On October 11, 2020, the EU Foreign Direct Investment Regulation—which establishes a European framework for the screening of foreign investments into the European Union— entered into force.

The legislation attempts to address growing concerns (compounded by the COVID-19 pandemic) regarding inbound investments at a European level.

The Regulation does not grant the European Commission (or any other European institution) the ability to veto foreign investments; this power is retained by Member States under national legislation.

Rather, it lays down a common framework for review by Member States and seeks to coordinate national enforcement action, including by enabling the Commission and other Member States to comment on national reviews.

This memorandum provides an overview of the new Regulation and its expected practical impact on foreign investment review in the EU.

I. Introduction

Regulation (EU) 2019/452 (the "FDI Regulation") establishes a framework for the screening by Member States of certain types of foreign direct investments ("FDIs") into the European Union on the grounds of security or public order.

  • Investments. The FDI Regulation defines FDIs as those that intend to establish or maintain "lasting and direct links" between a foreign investor and a target company. This may "includ[e] investments which enable effective participation in the management or control of a company carrying out an economic activity," though control does not appear to be a pre-requisite to the application of the legislation
  • Investors. The FDI Regulation applies to "foreign investors," which it defines as individuals or entities of a country other than a EU Member State. Intra-EU investments are not caught, though this does not preclude Member States from screening those investments to the extent permissible under the Treaty on the Functioning of the European Union ("TFEU").1

 Importantly, the FDI Regulation does not seek to follow the EU Merger Regulation in introducing a "one-stop-shop" review mechanism for FDIs in Europe. Rather, it seeks to (i) increase legal certainty for national screening mechanisms and (ii) increase cooperation on national reviews. It is also likely to result in (iii) increased Commission oversight over national efforts in this area. Each of these areas is discussed in further detail, below

II. Increased Legal Certainty

The FDI Regulation affirms the ability of Member States to maintain mechanisms to screen FDIs in their territories on the grounds of security or public order. It also provides guidance on (i) the sectors and (ii) investors that may be relevant for that purpose.

Sectors. The FDI Regulation sets out a nonexhaustive list of sensitive sectors that Member States (or the Commission) may focus on in reviewing FDIs:

  • Critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure.
  • Critical technologies and "dual use" items (i.e., which can be used for civil and military purposes), 3 including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies.
  • The supply of critical inputs, including energy or raw materials, as well as food security.
  • Access to sensitive information, including personal data, or the ability to control such information.
  • The freedom and pluralism of the media.

Unfortunately, this categorisation is very broad, especially through the use of catch-all industry terms (such as "transportation", "communication", "media", and "data") without any explicit limitation. It is also intentionally non-exhaustive.

The consequences of this breadth will be magnified by the adoption of the sector list by certain Member States (including Austria, Italy, Slovenia, and Spain) who have incorporated or cross-referenced it in their national legislation.

Nevertheless, as further definitional clarity emerges over time, the list may start to provide a useful and harmonized approach to considerations that can legitimately be taken into account in foreign investment review in the EU.

Categories of investor. The FDI Regulation also provides guidance on the factors that Member States may take into account when scrutinizing FDIs. Specifically, in assessing whether an investment is likely to affect security or public order, Member States may consider whether:4

  •  The investor is controlled by the government (including state bodies or armed forces) of a third country, including through ownership structure or significant funding
  • The investor has already been involved in activities affecting security or public order in a Member State.
  • There is a serious risk that the investor engages in illegal or criminal activities

As explained further below, the inclusion of governmental investors is likely to be particularly significant, although the Regulation does give weight to investors' previous experience in activities affecting security or public order in the EU.

III. Increased Cooperation

Each Member State retains full jurisdiction to review FDIs in their territories. Accordingly, the FDI Regulation does not seek to create a centralized "one-stop-shop" for foreign investment review in Europe.

It does, though, take a tentative first step in that direction, by seeking to increase coordination among Member States and with the Commission. 5 The process differs as between (i) FDIs that are under review; (ii) FDIs that are not under review; and (iii) FDIs likely to affect projects of Union interest.

FDIs under review. Where a Member State is reviewing an investment under its national FDI framework, it is required to notify the Commission and all other Member States.6

  • Member States may comment on the FDI where they consider their security and public order may be affected, or they have relevant information.
  • The Commission may issue an opinion if it considers the FDI is likely to affect security and public order in more than one Member State, or has relevant information. The Commission must issue an opinion where at least one-third of Member States consider it is likely to affect security and public order.
  • The notifying Member State may also ask other Member States to comment, or the Commission to issue an opinion.
  • Member State comments and Commission opinions do not have binding force, but the relevant Member State is required to give them "due consideration".

FDIs not under review. Similar rules7 apply even where FDIs are (or were) not undergoing screening (up to 15 months after completion), except that the Member State is of course not required to notify the Commission and other Member States.8

It is not yet clear how the relevant Member State will take account of any comments from other Member States or a Commission opinion, where the relevant FDI is not under review (or perhaps even reviewable) under national law; that issue may be particularly acute for investments that have already completed. 


1. Indeed, national legislation in several Member States (including France, Germany, and Italy) already allows for the review of investments that are relevant to defence and public security, even where they are carried out by EU investors, consistent with Article 346 TFEU.

2. FDI Regulation, Article 4(1).  

3. Dual use items are defined in Regulation (EC) No 428/2009 (which sets up a European regime for the "control of exports, transfer, brokering and transit of dual-use items") as "items, including software and technology, which can be used for both civil and military purposes, and shall include all goods which can be used for both non-explosive uses and assisting in any way in the manufacture of nuclear weapons or other nuclear explosive devices.

4. FDI Regulation, Article 4(2).

5. The UK has recently been excluded from this cooperation mechanism due to the uncertainties related to the looming "Brexit". See EC Decision of July 31, 2020: https://trade.ec.europa.eu/doclib/docs/2020/august/tradoc_ 158921.pdf.

6. FDI Regulation, Article 6.

7. Specifically, Member States and EC may comment or issue an opinion on an investment (if they consider the security and public order of Member States may be affected, or they have relevant information) and the Member State in whose territory the FDI is carried out must take them into account.

8. FDI Regulation, Article 7.

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