Context

The current EU framework for the screening of foreign direct investments set out by Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (hereinafter, the FDI Regulation)¹  seeks to provide within the EU a framework to identify, assess and mitigate security and public order risks related to the acquisition or control of critical assets. Given that the Union operates as an integrated market, the acquisition or control of strategic assets by foreign investors may pose risks affecting more than one EU Member State. Furthermore, a foreign investor established in one EU Member State can benefit from the freedoms of the Internal Market. Therefore, the FDI Regulation establishes a framework for the screening by EU Member States of foreign direct investments into the Union that affects the security and public order in at least two EU Member States or the Union as a whole. The FDI Regulation also provides a mechanism for cooperation between EU Member States, and between EU Member States and the European Commission (hereinafter, the EU Commission), for exchanging confidential information about foreign direct investments likely to affect security or public order.

However, since the entry into force of the FDI Regulation in 2019, the issue of security and public order has grown in importance (as evidenced by events like the COVID crisis and Russia’s war of aggression against Ukraine) and has emphasized the need to strengthen the protection of EU critical assets against certain foreign investments.

Therefore, following a proposal from the EU Commission in January 2024, the EU legislator is expected to adopt a Regulation setting up a new foreign investment screening tool in the EU during the first semester of 2026, applicable 18 months after its publication in the Official Journal of the European Union (hereinafter, the draft Regulation).

This new Regulation will bring about important changes to the current EU framework for the screening of foreign direct investments established by the FDI Regulation.

1. The need for a new foreign investment screening tool in the EU

To understand the envisaged reform, it is important to assess the current working of the FDI Regulation for EU Member States to review FDIs in their territory on grounds of security and public order. The number of cases handled per year by the EU Member States under their FDI national screening mechanism ranged from 1.444 in 2022 to 3.136 in 2024. However, not all these cases required a formal screening. As can be seen in Table 1 below, the number of cases which required a formal screening ranged from 359 in 2020 to 1.286 in 2024.

Table 1: EU Member States’ FDI screening activities

	2020	2021	2022	2023	2024
Total number of cases handled by EU Member States	1.793	1.563	1.444	1.808	3.136
Share of cases formally screened	20%	29%	55%	56%	41%
Total number of cases formally screened by EU Member States	359	453	794	1.012	1.286

Under the current FDI Regulation, the trigger for a EU Member State to notify a FDI to the EU Commission and to other EU Member States is whether the FDI, as defined under the FDI Regulation, does require a formal screening under their national FDI law. As outlined in Table 2 below, there was only a part of the transactions notified under national FDI law which were notified to the EU Commission (e.g. 488 transactions notified at EU level in 2023 instead of 1.012 transactions notified at national level, and 477 transactions notified at EU level in 2024 instead of 1.286 transactions notified at national level).

Table 2: Number of transactions notified to the EU Commission

	October 2020-June 2023 (Yearly average)	2023	2024
Number of notifications per year	414	488	477

The main reason for this “undersharing” of transactions with the EU Commission and the network of EU screening authorities is that intra-EU FDIs, which are screened by EU Member States, are not eligible for review by the EU Commission under the current FDI Regulation (where the criteria for circumvention are not met). Intra-EU FDIs are foreign investments made through an entity established in the EU, where the direct investor established in the EU is controlled by a non-EU person. 

This “undersharing” can be directly observed and is inherent to the design of the current FDI Regulation. Other transactions were not notified to the EU Commission, either because there is no screening mechanism in place in some EU Member States, or because the material criteria for a EU Member State to make a transaction subject to a screening mechanism (including the initial review taking place before any formal screening) are not the same across EU Member States.

In the first place, it was not compulsory for EU Member States to put in place an FDI screening under the current FDI Regulation. For example, by the end of 2024, 24 EU Member States (out of the 27 EU Member States) had an FDI legislation in place, and, by the end of 2025, 25 EU Member States had an FDI legislation in place (Croatia and Cyprus remaining the only EU Member States without such an FDI mechanism in place).

