Background to Cypriot FDI regime
On 30 October 2025, the Cypriot Parliament enacted into law the Cypriot FDI Screening Law, establishing a formal regime for the screening of foreign direct investments (FDI) into key strategic sectors in Cyprus. This marks a decisive shift in Cypriot investment regulation, aligning the country with the prevailing approach across the EU to scrutinise foreign investments that may affect national security or public order.
Both the European Commission (EC) and many EU Member States have long recognised that, while FDI is critical to economic competitiveness, certain transactions can present security risks, particularly where they involve critical infrastructure, critical technologies, or sensitive supply chains. In response, most EU Member States established national screening mechanisms, complemented at the EU level by the EU FDI Screening Regulation, which set up a cooperation framework enabling the EC and Member States to exchange information and coordinate on transactions with potential EU-wide implications.
Cyprus historically resisted adopting such an FDI screening regime, reflecting its long-standing strategy of positioning itself as an open, investor-friendly, low-tax jurisdiction. Following Greece’s enactment into law of its own FDI screening regime in May 2025 (the new Greek FDI regime is now in full operation), Cyprus remained one of only two EU Member States without an FDI screening regime (alongside Croatia). The evolving geopolitical environment,1 coupled with sustained pressure from the EC, including through the EC’s recent proposal to revise and strengthen the EU FDI Screening Regulation by making FDI screening mandatory for all Member States, has compelled the Cypriot government to reconsider its position and recognise that the absence of FDI screening rules is no longer viable.
Against that backdrop, the Cypriot government put forward its draft FDI Screening Law on 3 July 2025 (see our previous analysis), which has now – with a few changes – been enacted into law, on 30 October 2025. The Cypriot FDI Screening Law introduces a mandatory, pre-closing screening mechanism for investments by non-EEA and non-Swiss investors into defined sensitive sectors, requiring governmental approval before completion where the transaction falls within scope.
What triggers a Cypriot FDI filing? – scope and thresholds
The Cypriot FDI screening regime is mandatory and requires foreign investors to notify their proposed investments for prior approval whenever all of the following conditions are met:
i. Foreign investor: The investment is by a foreign investor, meaning a non-EEA/Swiss natural or legal person. The mandatory notification obligation also applies to investments by legal persons:
a. In which at least 25% of the share capital and/or voting rights are held by a foreign investor; and/or
b. Whose ultimate beneficial owner is a foreign investor; and/or
c. Which are de facto, either directly or indirectly, controlled by a foreign investor.
ii. Level of interest acquired: The investment leads to:
a. The initial acquisition of at least 25% of the shares or voting rights of a strategic entity, or equivalent decisive influence over a strategic entity, including through the establishment of joint ventures involving existing entities or business activities;2 or
b. The subsequent increase of an existing stake in a strategic entity (irrespective of its initial size or whether it has been previously approved) from below 25% to at least 25%, or from below 50% to at least 50%, irrespective of the value of the investment.
iii. Transaction size: For initial acquisitions (see (ii)(a) above), the value of the investment must be at least €2 million, taking into account the investment value of any linked transactions between the same parties within the past 12 months. Where an existing stake is increased from below 25% to at least 25%, or from below 50% to at least 50% (see (ii)(b)), there is no transaction size threshold.
iv. Sectoral scope: The investment relates to a strategic undertaking, meaning an entity active in Cyprus in any of the sensitive sectors listed in the Annex of the Cypriot FDI Screening Law. This encompasses entities active in critical infrastructure in energy, transport,3 water, health, education, tourism, communications, media, data processing and storage, aerospace, defence, electoral or financial services, and sensitive real estate. It also covers entities active in dual-use goods and in critical technologies such as AI, robotics, semiconductors, cybersecurity, space, quantum, nuclear, and nano- and biotech, as well as entities supplying critical inputs, including energy, raw materials, and food security. The aerospace sector was only recently added to the list of strategic sectors following the public consultation on the draft Cypriot FDI law. Unfortunately, the new rules neither specify the type of activity covered nor contain de minimis thresholds under which an activity is not considered “strategic”, making their scope of application very wide in practice.
Investments falling within the scope of the Cypriot FDI screening regime cannot be closed prior to FDI clearance by the Cypriot authority. Failure to notify an investment that falls within the scope of the Cypriot FDI regime can lead to administrative fines on foreign investors of at least €5,000 and up to €50,000, as well as a potential order to unwind the investment.
Importantly, the Cypriot authority may call in any non-notifiable investment that could affect security or public order within five years of closing (up from just 15 months, as suggested in the initial draft of the law).
