Cyprus Foreign Direct Investment Screening: A New Condition Precedent on Every Qualifying Cross-Border Acquisition

For most of its modern history, Cyprus actively resisted adopting a foreign direct investment screening framework. The jurisdiction's competitive position rested in part on being one of the most open investment destinations in the European Union: low barriers to entry for foreign capital, straightforward corporate structures, and a rapid acquisition process that gave non-EU investors confidence in execution timelines.

That position has changed. On 30 October 2025, the House of Representatives passed the Establishment of a Framework for the Screening of Foreign Direct Investments Law of 2025 (Law 194(I)/2025). The law entered into force on 2 April 2026. From that date, Cyprus has its first mandatory pre-approval regime for certain foreign direct investments, administered by the Ministry of Finance as the competent screening authority.

For non-EU investors acquiring into Cyprus and for their advisers, the practical consequence is immediate: FDI screening analysis is now a required preliminary step on every qualifying transaction, and completion without prior approval where notification is mandatory renders the transaction subject to unwinding, conditions, and penalties of up to EUR 100,000 plus EUR 8,000 per day.

Why Cyprus Has This Regime Now

The EU's FDI Screening Regulation, Regulation (EU) 2019/452, came into full force in October 2020. It established a cooperation framework between member states and the European Commission for the exchange of information and opinions on foreign investments with the potential to affect strategic interests. It created political pressure for national screening mechanisms without mandating them.

By 2025, Cyprus was one of only two EU member states — alongside Croatia — that had not enacted a domestic screening law. With Greece implementing its own regime in May 2025 and the European Commission moving toward making national screening mandatory across the bloc, the Cypriot government could no longer defer. Law 194(I)/2025 is Cyprus's response: a national mechanism that transposes and integrates with the EU-wide framework, while extending the list of sectors subject to screening further than most EU counterparts.

The law creates real obligations with real consequences. Advisers treating it as a formality will expose clients to enforcement risk that did not exist before April 2026.

Who Is Caught

The law applies to foreign investors, defined as natural persons who are not EU, EEA, or Swiss nationals, and to undertakings established outside those jurisdictions. The regime also catches EU-established entities where the ultimate beneficial ownership or control traces back to a non-EU national or entity — a structure-through-EU-vehicle approach does not circumvent the notification requirement.

Two cumulative thresholds trigger mandatory prior notification:

Ownership threshold: the investment will result in the foreign investor acquiring 25% or more of the share capital or voting rights of a Cyprus undertaking, or reaching a higher threshold that confers decisive influence.

Value threshold: the value of the investment reaches EUR 2,000,000 (two million euro) or more, aggregated across a 12-month period.

Both conditions must be met simultaneously. A transaction below EUR 2,000,000, or one that will not result in the investor holding 25% or more, is not mandatory-notification. However, the Ministry of Finance retains a discretionary call-in power for up to five years post-completion on uninvestigated transactions, and the scope of the call-in is not limited to the mandatory notification thresholds.

Which Sectors Are In Scope

The law defines an undertaking as one of strategic importance by reference to Article 4 of Regulation (EU) 2019/452 and a Cyprus-specific Annex that extends the sector list further than most EU equivalents.

The core sectors include critical infrastructure in the fields of energy, transport, water, health, communications, and data processing facilities; critical technologies including artificial intelligence, robotics, semiconductors, cybersecurity, space, quantum and nuclear technologies, nanotechnologies, and biotechnologies; supply of critical inputs including food security and agricultural land; access to sensitive personal data at scale; media, in the context of freedom of information and pluralism; financial services including banking, insurance, and capital markets infrastructure; and defence and dual-use goods within the meaning of Council Regulation (EC) No 428/2009.

Cyprus has extended this list in its national Annex to include education, tourism, and land and real estate that is critical to key infrastructure.

A critical point that practitioners must not underestimate: the law does not require a target undertaking to be exclusively or primarily active in a listed sector. If any part of its activities falls within the scope of the Annex, it may qualify as an undertaking of strategic importance. The Ministry of Finance is expected to adopt a broad interpretation, consistent with the approach taken by screening authorities in other EU member states. A Cyprus company that operates across multiple sectors and touches even one listed sector will almost certainly require analysis.

One explicit carve-out exists: transactions involving the purchase, sale, or construction of vessels are exempt. This exemption does not extend to floating storage and regasification units, which remain within scope.

The Notification and Screening Process

The process operates in two phases, with suspension mechanics that extend the timeline where additional information is sought.

Prior notification. A foreign investor whose proposed investment is within the mandatory scope must submit a written notification to the Ministry of Finance before the investment is completed. The implementing regulations on the precise application form and procedural detail were pending publication at the time of writing; the Ministry of Finance's dedicated FDI screening webpage at gov.cy/mof is the reference point for updates. The notification must include, at minimum: the full beneficial ownership chain of the investing party; the value and proposed financing of the investment, including source of funds; and detailed information on the business activities of both the investor and the target undertaking in Cyprus and internationally.

