Introduction

Although the European Union ("EU") does not operate its own FDI screening mechanism, the European Commission ("EC"), supported by certain Member States, continues to be a driver of FDI screening across the union. The EC has long encouraged Member States to adopt national screening regimes and to move toward coordinated enforcement. The EC also involves itself in Member States' screening through the EU coordination mechanism.

EU FDI Screening Regulation

The current EU FDI Screening Regulation does not mandate that Member States must screen investments domestically. It does, however, encourage Member States to adopt screening regimes. Indeed, it provides a skeletal framework that has been relied upon by newer members of the FDI community in the EU, prescribing a list of sectors that Member States may want to consider for these purposes, for example. These provisions have formed a blueprint for Member States designing completely new regimes. The national screening regimes that came into force in Ireland and Greece during 2025, for example, both reference the FDI Screening Regulation in defining their respective scopes.

The other major impact of the Screening Regulation is the EU Cooperation Mechanism created by Article 7 of the EU FDI Screening Regulation. The Cooperation Mechanism is a forum through which Member States can comment on notified deals, and the EC can ask questions and issue opinions. Reviews by the EC are divided into Phase I, which is a 15 calendar day review, and Phase 2, which is more in depth. In 2024, 92 percent of cases screened by the EC through the Cooperation Mechanism fell into the Phase I category.

Other Member States and the EC can then provide comments to the "reviewing" Member State. The reviewing Member State retains the final say under its national FDI screening procedures. However, in practice, Member States will at least attempt to resolve issues raised by the EC and other Member States. The Cooperation Mechanism also means that Member States with the power to call in transactions that do not meet their national notification thresholds, or that have a different view on the reportability of an investment, will receive outline information on transactions that might otherwise have escaped their attention.

National FDI authorities take different approaches regarding the notification of deals under the Screening Regulation. Certain FDI authorities have systematically notified every transaction involving non-EU investors, while others do so only under specific circumstances. The interaction of the mechanism with national regimes also varies, leading to stark contrasts in timing. Austria, for example, seeks to navigate the Cooperation Mechanism before starting the clock on any national review, whereas Italy pauses its review for defined periods if questions are raised by the EC or another Member State through the Cooperation Mechanism.

The EU FDI Screening Regulation also mandates that the EC produce an annual report on its implementation, which provides a useful snapshot of FDI screening trends and developments across the union.

According to the EC's Fifth Annual FDI Report, published October 14, 2025, the number of cases notified under the Cooperation Mechanism continues to rise. In 2024, Member States notified 477 investments through the mechanism. This figure is roughly consistent with the 488 notified during 2023, but represents a significant increase from the 67 reviewed through the mechanism in 2022. Of these, the six main jurisdictions of origin were the United States, the United Kingdom, China (including Hong Kong), Japan, Canada and the United Arab Emirates, accounting for 70 percent of all notified cases between them.

The notifying Member States are also concentrated, with 85 percent of Cooperation Mechanism notifications attributable to seven Member States: Spain, Austria, Italy, France, Germany, the Netherlands and Lithuania. This is notable given that 24 Member States had operational national regimes during 2024, the period covered by the report.

EU report: Trends in Member States' national regimes

The EC Annual Report also provides a helpful overview of trends across Member States' national practices. It reports that, across the union, 3,136 transactions were reviewed by Member States' national authorities, either through notification or because of a call-in review by a national authority.

Member States' national regimes

Outcomes are not the only features of national regimes that differ across Member States. All 27 Member States are expected to have national regimes in place by the end of 2026. However, there are differing approaches to filing requirements, including whether there is a threshold related to the percentage of voting rights or shares acquired, a turnover-based threshold or another type of trigger.

Different Member States also take differing views on which industries are considered "critical" and may trigger a filing obligation or government intervention, and whether the government has the right to intervene below the relevant thresholds.

Some regimes are suspensory and provide a standstill obligation during the review, while others are not. Some cover only investments by non-EU or European Free Trade Association ("EFTA") investors, while others cover investments by any non-domestic investor. The duration and structure of proceedings also vary, including whether clearance subject to remedies such as compliance commitments or "hold separate" commitments is possible.