In the second place, the material criteria set out under Article 4 of the FDI Regulation to determine whether a FDI was likely to affect security or public order were not mandatory, leaving EU Member States the freedom to use or not these criteria to determine whether it was required for a transaction to be formally screened under their national FDI screening mechanism. Further, in the absence of harmonized EU rules, significant conceptual differences were found between national screening legislations with regard to the expression of concepts such as ‘security’, ‘public order’, ‘national security’ and ‘essential security interests’, as well as the probability thresholds to indicate the likelihood of an adverse effect on impact on security and public order (‘likely’, ‘disrupt’, ‘threaten’, ‘may affect’).

On the other hand, an “oversharing” of transactions with the EU Commission can also be observed.

First of all, despite the fact that only a part of the transactions was notified to the EU Commission and the EU network of screening authorities, a significant number of these transactions (about 30%) were not considered by the EU Commission as eligible for its review under the current FDI Regulation for the following reasons:

• Intra-EU investments where the criteria for circumvention, which could bring it into consideration at EU level, were not met;
• Internal reorganizations of companies without a change to their ultimate owner/controller; and
• Investments where the foreign investor’s aim to establish or maintain lasting and direct links with the EU target could not be identified.

Moreover, it could also be observed that the trigger for mandatory notification to the EU Commission (i.e. all the transactions formally screened by EU Member States falling under the definition of a FDI under the current FDI Regulation) resulted in very-low risk cases being brought to the attention of the EU Commission and the EU network of screening authorities. In the first place, as can be seen in Table 3 below, after the usual preliminary assessment of Phase 1 (which takes place within 15 calendar days after the notification), the EU Commission only opened a Phase 2 (by requesting additional information from the notifying EU Member State) in 8% to 12% of the cases. In the second place, as also detailed in Table 3 below, the EU Commission issued an opinion in only 2% to 3% of the cases. Phase 2 can indeed be concluded with an opinion issued by the EU Commission. In particular, “[t]he opinion may : (i) communicate that the Commission considers that the FDI is likely to negatively affect security or public order in more than one Member State or a project or programme of Union interest, (ii) recommend appropriate measures for consideration or (iii) share relevant information about the FDI undergoing screening to inform the notifying Member State ’s assessment and final decision”. In the third place, EU Member States, which can also make comments on the FDI transactions (occurring in another EU Member States) notified to the EU Commission and the EU network of screening authorities, issued comments in only 3% to 6% of the cases (see also Table 3 below).

Table 3: Procedures for FDI cases notified to the EU Commission

	October 2020-June 2023  (yearly average)	2023	2024
Number of notifications per year	414	488	477
Share of Phase 2 cases	12%	8%	8%
Number of Phase 2 cases	50	39	38
Notification where an opinion was issued by the EU Commission	3%	2%	2%
Number of notifications where an opinion was issued by the EU Commission	12	10	10
Share of notifications where comments were issued by the EU Member States	6%	6%	3%
Number of notifications where comments were issued by the EU Member States	25	29	14

This low number of risky transactions notified to the EU Commission and to the EU network for screening authorities, which were subject to opinions and comments, should be compared with the high number of transactions which were considered to be problematic under national FDI regimes. As shown in Table 4 below, the number of transactions blocked (including the transactions withdrawn after the launch of a formal scrutiny) or approved subject to commitments (“conditionally approved”) by national screening authorities amounted to approximately 200 in 2024. This number is very high compared with the number of transactions for which the EU Commission issued an opinion (i.e. 10 transactions).

Table 4: Number of problematic transactions under national FDI rules

	2020	2021	2022	2023	2024
Total number of cases formally screened by EU Member States	359	453	794	1.012	1.286
Share of cases conditionally approved	12%	23%	9%	10%	9%
Share of cases blocked	2%	1%	1%	1%	1%
Share of cases withdrawn (after formal scrutiny)	7%	3%	4%	4%	4%
Proportion of transactions problematic under national FDI rules	21%	27%	14%	15%	14%
Number of transactions problematic under national FDI rules	75	122	111	152	180

2. The obligation for EU Member States to adopt a screening mechanism in the sectors specified in the draft Regulation 

The draft Regulation now obliges EU Member States to adopt a screening mechanism regarding a limited number of sectors, i.e. : (i) dual-use and military goods and technology, (ii) hyper-critical technologies, such as semiconductors, quantum technologies and artificial intelligence, (iii) critical raw materials, (iv) critical entities in energy, transport and digital infrastructure, based on a risk-based assessment by the EU Member State where the EU target is established, (v) electoral infrastructures and (vi) some financial system entities, like central counterparties.