Phase I review. The Ministry of Finance will decide, in consultation with an Advisory Committee, within 20 working days of receipt of a complete notification, whether the transaction requires screening. An incomplete notification restarts the clock. If the Ministry determines the investment is not subject to screening, it informs the investor within five working days of that decision.

Phase II review. Where the Ministry designates the investment for screening, a further 65 working-day period applies within which the Ministry must decide whether the investment could affect the security or public order of Cyprus. This period is suspended while any request for additional information remains outstanding. During Phase II, the Advisory Committee may require the investor or its representative to appear and provide clarifications. The Ministry must also carry out the EU cooperation procedure under Regulation (EU) 2019/452, which means that other EU member states and the European Commission may submit observations.

Condition precedent treatment. Any contract, agreement, or transaction requiring prior approval under Law 194(I)/2025 is deemed to be subject to a condition precedent of obtaining that approval. In practice, this means no Cyprus FDI-caught transaction should proceed to completion — and no binding completion obligation should be created — before the approval has been obtained. The structuring of conditions precedent and long-stop dates in share purchase agreements and investment agreements involving non-EU investors must now account for a potential 85-working-day regulatory timeline before closing can occur.

Consequences of Non-Compliance

The enforcement framework is material. Administrative fines range from EUR 5,000 to EUR 100,000. Daily penalties of up to EUR 8,000 apply for continuing non-compliance. Where a notifiable investment has been completed without prior approval, the Ministry of Finance may require the parties to restore the pre-investment position — an unwinding order. The Ministry's call-in power for up to five years post-completion on non-notified investments means that the risk does not extinguish at the date of closing. For PE and strategic buyers with longer hold periods, the position of a Cyprus portfolio company acquired without screening analysis will need to be reviewed.

Practical Implications for Transaction Structuring

The FDI screening regime changes the due diligence and documentation sequence on every qualifying inbound transaction.

Sector mapping. The first analytical step on any acquisition of a Cyprus company by a non-EU investor is now a sector mapping exercise. Is any part of the target's business within scope? If yes, and if the ownership and value thresholds are met, notification is mandatory. This analysis cannot be deferred to late-stage.

Condition precedent drafting. Share purchase agreements must be drafted to include FDI clearance as a condition precedent to completion, with an appropriate long-stop date that accommodates the Phase I and Phase II review timelines. The suspension mechanics mean that a long-stop of 90 to 120 working days from the date of a complete notification is the minimum prudent provision.

Source of funds documentation. The notification package requires detailed source-of-funds evidence. Non-EU investors who have not previously been required to document their fund flows for regulatory purposes should begin assembling this material at heads-of-terms stage, not after signing. The Ministry's AML compliance framework and its cooperation with the European Commission create a real risk that an incomplete or unsatisfactory source-of-funds presentation delays or prevents clearance.

Beneficial ownership chain. The full beneficial ownership chain of the investor must be provided to the Ministry. EU-established holding vehicles with non-EU beneficial owners are not a solution to the notification requirement. The chain must be disclosed, which means any investor whose beneficial ownership structure has not previously been tested against disclosure requirements needs legal advice before submitting a notification.

Existing structures. The call-in power is not limited to future transactions. Investments completed after 2 April 2026 without mandatory notification are exposed for up to five years. Portfolios that include Cyprus companies in listed sectors should be reviewed against the new thresholds.

The Interaction with Other Cyprus Regulatory Requirements

FDI screening sits alongside, not instead of, Cyprus's existing regulatory frameworks. A non-EU investor acquiring a CySEC-regulated entity must still obtain CySEC's change of control approval under the applicable financial services legislation before completing. A non-EU national acquiring Cyprus immovable property directly, or through a company, must still comply with the Immovable Property Acquisition by Aliens Law, Cap. 109. AML and KYC obligations under Law 188(I)/2007 apply throughout. The FDI screening notification requirement is an additional pre-completion step, not a substitute for any existing one.

Transactions involving Cyprus companies with real estate exposure also require analysis under the 2026 reform's revised property-rich company threshold for capital gains tax purposes. A deal that clears FDI screening may still have capital gains tax consequences in the hands of the vendor if the target's assets are more than 50% Cyprus immovable property by value. These workstreams must run in parallel from the outset.

Conclusion

Cyprus has moved from one of the most permissive investment destinations in the EU to one with an operative FDI screening regime in a single legislative step. Law 194(I)/2025 is not a soft mechanism: it carries unwinding powers, substantial penalties, and a five-year call-in window. The sectors it covers are broadly defined, the sector analysis is not delegable to generic risk tools, and the Ministry of Finance's implementation approach remains to be tested in practice.

Non-EU investors with existing or planned Cyprus exposure should conduct a screening assessment now. Advisers structuring inbound transactions should build FDI clearance into the condition precedent framework from the point of heads of terms. The cost of getting this wrong is no longer limited to a fine — it is a reversible transaction.

This article is provided for general informational purposes only and does not constitute legal advice. Specific legal advice should be sought before taking any action in reliance on the contents of this article.