Regimes with and without standstill obligations

There is broad divergence among legislative regimes regarding whether they provide for mandatory filings, voluntary filings, ex officio investigations or a mixture of these approaches.

The German regime is illustrative. It provides for a mandatory filing requirement based on the target's activities, the size of the stake acquired in terms of voting rights and the "nationality" of the investor. If these thresholds are not met, the government may still intervene. Investors may therefore consider making voluntary filings under certain circumstances.

For an ex officio investigation, there must be a direct or indirect acquisition of at least 25 percent of the voting rights of a German target, an increase of an existing stake above 40, 50 or 75 percent, or an acquisition of "atypical control" by a non-EU or EFTA-based investor. Otherwise, the government does not have jurisdiction to review the transaction. The regime provides for a standstill obligation where filings are mandatory, but not where they are voluntary.

Some regimes also give the parties the possibility to formally consult the authorities regarding whether a specific transaction is covered by FDI rules, for example in the Czech Republic, Spain or France.

Investments by non-EU investors

The various national regimes also differ in whether they apply only to investments by non-EU-based investors or whether they cover investments by any non-domestic acquirer. Some regimes are hybrid.

For instance, the German regime scrutinizes investments by any non-domestic acquirer in the defense and cryptography technology sectors that involve the acquisition of at least a 10 percent stake. In all other sectors, investments by EU or EFTA-based acquirers do not trigger a filing requirement and cannot be reviewed ex officio. However, the government takes a very broad view of whether an investor should be considered non-EU or EFTA-based.

The French regime captures acquisitions of control by any non-French investor, but minority acquisitions only if the investor is non-EU or European Economic Area ("EEA") based, with a threshold of 25 percent of voting rights.

In contrast, the Spanish regime captures acquisitions by non-EU or EFTA investors if they exceed a 10 percent share or control threshold and the target is active in certain sensitive sectors. However, a filing is required irrespective of the target's activities if the investor meets certain criteria, including being government-controlled, being subject to sanctions or illegal activities, or having previously invested in sensitive sectors in another Member State.

In addition, EU or EFTA investors are required to make an FDI filing in Spain if the investment exceeds €500 million in a nonlisted company or involves the acquisition of more than 10 percent of a company listed in Spain.

Similarly, the regimes in the Czech Republic or Belgium define a "foreign investor" for filing purposes as an investor from a non-EU country.

Filing thresholds

Some national FDI regimes determine filing requirements or intervention rights based solely on the size of the stake acquired and cover share deals and asset deals alike. Others rely on different or additional factors, such as the target's revenues.

By way of example, in the health care sector the German regime provides for a filing obligation for an investment by a non-EU or EFTA-based acquirer of at least 10 percent if the target is considered an operator of critical infrastructure. This category is defined in detail and includes hospitals handling at least 30,000 inpatient cases per year or diagnostic and therapeutic laboratories handling 1.5 million orders per year.

The threshold increases to at least 20 percent if the target develops or manufactures personal protective equipment, develops, manufactures or markets essential medicines, develops medicinal products for the diagnosis, prevention, monitoring, prediction or treatment of life-threatening and highly infectious diseases, or develops in vitro diagnostics relating to such diseases.

In Austria, prior approval is required only if the target company employs 10 or more people and has annual turnover or an annual balance sheet total equal to or greater than €2 million.

As a general rule, purely passive investments such as limited partnerships do not trigger individual FDI requirements. However, a case-by-case review is recommended because there may be exceptions, and FDI authorities have taken nuanced approaches in certain jurisdictions.

Interventions outside the formal scope

Even where transactions fall outside the formal scope of national FDI regimes' mandatory notification requirements, Member States may still intervene through targeted measures.

For example, the German federal government prevented a Chinese investor from investing in a power grid operator by arranging an investment by a German state-owned company because it did not have jurisdiction to block the transaction under the then-applicable FDI regime. The German government officially confirmed that the acquisition was intended to protect critical infrastructure for energy supply in Germany.

The powers to initiate ad hoc reviews of transactions, and the circumstances in which Member States will do so, vary significantly from country to country.

Possible outcomes of proceedings

The prohibition of transactions on national security grounds remains an exception in most Member States. The EC's Fifth Annual Report indicates that only 1 percent of all decided cases were ultimately blocked by national authorities in 2024, while a further 4 percent were withdrawn by the parties.