This is a minimum harmonization: EU Member States will remain (i) free to decide to apply their screening mechanism to foreign investments in other sectors and (ii) flexible to adopt, amend or maintain national provisions that are complementary to or more specific than the provisions of the draft Regulation.

Importantly, foreign investments in the sectors listed in the draft Regulation are subject to a new “suspension obligation”, meaning they cannot be completed before having been authorized by the relevant national screening authority. While this ensures a baseline level of consistency, some discrepancies will persist among EU Member States as they retain discretion to screen investments in sectors beyond those specified in the draft Regulation.

3. Enlargement of the types of investments subject to the screening mechanism

The draft Regulation establishes a screening mechanism which shall apply to “foreign investments” on the grounds of security or public order. 

Foreign investment” is defined as “an investment of any kind carried out either by a foreign investor itself or through a foreign investor’s subsidiary in the Union, aiming to establish or to maintain lasting and direct links between the foreign investor and an Union target, to which the foreign investor makes capital available in order to carry out an economic activity in a Member State, enabling effective participation in the management or control of that Union target;”.

As under the FDI Regulation, the draft Regulation covers foreign investments that create or maintain lasting and direct links between third-country investors and EU targets carrying out an economic activity within the EU. EU Member States will be able to adopt national provisions that are complementary to or are more specific than the draft Regulation, i.e. for specifying the thresholds of voting rights acquired by the foreign investor that trigger the screening mechanism.

The draft Regulation refines and enlarges the scope of the types of investments subject to the screening mechanism through the following notions: “foreign investor” and “foreign investment”.

First, the draft Regulation proposes a more precise notion of “foreign investor”. A foreign investor is no longer defined by reference to a “third country” but rather as any natural person who does not hold the nationality of an EU Member State, thereby excluding dual nationals who also hold an EU nationality from the scope of the screening mechanism. In addition, the notion of “entity” is added alongside the notion of “undertaking”, and both must be established or otherwise organized under the laws of a third country. The draft Regulation further provides that the concept of “beneficial owner” will be taken into account in determining the identity of the foreign investor.

Secondly, the draft Regulation replaces the notion of “foreign direct investment” with the notion of “foreign investment”. Accordingly, the new definition expressly covers intra-EU foreign investments, i.e. investments carried out through a foreign investor’s subsidiary in the Union, defined as an undertaking established under the laws of a EU Member State that is directly or indirectly controlled by a foreign investor. The notion of “foreign investment” in the draft Regulation also introduces the term “Union target” , defined as an undertaking established or to be established under the laws of a EU Member State.

4. The criteria used to screen a foreign investment

The FDI Regulation sets out factors that EU Member States may consider when assessing whether a foreign direct investment is likely to affect security or public order, including factors relating to the foreign investor itself. However, EU Member States retain broad discretion in how they take those factors into account.

The draft Regulation now establishes a harmonized set of factors that EU Member States must consider when assessing whether a foreign investment or the foreign investor is likely to negatively affect security or public order. The draft Regulation also introduces new factors beyond those in the FDI Regulation to be able to assess whether the foreign investment itself or the foreign investor is likely to negatively affect security or public order, e.g. whether the investor is subject to EU restrictive measures.

These criteria represent therefore a mandatory framework that reduces EU Member States’ discretion while still permitting them to apply additional national criteria.

5. Specific rules regarding multi-country transactions

The draft Regulation introduces specific rules applicable to multi-country transactions, i.e. foreign investments subject to screening mechanisms in several EU Member States. According to the draft Regulation, (i) the person making the filing of the foreign investment shall do so on the same day in all EU Member States concerned and refer to the other filings, and (ii) the EU Member States concerned shall discuss together (and with the EU Commission if requested), for instance, to determine whether the foreign investment has to be notified to the EU Commission and to the network of EU screening authorities (and, in case a notification is required, the EU Member States concerned shall endeavour to send their notification on the same day).
Furthermore, the draft Regulation encourage the EU Member States concerned to align the timing of their respective screening procedures and, where appropriate, to render their respective decisions compatible with each other. 

6. The new screening mechanism

Under the FDI Regulation, if EU Member States set up an FDI screening mechanism, they must only establish transparent and non-discriminatory screening mechanisms and implement timeframes, without any further specification.

