the foreign investor agrees to carry out the intended investment or agreement in compliance with such terms and makes a binding commitment to the Danish Business Authority, the Authority may approve or authorise the investment or agreement.

In some cases, the decision is made by the Minister for Industry, Business and Financial Affairs after consultation with a number of other ministers. The Minister for Industry, Business and Financial Affairs has the option of unilaterally setting terms as a condition for granting authority or approval. In such cases, the foreign investor must therefore choose between carrying out the investment or the agreement on the stipulated terms or abandoning it.

Terms established must be complied with for as long as the respective foreign direct investment or special financial agreement is maintained. The foreign investor must submit an annual statement of how compliane with the agreed terms have been ensured during the year.

If it is not possible to mitigate a threat to national security or public order by agreeing or laying down detailed terms for the investment or agreement, the Minister for Industry, Business and Financial Affairs may refuse the investment or agreement. The investment or agreement can thus not be legally completed.

In the case of an investment or agreement that already has been completed – either because it was completed before the notification was approved or because it was not notified – the Minister may order that the investment or agreement be stopped.

A stop order will include a deadline for when the investment or agreement must terminate and a requirement to submit proof of termination.

The Investment Screening Act contains a number of possibilities for the introduction of sanctions in case of non-compliance, including the following:

Non-compliance of agreed or stipulated terms:

• The Danish Business Authority can reprimand a violation.

• The Authority can order a violation to be brought to an end.

Non-compliance of an order:

• The Danish Business Authority may revoke the voting rights of the foreign investor's shareholding. If the Danish Business Authority has revoked the voting rights, the shareholding cannot be included in the list of shares with voting rights.

• The Minister for Industry, Business and Financial Affairs may initiate expropriation of private property when necessary to implement precautions according to the Investment Screening Act.

• The Danish Business Authority may publish non-compliance of a stop order.

Finally, the Danish Business Authority must draw attention to the fact that it may intervene against any attempt to circumvent the rules in the Investment Screening Act and other regulations issued in pursuance of the same.

The Investment Screening Act does not apply if other legislation lays down rules on screening of and possible intervention against foreign direct investment and special financial agreements for reasons of national security or public order. This means that foreign investments made in companies covered by the War Material Act are not covered by the Act. Please note that the exception in these cases does not apply to special financial agreements.

• The War Material Act under the Ministry of Justice. This Act applies to materiel designed for military use (and which cannot be used for civilian purposes) and ammunition which can be used for military purposes. State-owned undertakings are not covered by the Act.

• The Continental Shelf Act under the Ministry of Climate, Energy and Utilities. This Act applies to Danish or foreign companies that want to lay power cables or pipelines to convey foreign-produced hydrocarbons on Danish maritime territory.

The purpose of the Investment Screening Act is to prevent foreign direct investments and special financial ageements from posing a threat to national security or public order in Denmark.

Information on national security and public order is sensitive and not publicly available Therefore, no access to documents or self-access can be applied for in cases processed in accordance with the Investment Screening Act. In addition, special rules have been laid down on confidential judicial review of injunctions, prohibitions or conditions under the Investment Screening Act.