Guidance

How the National Security and Investment Act could affect people or acquisitions outside the UK

Updated 4 January 2022

The government can scrutinise and intervene in acquisitions made by anyone, including businesses and investors, that could harm the UK’s national security. The government can impose certain conditions on an acquisition, unwind it or if necessary, block it completely, but expects to do this rarely.

These rules fall under the National Security and Investment (NSI) Act, which came into force on 4 January 2022.

Only acquisitions completed on or after 12 November 2020 can be called in and scrutinised by the government.

Under the Act, there are rules that apply to certain acquisitions of entities or assets that are outside, but have a connection to, the UK.

This guidance tells you:

  • what type of acquisitions outside of the UK are covered by the rules
  • common circumstances that would put an acquisition in scope of the rules
  • examples of how the rules may affect parties not based in the UK

Types of acquisitions that are covered by the rules

An acquisition might be covered by the rules if a qualifying entity or qualifying asset is being or has been acquired, and if that acquisition meets other tests in the Act that would make it a trigger event. If the entity or asset being acquired qualifies, the government may be able to call in that acquisition to investigate it.

Read more about how the NSI Act will work.

Entities

If an entity is formed or recognised under the law of a country or territory outside the UK, it is a qualifying entity if it either:

  • carries on activities in the UK
  • supplies goods or services to people in the UK

There are additional requirements about acquisitions of entities that are engaged in particularly sensitive activities in the UK. The acquirers of such entities may be legally required to notify the government and receive clearance before completing the acquisition. These are called ‘notifiable acquisitions.’

Read further guidance on notifiable acquisitions.

An entity carrying on activities in the UK

For an entity, such as a company, to be carrying on activities in the UK, there needs to be an activity (such as a business) being carried on in, or partly in, the UK. In addition, the entity must be sufficiently involved in that activity to be said to be carrying it on, whether alone or with others.

For example, this would be treated as including an overseas company that does business from a regional office or a research and development facility in the UK.

An entity supplying goods or services to people in the UK

For an entity, such as a company, to be supplying goods or services to the UK, there need to be goods or services being provided from one person to another, and the recipient needs to be in the UK. The entity needs to be sufficiently involved in that supply to be said to be making the supply, whether alone or with others.

For example, this would generally be treated as including an overseas company that produces goods for exporting to a company in the UK or is responsible for distributing them to the UK company.

Assets

For land or tangible moveable property situated outside the UK or its territorial sea, or for any intellectual property, it is a qualifying asset if it is either:

  • used in connection with activities carried on in the UK or
  • used in connection with the supply of goods or services to people in the UK

An asset being used in connection with activities carried on in the UK

For an asset to be used in connection with activities carried on in the UK, there needs to be an activity carried on in the UK (regardless of who is carrying on that activity, or where they are based), and that asset needs to be used in connection with that activity.

For example, this would include an asset such as machinery located overseas used to produce equipment that is used in the UK.

An asset being used in connection with the supply of goods or services to people in the UK

For an asset to be used in connection with the supply of goods or services to people in the UK, there needs to be a supply of goods or services to people in the UK and the asset must be used in connection with that supply.
For example, this would include an offshore wind farm which is used to generate electricity which is supplied to the UK.

Common circumstances that could allow the government to investigate an acquisition

This section tells you how these rules might apply to some common circumstances.

Characteristics of entities formed or recognised outside the UK that are likely to be in scope of the rules

The entity being acquired is likely to be classed as a qualifying entity if any of the following apply. The entity:

  • supplies goods or services to the UK
  • carries out research and development in the UK
  • has an office in the UK from which it carries on activities
  • oversees the activities of a subsidiary that carries on activities in the UK (unless it is independent from the parent entity being acquired)
  • supplies goods to a UK hub which sends the goods onto other countries (unless the UK hub only places orders for goods to be sent to other countries)

If the entity has staff who travel to the UK for business

The entity is likely to be a qualifying entity if its staff undertake business activities similar to working in a regional office (for example, by performing services for a UK client on a regular basis).

The entity is likely not to be a qualifying entity if its staff are solely doing work such as conducting market research or are part of a sales team seeking new clients.

If the entity supplies goods that pass through the UK while travelling to other destinations

The entity would be a qualifying entity if the goods are modified or used while in the UK.

The entity may also be a qualifying entity if the goods passed through the UK as part of a wider journey. This would depend on the specific arrangements in place.

