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Cyprus has recently enacted the Foreign Direct Investment (FDI) Screening Law of 2025, which will come into force on 2 April 2026 (the "FDI Law"). The FDI Law transposes Regulation (EU) 2019/452 (the "EU Regulation") into national law, establishing for the first time a formal mechanism in Cyprus to screen, assess, approve, prohibit or even reverse foreign direct investments based on national security and public order considerations.
Foreign Direct Investment ("FDI")
Consistent with the EU Regulation, under the FDI Law, a foreign direct investment is defined as "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".
A foreign investor would be:
- a natural person who is not an EU / EEA / Swiss national, and who intends to carry out an FDI; or
- a third country legal entity (i.e. not an EU / EEA/ Swiss controlled entity), which intends to carry out an FDI.
While this has not yet been confirmed, it has been proposed that dual citizens of an EU Member State and a third country shall not be treated as foreign investors under the FDI Law and therefore will fall outside its scope.
Notification Requirements
Under the FDI Law, an FDI must be notified to the designated competent authority in Cyprus, being the Ministry of Finance, prior to its implementation, if it satisfies three cumulative conditions and does not fall under one of the specific exemptions provided in the FDI Law:
1. Special participation — the investment results in the acquisition by a foreign investor of at least 25% of shares or voting rights and/or otherwise confers significant influence over decision‑making in the Cypriot target undertaking.
This special participation can be secured directly or indirectly, whether acting alone or jointly with others.
2. Value threshold — the investment has a value of €2 million or more, arising either from a single transaction or a series of transactions between the same parties within a 12‑month period from the intended date of implementation.
Notification is also required even if the value threshold is not met, where an existing foreign investor seeks to increase their participation in the Cypriot target undertaking:
- From below 25% to 25% or more; or
- From below 50% to 50% or more.
3. Strategic importance — the target undertaking in Cyprus is deemed to be a "strategically important undertaking" by being active in critical sectors of the economy, such as energy, transport, communications, health, defense, financial services, water, education, media, data processing, election services, tourism, critical infrastructure, or real estate of major importance for the use of critical infrastructure in any of the above mentioned sectors.
Screening Procedure
- Phase I: The Ministry of Finance has 20 working days, from the date of receipt of the fully completed written request by the foreign investor, to either grant unconditional approval or initiate a full screening process.
- Phase II: Where a full screening process is commenced, such decision needs to be notified to the foreign investor within 5 working days from the date the decision was made. The Ministry of Finance must then reach a decision within 65 working days as to a final determination — approval (clearance), conditional approval, or prohibition of the FDI.
The criteria and factors that the Ministry of Finance may consider when screening foreign direct investments are set out in the Annex of the FDI Law.
For any approval to be valid, it must be issued in writing by the Ministry of Finance. Until such authorization is granted, the FDI cannot be implemented. If the Ministry of Finance requests additional information during the screening process, the above timelines are suspended until the requested information is provided.
Additional Powers
The Ministry of Finance is vested with extended powers to ensure compliance with the FDI Law:
- Unnotified transactions: The Ministry of Finance may retrospectively review any transaction that met the three cumulative notification conditions but was not notified, within a period of 5 years from its implementation; and
- Non‑mandatory transactions: Even where notification was not required, the Ministry of Finance retains discretion to "call in" a transaction for screening within 15 months of its implementation, if there are reasonable grounds to believe the FDI could pose a threat to national security or public order.
Sanctions
Failure to comply with the FDI Law may result in:
- Administrative fines ranging from €5,000 to €100,000, depending on the reason of the fine being imposed, with additional daily penalties for ongoing breaches.
- Suspension of rights, including voting or management rights, where conditions imposed by the Ministry of Finance are not complied with.
- Unwinding of transactions, meaning that if the Ministry of Finance prohibits or retrospectively reviews an unnotified FDI, the transaction may be reversed so that the foreign investor no longer retains control or ownership in the Cyprus undertaking.
Looking Ahead
The FDI Law brings Cyprus into line with EU practice and reflects a broader global trend of closer oversight of foreign investment. While the regime introduces additional compliance obligations, it also enhances transparency and predictability for foreign investors. Businesses planning acquisitions or joint ventures in Cyprus should begin preparing now for the April 2026 framework.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