The draft Regulation specifies now the procedural requirements and the relevant timeframes that EU Member States are required to establish for foreign investments in the sectors identified therein (see above) and for other foreign investments that EU Member States have freely decided to include in the scope of the draft Regulation (as long as they involve security or public order risks).

First, national screening authorities will perform an initial review of the investment within 45 days from the date on which the filing of the foreign investment is deemed complete. During this period, the national screening authority will determine whether an in-depth and comprehensive investigation is necessary to decide whether the investment is likely to negatively affect security or public order.

Secondly, based on the results of its initial review, the national screening authority will perform an in-depth and comprehensive investigation to determine whether that foreign investment is likely to negatively affect security or public order. There is no statutory deadline for this second phase, except if the foreign investment has been notified to the EU Commission and the network of EU screening authorities.

The distinction between these two phases is also important as regards the notification of the foreign investment to the EU Commission and the network of EU screening authorities:

• National screening authorities shall be required to notify to the EU Commission and the network of EU screening authorities specific foreign investments during the initial review phase, i.e. foreign investments which fall within a sector identified in the draft Regulation (see above) and meet one of the requirements specified therein (e.g. the foreign investor is controlled by the public authorities of a third country).
• EU Member States should notify foreign investments to the EU Commission and the network of EU screening authorities where they decide to conduct an in-depth and comprehensive investigation and provided that the Union target either (i) is linked to projects or programmes of EU interests or (ii) has one or more subsidiaries in at least one other EU Member States, or is part of a group that has one or more subsidiaries in at least one other EU Member State.

The draft Regulation also specifies that national screening authorities shall notify to the EU Commission and the network of EU screening authorities any foreign investment in their territory where, in exceptional cases, they intend to impose a mitigating measure or to prohibit or unwind the transaction without an in-depth investigation.

7. The main features of the new EU cooperation mechanism

The draft Regulation seeks to strengthen the existing cooperation mechanism to ensure a more aligned approach across the EU with respect to the notification of foreign investments by EU Member States to the EU Commission and the network of EU screening authorities. The main features of the revised cooperation mechanism can be summarized in four points:

• It establishes risk-based conditions for the notification of foreign investments and provides a limited list of foreign investments that have to be notified to the EU Commission and the network of EU screening authorities. EU Member States are also allowed to notify additional transactions to the EU Commission and the network of EU screening authorities where they consider that the foreign investment could negatively affect the security or public order in one or more EU Member States.
• It amends the deadlines for the EU Member States to issue comments (20 calendar days instead of 35 calendar days in case no additional information is requested) and for the EU Commission to issue an opinion to the notifying EU Member State (30 calendar days instead of 35 calendar days in case no additional information is requested). It also reaffirms two principles established in the FDI Regulation. First, the notifying EU Member State is prevented from adopting its decision before the expiry of the applicable deadlines. Secondly, the notifying EU Member State has to give due consideration to the comments or opinions received but remains responsible as to its screening decision. The draft Regulation introduces the possibility to organize a meeting with the EU Member State(s) having issued comments or with the EU Commission.
• It strengthens the mechanism allowing EU Member States and the EU Commission to issue comments or opinions on non-notified foreign investments. In that case, comments or opinions have to be submitted within specific deadlines. A meeting can be organized with the EU Member States providing comments and/or the EU Commission.
• It specifies that, in case of multi-country transactions, the relevant EU Member Sates shall endeavour to send their notification on the same day.

8. Key takeaways

After the entry into force of the draft Regulation, businesses will have to be cautious when they contemplate proceeding with a foreign investment in the EU. Before completing the foreign investment, businesses will need to evaluate whether it is required to obtain a prior authorization from a national screening authority of any EU Member State.

Moreover, the draft Regulation seeks to harmonize the screening of foreign investments within the EU. This will have a positive impact as the national foreign investment rules will be more convergent both in terms of jurisdictions and substance. In addition, both the parties involved and the EU Member States concerned will have to notify the foreign investment in a coordinated way to the competent authorities.

However, as the draft Regulation provides for a minimum harmonization, EU Member States will continue to be entitled to include their own particularities in their respective legal order. Therefore, it remains of particular importance to carefully assess the relevant legal requirements in all the EU Member States concerned.