Characteristics of entities formed or recognised outside the UK that are unlikely to bring them in scope of the new rules

The entity being acquired is not likely to be a qualifying entity just because it does any of the following:

  • has staff who work remotely for a non-UK office, but are based in the UK
  • has owners or investors who are based in the UK
  • buys goods or services from UK-based suppliers
  • has a parent company that also has other subsidiaries that carry on activities in the UK
  • lists securities on a regulated or exchange-regulated market in the UK.

Assets that are either land or moveable property situated outside the UK or its territorial sea, or intellectual property

The asset you are acquiring is likely to be a qualifying asset if any of the following apply. The asset is used:

  • by someone in the UK
  • by someone outside the UK to supply goods or services to the UK or
  • to generate energy or materials that are used in the UK.

If an asset was originally brought from the UK by a previous owner or had at some point been in the UK, this would not, on its own, make it a qualifying asset.

Investigations of asset acquisitions are expected to be rare. You are not legally required to notify the government about asset acquisitions.

When the government can call in and assess acquisitions

The government can call in and investigate an acquisition – whether it is in contemplation, in progress or completed – of a qualifying entity or asset if the control being acquired meets any of the following thresholds:

  • the acquisition of shares or voting rights in a qualifying entity passes any of the following thresholds:
    • from 25% or less to more than 25%
    • from 50% or less to more than 50%
    • from less than 75% to 75% or more
  • the acquisition of voting rights in a qualifying entity that allow the acquirer to block or secure any class of resolution governing how the entity operates
  • the acquisition of a right or interest in the entity that allows the acquirer to materially influence the policy of the entity, for example acquiring the right to appoint members of the board of the entity that enables the acquirer to influence the strategic direction of the entity
  • the acquisition of a right or interest in a qualifying asset to use it, or use it to a greater extent than prior to the acquisition
  • the acquisition of a right or interest in a qualifying asset to direct or control how the asset is used, or direct or control how it is used to a greater extent than prior to the acquisition.

When the government can ask you for information if you are outside the UK

If relevant to the functions of the Act, the government can require you to provide information or to give evidence if any one of the following applies:

  • you carry on business in the UK, even if you are not directly involved in an acquisition being investigated
  • you are a UK national
  • you are an individual ordinarily resident in the UK
  • you are a body incorporated or constituted under the law of any part of the UK
  • you have acquired, or are in the process of or contemplating acquiring, a qualifying entity or qualifying asset

The government can do this by issuing information and attendance notices.

The definition of ‘carrying on business in the UK’ is narrower than carrying on activities in the UK. A business may include having a professional practice, an undertaking that is carried on for gain or reward, or an undertaking in which goods or services are supplied otherwise than free of charge.

For example, if you run a trade body or pure research institution in the UK, you are carrying on activities in the UK, but this would not mean you are carrying on business in the UK.

When the government can require you to take further action if you are outside the UK

The government can require you to take certain actions relating to an acquisition if it is in scope of the Act and meets other tests within the Act, if you are either in or outside the UK. For example, it can require you to stop progressing the acquisition until the assessment of it is complete.

The government has published further information on how it expects to use its call-in power in the Section 3 Statement.

If you breach the Act and are outside the UK

The government can take legal action against you if you breach the Act, even if you are outside the UK. This could either be through civil or criminal penalties and can, depending on the severity of the offence, include fines and custodial sentences.

Examples of how overseas companies could be affected by the National Security and Investment Act

Suppliers to a UK company

Company A is incorporated outside the UK and does not carry on any activities in the UK. It does however export critical components to Company B, which is located in the UK. Company B works in a highly sensitive area of the UK economy that falls under the mandatory notification requirements. Company A works in the same sensitive area, but overseas.

Company C, also incorporated overseas and with no UK operations, is contemplating acquiring a 75% stake in Company A, and the government considers that that acquisition could give rise to a risk to national security due to the control this could give Company C over Company A’s operations. The government would be able to call in that acquisition for scrutiny, as Company A is supplying goods to the UK. It does not need to wait until the acquisition takes place – it can call it in while it is in contemplation.

Because Company B is located in the UK, the government could, if necessary and proportionate, then require actions to be taken by Company B through an interim order or final order. For example, this may include requiring Company B to put in place additional checks if it continues to purchase from Company A.

In this scenario, notification and pre-approval of the acquisition would not be mandatory since Company A, as the target entity, does not come under the mandatory notification rules, not least because it does not carry on activities in the UK; it only provides goods or services to the UK.