Approval subject to remedies or conditions is more common. Nine percent of transactions screened by Member States were approved on this basis during 2024. Differences among Member States remain stark. For example, 55 percent of transactions screened in France involved remedies, compared with approximately 4 percent in the Netherlands.

Remedies generally include maintaining sufficient local resources related to sensitive activities; restrictions on the use of intellectual property rights or on the governance of the target company; mandatory continuation of sensitive contracts to ensure uninterrupted services; appointing an authorized security officer within the target company; enhanced reporting obligations; and strict data protection obligations that go beyond the requirements of the General Data Protection Regulation ("GDPR").

In extreme cases, national authorities may also require the mandatory disposal of sensitive activities to an approved acquirer.

Proposed reforms on the horizon

A new EU FDI Screening Regulation

The divergence in national approaches has created challenges for investors attempting to coordinate parallel reviews across multiple national regimes. While the EC has encouraged greater consistency and coordination, the Cooperation Mechanism itself can create complications. Parties sometimes receive identical sets of questions through multiple authorities. In addition, parties often do not know which authority initiated particular queries, and timelines and processes for engagement with the Cooperation Mechanism vary substantially.

Calls for greater standardization were one of the drivers behind the EC's announcement in January 2024 that a new EU FDI Screening Regulation ("New Regulation") would be pursued. This initiative formed part of a broader package of measures aimed at strengthening the union's economic security amid growing geopolitical tensions and rapid technological change.

Those efforts culminated in the announcement in December 2025 that the European Council and the European Parliament reached a provisional political agreement on revisions to the New Regulation. The proposed draft has recently been published and must now be translated and formally adopted. The final version of the New Regulation is expected to be published in mid-May 2026 and will likely enter into force by the end of 2027.

The following key features are expected to be included in the final version of the New Regulation:

• Mandatory FDI screening. The New Regulation will require Member States to establish national screening regimes.
• Mandatory minimum scope for screening. The New Regulation introduces EU-wide harmonization of mandatory screening sectors. Screening mechanisms will be required to cover a targeted and clearly defined set of sensitive areas, including:
  • Dual-use items and military equipment
  • Hypercritical technologies such as artificial intelligence, quantum technologies and semiconductors
  • Critical raw materials
  • Critical entities in transport, energy and data infrastructure
  • Electoral infrastructure including voter databases, voting systems and electoral management systems
  • A limited list of financial system entities including central counterparties, central securities depositories, operators of regulated markets, operators of payment systems excluding central banks and systemically important institutions
• Streamlining and interoperability measures, including a shared database for information exchange and a statement of common risk factors for assessment.
• Exclusion of greenfield investments. Although the EC encouraged mandatory screening of these investments and the European Parliament supported the proposal, pushback from Member States resulted in greenfield investments being excluded from the common minimum scope under Article 4(4) of the New Regulation.

Moreover, EFTA states, including Switzerland, Norway, Iceland and Liechtenstein, may no longer be treated as EU investors. Internal restructurings will be exempt from review, provided that (i) the beneficial owner of the company does not change and (ii) no new entity from a third country that was not already present in the upstream ownership chain of the EU target is introduced into that chain.

Timing and coordination on powers

Under the New Regulation, Member States will have call-in rights for any foreign investments in their territory, irrespective of the sector in which the investment takes place.

In terms of timing, all EU Phase I proceedings will be limited to a maximum of 45 days and will not be extendable. The New Regulation establishes three categories for initiating the Cooperation Mechanism involving other Member States and the EC.

• Category 1 requires early notification within 15 days of filing when an EU sector case group applies and there are investor risk factors such as state-controlled investors, previous prohibition decisions or sanctions.
• Category 2 requires notification by day 45 when Phase II proceedings are initiated and the transaction has cross-border relevance, for example because of target operations, substantial activities or relevant subsidiaries in another Member State.
• Category 3 introduces a catchall category for cases relevant to the public security of another Member State, which could potentially become a gateway for excessive referrals.

To further align EU-wide proceedings, applicants "shall endeavor" to notify all relevant Member States simultaneously. This will require enhanced coordination by legal advisers. Member States, in turn, must endeavor to synchronize timelines and aim to issue decisions simultaneously, although certain cases will inevitably require flexibility.