Filing timeline and procedure
From 2 April 2026, foreign investors will have to submit an FDI filing before completion of the investment. The filing must include information regarding both the foreign investor and the strategic entity, including their turnover and number of employees; their full ownership chain and ultimate beneficial owners; their business activities (both in Cyprus and abroad); information regarding any prior sanctions or criminal records; and whether they have been involved in any EU-wide sensitive projects. The foreign investor must also provide information on the value and structure of the deal and the funding sources for the investment. All of these information requirements are fairly standard for FDI filings in the EU.
Following the submission of a complete filing, the Cypriot authority must complete its initial review (Phase 1) within 20 working days to decide whether the investment will be subject to in-depth screening, and it must inform the foreign investor of its decision within five working days from the date of its decision; i.e., Phase 1 cases may last a maximum of 25 working days. The Cypriot FDI Screening Law clarifies that clearance is only deemed granted when it is received in writing by the foreign investor.
For in-depth Phase 2 reviews, the Cypriot authority will have an additional 65 working days to issue its decision from the date it decides to open in-depth proceedings. During the Phase 2 review, the authority will circulate the filing through the EU cooperation mechanism to other Member States and the EC, who may provide comments or opinions that Cyprus must “duly consider”. Once the authority reaches its decision to approve the transaction unconditionally, clear the transaction subject to conditions, or prohibit or unwind the investment, it must inform the foreign investor within five working days from the date of its decision; i.e., Phase 2 cases may last a maximum of 95 working days.
Information requests from the Cypriot authority may further delay the review process. At any stage, the authority may request additional information and data. If it does, the statutory deadlines are suspended until all requested information and data are provided. More detailed procedural rules, including rules regarding the submission of the notification and a draft filing form, will be published by the Ministerial Council before the Cypriot FDI Screening Law enters into full force on 2 April 2026.
Substantive test
The objective of the Cypriot FDI Screening Law is to assess the impact of foreign direct investments on the security and public order of Cyprus, and take any action necessary to address such impact, including by imposing conditions on the transaction, prohibiting it, or reversing it.
While the authority retains a wide discretion as to the factors it will take into account in its assessment, the following factors set out in Annex 1 of the Cypriot FDI Screening Law will be of particular importance:
i. Whether the foreign investor is directly or indirectly controlled by the government of a third country, whether as a result of the foreign investor’s ownership structure, or due to the provision of significant financing from the third country
ii. Whether the foreign investor is already involved in strategic sectors in other EU Member States
iii. Whether there is a serious risk that the foreign investor is engaged in illegal or criminal activities
iv. Any observations from other EU Member States and/or the opinion of the EC under the EU FDI Screening Regulation
v. The extent to which the investment may affect the security or public order of any other EU Member State or of the EU as a whole
vi. The possibility that the investment may affect projects or programmes of Union interest
The outcome of the procedure will therefore heavily depend on the ability to convince the Cypriot FDI authority from the outset that there are no substantive concerns regarding the notified investment, and specifically that the investment will have no impact on the security or public order of Cyprus, any other EU Member State, or the EU as a whole. A solid and well-prepared filing will be necessary to secure a favourable outcome and manage the timeline of the process.
Impact
The Cypriot FDI Screening Law will enter into force as of 2 April 2026 and significantly alter the way foreign investments are conducted in Cyprus. Foreign investors contemplating investing in strategic sectors in Cyprus, such as the now fully liberalised energy sector, should seek legal advice to ascertain the potential impact of this new regime on their envisaged investment, and update their transaction documents and timelines.
Parallel filings under EU or Cypriot merger control rules, FDI rules in other jurisdictions, and the EU’s new Foreign Subsidies Regulation (FSR) may also be needed, requiring that investors and their legal counsel manage these growing regulatory complexities in a coordinated, streamlined, and strategic manner to ensure all necessary clearances are obtained without impacting the timeline of the investment.
1. Cyprus, despite its small size (approx. 0.2% of the EU’s total GDP as per Eurostat figures), hosts 8.6% of all Russian-controlled companies in the EU (page 39 of the EC’s Fourth Annual Report on the screening of foreign direct investments into the Union, published in October 2024).
2. It is currently doubtful that the Cypriot FDI Screening Law will apply to greenfield investments, since the definition of “strategic undertaking” implies that such an undertaking must have activities in Cyprus or sell goods or services in Cyprus.
3. Shipbuilding and vessel transfers are generally excluded from the scope of the new Cypriot FDI Screening Law, with the exception of floating storage and regasification units (FSRUs).
Client Alert 2025-292