Requiring information

Company D is not incorporated in the UK. It is acquiring Company E which is incorporated in the UK. Company F is a company in Company D’s supply chain incorporated abroad and does not carry on any activities in the UK.

The government may in certain circumstances require Company D and Company E to provide information. However, it could not require Company F to take any action or provide information, even if Company F held information about Company D that could aid the government’s decision-making.

Parent companies and subsidiaries

Company G is incorporated abroad. It does business out of a regional office in the UK but most of its operations are overseas. A multinational, Company H, owns 90% of Company G’s shares and voting rights and oversees Company G’s activities. A further company, Company I, sits within Company H’s portfolio and has no links to the UK.

Company I is acquired by a company in another country. While Company H does carry on activities in the UK as a result of overseeing Company G’s activities, the company being bought (Company I) does not. Simply being part of the same group of companies does not mean that Company I comes under the scope of the NSI Act. The government therefore could not call in this acquisition.

However, if Company G were to be bought, this acquisition could be called in, as it does carry on activities in the UK. If instead Company H itself were bought, the government could call this in, as any party that owns Company H would then also acquire control over Company G.

Remedies

Company J is headquartered and incorporated overseas but has a large R&D facility in the UK conducting research into advanced military technologies, and it supplies the UK armed forces. Company K notifies the government that it wishes to acquire 60% of Company J’s shares, which are currently owned by Company J. Company K has previously attempted to carry out actions in the past that could harm the UK’s national security.

The government calls in the acquisition due to the risk to national security from Company K gaining access to Company J’s R&D facility, and decides that remedies are needed to mitigate these risks before the acquisition can go ahead. Due to the risks to the UK’s national security from the proposed acquisition, the government judges that it is necessary and proportionate to require the parties to make changes to the proposed acquisition, including:

  • requiring Company J to not sell more than a certain percentage of its shares to Company K
  • ensuring Company K cannot access certain intellectual property
  • requiring Company J to report regularly to the government on compliance
  • government checks on Company J’s compliance with its agreed actions

No conditions imposed on an entity acquisition

Company L is headquartered and incorporated overseas and does not carry on any activities in the UK. It does however supply sensitive government-run facilities in the UK with specialist equipment. It also provides a sensitive government-run UK infrastructure provider with access through a licensing arrangement to specialist services, using assets situated outside the UK and intellectual property registered outside the UK. It is not the only potential provider of such services.

Company M notifies the government that it wishes to acquire 70% of Company L’s shares and a license to use the same specialist services as the UK infrastructure provider. Company M is known to have previously tried to gain access to the supply chain of this area of the UK’s infrastructure in a way that could harm national security.

However, due to the limited nature of Company L’s links to the UK, the government does not judge that it would be able to, or wish to, impose limits on the acquisitions or the activities of Company L and Company M, and so decides not to call in the acquisitions, and instead clears them to proceed.

Instead, in this instance, the government decides to stop importing certain equipment from Company L and to stop using its services, and to instead seek alternative suppliers.

No conditions imposed on an asset acquisition

Company N is incorporated overseas and does not carry on any activities in the UK. Company O is a company incorporated in the UK that supplies a sensitive piece of critical national infrastructure in the UK. Company O has a factory outside the UK that uses specialist machinery owned by Company N before moving its now-processed goods back into the UK for use in the piece of infrastructure. Company N is considering selling that machinery.

Company N decides to notify the government because the machinery is an asset used in connection with the supply of goods to the UK in a sensitive area of the economy. After considering potential national security risks, the government decides that the sale of the machinery would not give rise to a national security risk, because the owners of the infrastructure would have other options if that machinery was no longer available due to the sale. The government therefore confirms that it will not call in the acquisition for scrutiny and so it is cleared to proceed as planned.

Conditions imposed on an asset acquisition

Company P is a multinational company that is incorporated overseas and has several R&D facilities in the UK. It holds unique software that is used under license by Company Q. Company Q is based in the UK and uses Company P’s software to carry out essential functions in a sensitive sector of the UK economy. The original decision to use Company P’s software followed due diligence by Company Q and the government to ensure this licensing arrangement did not give rise to national security concerns.

Company P is considering a proposal to allow other parties to use its software through a licensing agreement, and notifies the government due to its work with Company Q. The government identifies potential risks to national security from such licensing and so calls it in for further scrutiny.

Following that scrutiny, the government judges that it is necessary and proportionate to impose conditions on the proposal before it can be enacted. In particular, Company P must not allow other parties to access the software’s source code, to ensure that other parties do not gain sensitive insights into the sensitive sector.