EU Adopts New FDI Screening Regulation: What Changes For Investors?

The European Union has adopted a major reform of its foreign investment screening rules. Where the current regime mainly coordinates national screening mechanisms, the new rules significantly harmonise Member States’ regimes and broaden the range of transactions that may trigger a filing obligation. Although the new framework will only apply from 17 January 2028, investors should already factor its requirements into how they plan acquisitions and investments in the EU.

A mandatory minimum scope

The European Union has formally adopted Regulation 2026/1386 on the screening of foreign investments (“the new Regulation”), which replaces the current framework established by Regulation (EU) 2019/452 “the current Regulation”).

The most significant change is the introduction of a mandatory minimum scope of transactions that all Member States must screen. This addresses the wide differences in scope, thresholds and criteria that currently exist between national regimes. It creates a level playing field that gives foreign investors more certainty and prevents new obstacles to the internal market.

Investments falling within this minimum scope will require prior authorisation from the relevant screening authority before closing. While the current Regulation only lists indicative risk factors, the new Regulation requires Member States to screen investments in EU targets active in the following sensitive sectors:

• defence and dual-use technologies;
• semiconductor, quantum, and certain artificial intelligence technologies;
• exploration, extraction, processing, recycling, recovery or stockpiling of strategic raw materials;
• critical entities in the energy, transport and digital infrastructure sectors, based on a risk-based, targeted assessment;
• certain financial market infrastructure, such as central counterparties, central securities depositories, operators of regulated markets, operators of payment systems, and other systemically important institutions; and
• voter registration databases, voting systems and other relevant information systems.

The new Regulation only introduces minimum harmonisation: Member States remain free to apply stricter rules, whether in scope, investment thresholds or screening criteria.

Acquisitions conferring effective participation directly or indirectly

The new Regulation also harmonises and significantly expands the types of investments caught by screening. While the current Regulation targets only direct investments by non-EU investors, the new Regulation also captures investments made through EU subsidiaries that are directly or indirectly controlled by a non-EU investor. This closes a gap identified by the CJEU in its Xella-judgment (C-106/22), namely the exclusion of indirect investments under the current Regulation.

The new Regulation also introduces a broader concept of “effective participation in the management or control” of a target. This covers not only formal control, but also any transaction that gives the foreign investor the ability to materially influence the EU target’s commercial policy, behaviour or decisions. For foreign investors acquiring Belgian targets, the new Regulation will have little impact, as the Belgian screening mechanism already uses the beneficial ownership and a broad notion of control as triggers for filings.

Conversely, portfolio investments will be excluded from the scope, insofar as the acquisition is made purely for financial return, with no intention to influence the company’s management or control. Similarly, the new Regulation excludes purely internal restructurings, subject to three conditions:

• there is no change in the beneficial ownership of the EU target,
• no new non-EU legal entity is introduced in the upstream control chain of EU target, and
• no additional participation or control rights on an existing foreign entity in the control chain.

This is a helpful development, as many jurisdictions (including Belgium) do not exempt purely internal restructurings from screening.

The new Regulation also includes in its scope greenfield investments, i.e. the setting up of a new undertaking with a view to exercise an economic activity in the EU. Unlike earlier drafts, however, greenfield investments fall outside the minimum scope and will not require prior authorisation, although Member States remain free to impose such a requirement. By removing greenfield investments from the minimum scope, the new Regulation also perges from the approach taken in the proposed Idustrial Accelerator Act, which does currently target greenfield investments (see our previous article on this, here).

A wider, but more refined range of screening criteria

The new Regulation also harmonises the criteria used in screening. While the current Regulation only offers a non-exhaustive list of risk factors, the new Regulation sets out a common set of assessment criteria that all Member States and the European Commission must consider.

These assessment factors are:

• the effects on a project or programme of Union interest, as listed in Annex II of the new Regulation;
• the availability of critical technologies, and the protection and availability of intellectual property or other intangible assets;
• the security, integrity, resilience and functioning of a critical entity or critical infrastructure;
• the continuity of supply of critical inputs, including services;
• the protection of sensitive information, including personal data;
• the freedom and pluralism of the media, including online and social media platforms;
• the protection of public health, including the provision and availability of the critical medicines;
• the protection of food security, including farming;
• the security of military facilities and other sensitive public facilities in the immediate geographical proximity of the Union target;
• whether any entity or person in the control chain of the foreign investor is likely to pursue a third country’s policy objectives, to facilitate the development of a third country’s military capabilities, or support the commission of serious violations of human rights or international humanitarian law;
• whether the foreign investor is established in a third country with significant deficiencies in its national regime on anti-money laundering and on countering the financing of terrorism, or has a legal requirement to share information for intelligence purposes; and
• whether the foreign investor has an opaque ownership structure or could be a conduit to acquire and exert influence on the EU target.

Member States retain discretion in their final assessment, but investors should expect a more consistent approach across the EU and increased scrutiny of both the target's activities and the identity and background of the investor.

A more harmonised and predictable procedure

Procedurally, investors can expect a more predictable, structured review process, although investors acquiring Belgian targets will find it largely familiar. The new Regulation introduces an initial review period of 45 days (compared to 30 days under the current Belgian regime) to decide whether an in-depth investigation is necessary. If so, this is followed by a subsequent in-depth screening phase, to assess whether the investment is likely to harm security or public order. The new Regulation sets no time limit for this phase but requires Member States to notify the Commission in certain cases, particularly multi-jurisdictional transactions, where national authorities are expected to coordinate both the timing of their reviews and any mitigation measures.

The choice for a regulation means that the new rules will be directly applicable in all Member States once they take effect. To give Member States and businesses time to prepare, however, the new Regulation will only start to apply 18 months after its entry into force, i.e. from 17 January 2028. Until then, the current Regulation remains in force.

No news, good news?

Compared with the Commission's original proposal of January 2024, the final text of the new Regulation has not changed fundamentally. Most substantive changes were already agreed during the negotiations between the Council and the European Parliament.

Although the implementation deadline is still some way off, Member States may choose to adopt some of the new Regulation's helpful changes sooner. Belgium, for instance, is currently consulting on a reform of its own FDI screening framework and does not need to wait until 2028 to exclude internal restructurings in line with the new rules.