Foreign investments involve the expenditure of capital in a foreign company, real estate, or project. At Musch Legal, we advise Dutch investors and foreign parties on Dutch investments. Since 2024, the EU FDI Screening Regulation has been in effect, with reporting obligations for sensitive sectors. Investment protection via BITs and ICSID arbitration offers a crucial safety net — especially in unstable jurisdictions.
What is the legal issue? (What are the pitfalls of investing?)
Foreign investments touch upon FDI screening, structuring, tax law, exit mechanisms, and investment protection. Unfamiliarity with FDI reporting obligations can lead to the reversal of a transaction. Incorrect structuring impacts tax efficiency. In the event of a conflict with a foreign government, ICSIDs and BITs must be available for effective protection. Unstable jurisdictions pose additional risks regarding expropriation and currency.
What does the law say? (Which frameworks apply?)
The EU FDI Screening Regulation (Regulation (EU) 2019/452, in force since 11 October 2020) coordinates the screening of Member States. The Dutch Investment, Mergers and Acquisitions Security Test Act (Vifo Act, in force 1 June 2023) governs national screening. For investment protection: bilateral investment treaties (BITs), the Energy Charter Treaty, and the Washington Convention 1965 for ICSID arbitration. The Netherlands has 90+ BITs worldwide.
For tax purposes, Corporate Income Tax Act 1969 with participation exemption under Article 13 for incoming investments from other jurisdictions.
Investment route
FDI screening
Protection
Greenfield (self-establishment)
Limited
BIT + ICSID
Acquisition (M&A)
Often a reporting obligation
BIT + due diligence
Joint venture
Possible reporting obligation
BIT + SHA with deadlock
Portfolio investment
Generally not
National investor law
Investment route
FDI screening
Protection
Greenfield (self-establishment)
Limited
BIT + ICSID
Acquisition (M&A)
Often reporting obligation
BIT + due diligence
Joint venture
Possible reporting obligation
BIT + SHA with deadlock
Portfolio investment
Generally not
National investor law
What risks do companies face? (What goes wrong with investments?)
Failure to report under the FDI Regulation or the Vifo Act can lead to reversal, fines, and criminal prosecution. Incorrect structuring affects the participation exemption under Section 13 of the Corporate Income Tax Act 1969. In the event of a conflict in jurisdiction, there is no access to the ICSID without a BIT. Expropriation without compensation in unstable jurisdictions. Currency and transfer restrictions can block returns. Political changes can unilaterally amend contracts.
Practical example from our practice (How do we save an investment via BIT?)
Musch Legal advised a Dutch investor on an infrastructure project in Central Asia. We structured the investment via a Dutch holding BV due to the Dutch BIT network. Following a subsequent political shift, the contract was unilaterally amended. Under the Netherlands-Kazakhstan BIT (1996), we initiated ICSID arbitration. Settlement of 42 million euros within 18 months. Without the Dutch holding structure, BIT protection would not have been available.
What can you do? (What steps do you take for foreign investment?)
Conduct FDI screening under Regulation 2019/452 and the Vifo Act for M&A in strategic sectors. Structure the investment via a Dutch holding BV for BIT access. Assess relevant BITs for the destination country (90+ BITs for the Netherlands). Align the tax structure with the participation exemption under Article 13 of the Corporate Income Tax Act 1969. For unstable markets: political risk insurance via Atradius DSB. Engage Musch Legal for investment structure.
International mergers and acquisitions: legal considerations