Cyprus Establishes National Oversight Mechanism for Foreign Investments Amid Security Concerns

The Cypriot government has taken a decisive step in tightening control over foreign direct investments (FDI) with the formal approval of a new national screening mechanism.

The cabinet ratified the measure on Wednesday, signaling a shift towards greater regulatory scrutiny aligned with European Union norms, aimed at protecting national security and strategic interests.

President Nikos Christodoulides previously hailed the initiative as a “key institutional reform,” emphasizing that it would play a vital role in enhancing Cyprus’ strategic credibility and boosting its international reputation.

Following the cabinet’s decision, Finance Minister Makis Keravnos confirmed the establishment of the mechanism, calling it “a very important development directly linked to the safeguarding of national interests.”

Under the newly adopted legislation, the Finance Ministry has been designated as the central authority responsible for assessing and overseeing foreign direct investments. This includes granting approvals, issuing prohibitions, or reversing FDI transactions when deemed necessary for reasons of national security or public order.

According to the law, a foreign investor is defined as any natural person or legal entity based outside the European Union, European Economic Area, or Switzerland. The legislation outlines that any investment aimed at gaining lasting control or significant influence over the management of a business in a sector considered strategically important within Cyprus will fall under this screening process.

Strategic sectors covered by the legislation include energy, tourism, health, communications, defence, transportation, financial services, and dual-use technologies.

These are explicitly listed in an annex attached to the law.

The legislation requires investors to notify the relevant authorities when their investment surpasses 25 percent of a company’s share capital. Notification is also mandatory if an existing stake crosses critical ownership thresholds—specifically moving from below to above 25 percent or 50 percent.

Some exceptions are outlined in the legislation. For instance, the screening process does not apply to investments involving vessels under construction or undergoing transfer, with the exception of floating storage and regasification units (FSRUs) used for natural gas.

To support the implementation of this oversight regime, the law also establishes an inter-ministerial advisory committee. This body will comprise representatives from multiple ministries, including finance, defence, foreign affairs, energy and commerce, justice and public order, interior, and transport and communications.

Finance Minister Keravnos noted that the legislation reflects feedback collected during consultations with relevant stakeholders and draws on best practices from across the European Union. He stressed that the European Commission has strongly encouraged Cyprus to adopt a screening framework in line with mechanisms already implemented in other EU member states.

“This law now establishes a clear and centralised process, with specific powers and designated bodies to enforce and monitor compliance,” Keravnos stated, underlining the importance of coherence in FDI governance.

The scope of the law also extends to EU-based companies in which investors from third countries hold a minimum 25 percent ownership stake, thereby closing potential loopholes.

Previously, the oversight of foreign investments in Cyprus was distributed across several institutions, including the Finance Ministry, the Cyprus Securities and Exchange Commission, and the Central Bank of Cyprus. With this new law, the process becomes unified and streamlined under a single authority. 

By fLEXI tEAM