Unforeign bodies

New legislation related to foreign direct investment (FDI) has recently been introduced in Poland with the goal of protecting domestic businesses from hostile takeovers* . The amended Act on the Control of Certain Investments came into force on July 24th 2020 and sets out rules and procedures for the control of certain transactions that would result in the acquisition of significant holdings or dominant positions in Polish entities operating in certain strategic sectors.

Although the new screening procedure is aimed at protecting Polish entities and ensuring national security and the general public health, it will have a definite impact on the Polish M&A market, especially when it comes to the growing Polish start-up scene and the boom in the hi-tech and innovative companies sector.

Strategic focus

The new FDI legislation substantially extends the list of types of businesses covered by the screening procedure, as it now applies to: all public-listed companies; entities owning assets in strategic infrastructure; IT sector entities that, for example, develop or modify software to manage public infrastructure as well as those involved in data transmission, data storage and data processing, as well as payment services; entities providing cloud computing data storage or processing services; and entities operating in core sectors – such as energy, oil, gas, chemicals, military technology, telecommunications, medical devices and products, medicinal and other pharmaceutical products, as well as the processing of meat, milk, cereals, fruits and vegetables.

The core sectors and businesses specified by the Act are quite general and rather vague. Therefore, in practice, it is crucial to carefully analyse the operations of the target company in order to decide whether it falls within any of the core sectors listed above. This applies not only to the company’s main business, but also to side activities that do not generate its primary sources of income but nonetheless may fall within the purview of the Act.

Approval conditions

Under the new FDI regime in Poland, foreign investors are required to notify the Office of Competition and Consumer Protection (UOKiK) of their intention to buy shares or achieve significant participation in strategic companies registered in Poland, whose revenue from sales and services has exceeded in any of the two financial years preceding the notification the equivalent of EUR 10 mln. This financial threshold is a critical element because the approval procedure does not apply to smaller companies that do not achieve this level of revenue.

Transactions covered by the FDI regulations are defined as those involving the acquisition or achievement of a significant holding or dominance over a target that is a strategic (protected) company. A dominant position is acquired when the buyer has the right to influence the key decisions or strategic business activities of the target. The criteria for having a significant holding in a target company is: owning at least 20 pct of its shares or of its share capital or profit share, as well as obtaining or exceeding 20 pct and 40 pct of the total number of votes at shareholders’ meetings or of the share in its profit or share capital, or when the buyer purchases or leases the target’s enterprise or organised part that results in the same situations.

The FDI regime applies to foreign investment defined as those made by individuals not having a residential address within the EU, EEA or OECD, or companies that have not been registered within the EU, EEA or OECD for at least two years before the date of filing. This territorial requirement is of crucial importance as in practice the new FDI regulations do not apply to transactions conducted by, for example, EU or US based companies.

The screening procedure applies to both share and asset deals. Furthermore, it covers not only direct but also indirect acquisitions that occur, for example, when the transaction is concluded via a subsidiary or affiliated entity, or when the transaction concerns a higher level of corporate structure of the group of companies. Additionally, the Act applies to passive acquisitions, that is, indirect acquisitions where the buyer acquires or achieves significant participation or dominance by way of corporate changes, for example, through a redemption of the target's shares, the acquisition of its own shares, a division of the target company, or changes to the articles of association of the target company.

Notifying the authorities

The general rule is that an investor (buyer) is obliged to notify the Office of Competition and Consumer Protection when acquiring or achieving significant participation or dominance in a strategic company. However, in the case of indirect acquisitions, the notification obligations are imposed on the subsidiary, affiliated entity and even the target company.

The notification must be made before taking any legal action that leads to acquiring or achieving significant participation or dominance in a protected company. However, in the case of some indirect acquisitions, the notification can be made after the transaction.

After being notified, the Office of Competition and Consumer Protection will begin administrative proceedings in order to determine whether to allow or oppose the transaction. The President of UOKiK has the authority to oppose the transaction if it is deemed as having a potentially negative effect on public order, national security or the public health.

Penalties and sanctions

If the FDI regulations are violated, serious sanctions can be imposed. These may apply to the validity of the transaction itself and may also have serious financial and even criminal consequences.

Firstly, a transaction conducted without notifying UOKiK or conducted in spite of its opposition would be null and void by virtue of law. Secondly, in the case of some types of indirect acquisitions, restrictions may be imposed upon the buyer's corporate rights. Thirdly, a financial penalty of up to PLN 50 (app. EUR 11 mln) can be imposed. Finally, a person representing the investor or its subsidiary may be fined up to PLN 5 mln (app. EUR 1.1 mln) or imprisoned for a period ranging from six months up to five years.


At the moment, it is difficult to foresee the impact of the new FDI regulations on the M&A market. On the one hand, financial thresholds should save start-ups from additional requirements and stem the outflow of foreign financing. On the other hand, mature companies exceeding the minimum revenue levels could lose or at least see their strategic cooperation weakened with investors from such foreign markets as Asia. Whatever happens, it is vital to apply the new rules properly and investigate the conditions imposed by the new regulations.

FDI regulations are an increasingly important topic for the global M&A community. Certain investments have been put on hold due to Covid-19. Therefore, it is extremely important to navigate transactions properly, especially due to the additional requirements that are being imposed.

*This article relates exclusively to FDI in Poland – it does not specify: (i) general corporate filing requirements connected with M&A transactions; (ii) merger control laws; (iii) requirements relating to real estate transactions; or (iv) other specific laws and requirements that may be applicable tospecific types of transactions (e.g. involving banks, insurers, etc.).