Despite extensive cooperation mechanisms, the decision to approve or prohibit a transaction ultimately remains with the relevant Member State. They are only obliged to "give due consideration to such a comment or opinion" and must "organize a meeting to discuss how best to address the risks identified" with representatives of the Member State that issued comments and/or the EC. After their screening decision enters into force, they must notify the commenting Member States and the EC of their decision and the extent to which they considered the comments, including providing reasons in cases of disagreement.

Transparency and information sharing

Phase II cases will involve mandatory meetings between Member States and the EC to discuss risk analysis and possible conditions, aiming for coherent and consistent conditions across jurisdictions. What was previously ad hoc will now be standard procedure in multicountry cases.

In addition, a central database will be established containing relatively granular information on cases and investors including decision types such as approval, conditional approval or prohibition, whether remedial measures have been imposed, whether investors were previously reviewed and investors' existing holdings across Member States. Notably, investors will not have rights to access their own data in the database, although this may be addressed in implementation guidelines.

Other relevant regimes

Outbound investment screening

In addition to the above, the EC published a white paper on outbound investments in January 2024. There is currently no monitoring of outbound investment flows outside the EU. However, following discussions with Member States that began in spring 2023, including the creation of an expert group in July 2023, the EC's findings in the white paper were that significant knowledge gaps exist regarding the potential risks that could accompany relevant investments.

For example, risks may arise in relation to the potential misuse of EU technology and know-how in third countries due to the lack of specific or systematic monitoring of outbound investments at the EU or Member State level.

The EC acknowledged that this is a complex and sensitive policy area, meaning that a gradual approach is required to gather data and evidence regarding potential risks and determine any appropriate policy response. The EC also emphasized that before designing any specific policy measures, the EU would first need to make full use of existing instruments.

Following a public consultation period throughout 2024, the EC published its "Recommendation on Reviewing Outbound Investments in Technology Areas Critical for the Economic Security of the Union" in January 2025. The primary objective of the recommendation is to address the lack of systematic data collection on individual outbound investments identified in earlier efforts.

It urges Member States to collect such data, particularly through the review of outbound investment transactions in sectors such as semiconductor technologies, artificial intelligence and quantum technologies. While the recommendation does not mandate the creation of a new screening mechanism, it encourages Member States to establish a coherent system that would facilitate the voluntary provision of transaction information. Additionally, the recommendation suggests using existing mechanisms, particularly export control regimes, to achieve these objectives.

Member States were asked to provide a progress report by July 15, 2025, and a comprehensive report on their implementation of the recommendation and any risks identified by June 30, 2026.

Industrial Accelerator Act

The latest addition to the EU's investment-screening toolbox is the Industrial Accelerator Act ("IAA"), which is described as the "new plan for Europe's sustainable prosperity and competitiveness." The EC adopted the latest IAA legislative proposal on March 4, 2026, declaring that the act will seek to achieve these objectives by boosting manufacturing, growing businesses and creating jobs.

The proposal targets certain key manufacturing sectors and would introduce select "Made in EU" initiatives that would receive priority in EU green procurement.

The proposal also introduces a new FDI mechanism applicable to certain emerging strategic sectors, notably battery value chains, electric vehicles, photovoltaic technologies and critical raw materials.

A new approval system would apply to investments, whether brownfield or greenfield, that meet all of the following criteria:

1. the investment exceeds €100 million
2. it is made by a non-EU investor whose home country holds more than 40 percent of global manufacturing capacity for the relevant strategic sector or technology
3. it involves the acquisition of 30 percent or more of the share capital or voting rights in an EU target, or 30 percent or more of the ownership, leasehold or other rights conferring control over an EU asset

In such cases, the competent authority designated by the Member States could review the investment and impose conditions before approval. Such conditions could include limiting foreign shareholding to 49 percent of the shares or voting rights, requiring the investment to be structured through a joint venture with an EU partner or imposing industrial, production, workforce or technology-related commitments within the EU.

This mechanism would operate without prejudice to other applicable EU regimes, including FDI screening, merger control and the foreign subsidies framework.

For the time being, the proposal remains in draft form, and further negotiations between the European Parliament and the Council must take place before the IAA can be adopted.

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