Footnotes

1. O.J.E.U of 21 March 2019, L 791, page 1.

2. See Article 1 of the FDI Regulation. See also the Commission Staff Working Document, Evaluation of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council (hereinafter, the Staff Working Document accompanying the Proposal), page 1.

3. Proposal for a Regulation of the European Parliament and of the Council on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council, COM(2024) 23 final – 2024/0017 (COD), page 1.

4. Proposal for a Regulation of the European Parliament and of the Council on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council, COM(2024) 23 final – 2024/0017(COD).

5. Source: First annual report on the screening of foreign direct investments into the Union, Second annual report on the screening of foreign direct investments into the Union, Third annual report on the screening of foreign direct investments into the Union, Fourth annual report on the screening of foreign direct investments into the Union, and Fifth annual report on the screening of foreign direct investments into the Union.

6. See Article 5, 6) and 6(1) of the FDI Regulation.

7. For the yearly average between October 2020 and June 2023, see the Staff Working Document accompanying the Proposal, pages 11, 12 and 13. For the years 2023 and 2024, see the Fourth annual report on the screening of foreign direct investments into the Union, and the Fifth annual report on the screening of foreign direct investments into the Union.

8. See Article 3(6) of the FDI Regulation.

9. See the Staff Working Document accompanying the Proposal, page 19.

10. Fifth annual report on the screening of foreign direct investments into the Union, page 7.

11. List of screening mechanisms notified by EU Member States (last update: 9 February 2026) pursuant to Article 3(8) of the FDI Regulation : Austria, Belgium, Bulgaria, Czechia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.

12. See Staff Working Document accompanying the Proposal, page 37.

13. In the remainder of this paper, any reference to the notification made to the EU Commission shall be understood as including a notification made to the EU Member States within the framework of the EU cooperation mechanism.

14. See Staff Working Document accompanying the Proposal, pages 11 and 12.

15. See Article 3(6) of the FDI Regulation.

16. Fifth annual report on the screening of foreign direct investments into the Union, page 18.

17. Source: see footnote 7.

18. Source: see footnote 5.

19. Article 3(2) and 4(4) of the draft Regulation.

20. Articles 3(2a) and 3(1) of the draft Regulation.

21. See Recital (8) of the draft Regulation and Article 4(2)(h) of the draft Regulation.

22. Article 1(1) of the draft Regulation.

23. Article 2(1) of the draft Regulation. See also Recital (16a) of the draft Regulation.

24. Article 3(1) of the draft Regulation and Recital (9(a)) of the draft Regulation.

25. Article 2 (6a) of the draft Regulation.

26. Article 2 (1) of the draft Regulation.

27. This expansion responds to the issues identified by the Court of Justice in its Xella judgment and is designed to close gaps where non-EU investors could circumvent FDI review by accessing sensitive industries indirectly through EU-established subsidiaries or affiliates (see judgment of the Court of Justice of the European Union of 30 March 2023, C-106/22, EU:C:2023:267).

28. Article 2 (1) of the draft Regulation.

29. Article 2(8) of the draft Regulation.

30. Article 4 of the FDI Regulation.

31. Article 19 (1) (a) to (i) of the draft Regulation.

32. Article 19 (4) (-a) to (ec) of the draft Regulation.

33. Article 19 (1) (a) to (i) of the draft Regulation.

34. Article 19 (4) (-a) to (ec) of the draft Regulation.

35. Article 2(20) of the draft Regulation.

36. Article 7(c) of the draft Regulation.

37. Article 7(a), (b) and (d) of the draft Regulation.

38. Article 3(1) to (3) of the FDI Regulation.

39. Article 3(2) and (2a) of the draft Regulation.

40. Article 4(2)(a)(i) of the draft Regulation.

41. Article 4(2)(a)(ii) of the draft Regulation.

42. Article 5(1) of the draft Regulation.

43. Article 5(2) of the draft Regulation.

44. Article 5(2a) of the draft Regulation.

45. See Recital (19) of the draft Regulation.

46. Article 5(3) of the draft Regulation.

47. See Article 6(7) of the FDI Regulation and Article 11(3)(a-b) of the draft Regulation.

48. See Article 6(8) of the FDI Regulation, Article 11(5) of the draft Regulation and Article 12 of the draft Regulation.

 49.Article 13 of the draft Regulation.

50. Article 7of the draft Regulation.

51. Article 7(c) of the draft Regulation.