Antitrust

The EU is embarking on an overhaul of its foreign investment rules, firstly by reforming the EU framework for the coordination of foreign direct investment (the “FDI Regulation”), and secondly by proposing parallel EU-level review for certain high-value investments through the Industrial Accelerator Act (“IAA”).  

The EU’s revamped foreign investment screening rules received final approval from lawmakers on June 8, 2026.  With screening checks becoming mandatory across all Member States for a shared minimum list of sectors, including dual-use and military items, AI, semiconductors and critical infrastructure, investors face tighter and more consistent checks in sensitive sectors in the EU.  Heightened national scrutiny may be compounded by the European Commission’s recent proposals in the draft IAA. The resulting picture is a continent increasingly framing its foreign investment policy with industrial strategy and economic security objectives.  We assess the key changes below. 

Background

Screening mechanisms for foreign direct investments (“FDI”) have rapidly expanded across Europe over the last decade.  Unlike merger control, there is currently no centralized review or ‘one-stop-shop’ at an EU-level, and instead dealmakers must contend with multiple national regimes regardless of the size of their transaction.  As of April 2026, all 27 EU Member States have a FDI regime in force.  

Under the existing FDI Regulation, applied since October 2020, these national screening mechanisms are required to comply with a relatively loose cooperation mechanism but Member States maintain significant flexibility in how they operate their respective regimes, leading to a fragmented regulatory landscape. 

The proposed reforms are aimed at ensuring greater harmonization across the EU and strengthening the screening of foreign investments in key sectors.  The approval from lawmakers marks the last major political step in a legislative process that began with the European Commission (“EC”) Communication ‘Advancing European Economic Security’ in January 2024.  The Communication called for reform of the EU’s foreign investment screening rules in response to several identified shortcomings, including perceived loopholes in who counts as a ‘foreign’ investor and the lack of a common minimum standard of scrutiny. 

Political agreement was reached in December 2025, following which the provisional text of the new EU FDI Regulation was published in February 2026.  The Council adopted the Regulation on June 8, 2026, marking the final legislative stage before the Regulation comes into force.

Key changes to the rules

While Member States will remain responsible for reviewing foreign investments under their own national regimes, the new FDI Regulation will require all Member States to ensure that their national FDI screening mechanisms comply with certain minimum standards and procedural coordination requirements. 

Who counts as a ‘foreign’ investor?

One of the most practically significant changes is the extension of the definition of a ‘foreign’ investor, to which the FDI Regulation applies, to include investments made by EU entities that are ultimately controlled by non-EU investors.  This addresses the gap in enforcement highlighted in the Court of Justice’s 2023 judgment in Xella, which ruled that investments by EU entities fell outside the scope of the existing FDI Regulation and that national screening mechanisms must respect EU internal market rules such as the freedom of establishment, creating a potential route for non-EU investors to avoid scrutiny when acquiring targets through EU vehicles.

Through this change, the new FDI Regulation is intended to ensure that this type of foreign investment: (a) is screened by Member States in the minimum list of shared sectors; and (b) triggers the cooperation mechanism between Member States (both discussed below).

Note that while the definition of a foreign investor in the new FDI Regulation is only extended to where a non-EU investor has a controlling interest in the relevant EU entity, Member States may still go further and screen (as ‘foreign’) investments by EU entities where a non-EU investor holds only a minority stake. 

Minimum shared list of critical sectors

Under the new FDI Regulation, all EU Member States will be required to operate a screening mechanism that covers a shared minimum list of sectors and technologies, including:

• Dual-use and military items
• AI, quantum and semiconductor technologies
• Strategic raw materials
• Critical transport, energy or digital infrastructure

Greenfield investments are not included in the minimum scope of the new rules.  It will remain for Member States to determine what local nexus is required to trigger a filing. 

Two-phase review

National screening mechanisms must include a two-phase review.  The first phase must be carried out within 45 calendar days of the filing, to decide whether the investment can be cleared or whether an in-depth assessment should be initiated.  The duration of the in-depth assessment is left for each Member State to decide.

The determinative question for substantive review remains whether the foreign investment is likely to negatively affect security or public order.  While there is still no central decision-making power at the EC level, the new framework sets out clearer criteria for the substantive assessment of foreign investments, including establishing common risk factors.

Transparency and rights of defence

Member States must publish guidance on the scope of their screening mechanisms, and national authorities are required to provide the parties to the investment with an opportunity to make their views known prior to adopting a decision.

Retrospective screening powers

Member States are empowered to retrospectively screen notifiable foreign investments that:  

1. Were not subject to a prior authorization requirement, where the authority has grounds to consider that the foreign investment might affect security or public order, within a period of 15 months to (a maximum) 5 years following completion of the investment; or
2. Were subject to prior authorization requirement but were not notified or were only notified after completion of the investment, for a period of at least 24 months post-completion.

Better coordination across the EU

The new framework introduces a set of tools designed to make the screening process more consistent and cross-border deals easier to navigate.  These include a shared database for national screening authorities, and an optional single online portal for filing notifications. 

The new framework maintains the cooperation mechanism under which Member States should notify foreign investments to the EC and other Member States to provide them the opportunity to comment, but additionally specifies instances in which activation of the cooperation mechanism is mandatory.  

While the new framework does not contain binding deadlines, investors and national authorities are required to endeavour to submit filings on the same date and align the timing of their procedures respectively.  Where the cooperation mechanism applies, Member States must endeavour to share the relevant filings on the same day.

Interaction with the proposed EU Industrial Accelerator Act

On March 4, 2026, the EC published its proposal for a Regulation establishing a framework of measures to accelerate industrial capacity and decarbonization in strategic sectors: the IAA.  The draft IAA contains a new framework entailing additional approval requirements and conditions for certain high-value foreign investments in strategic industrial sectors.  This would initially be limited to electric vehicles, batteries, solar and critical raw materials, but the EC would have delegated powers to add additional sectors considered critical to the EU’s economic security.

Investments in prescribed sectors would be potentially subject to screening by one or more national Investment Authorities, or in certain cases the EC itself, where the following conditions are met:

• the investment exceeds EUR 100m;
• the investment would result in a relevant foreign investor acquiring ‘control’ over an EU target or asset (defined as acquiring 30% or more of the share capital or voting rights, or 30% or more ownership of an EU asset); and
• the investment is made by companies originating in countries that hold more than 40% of global production capacity in the relevant sector. 

Where a notification is required, approval would only be granted where an investment fulfils four out of six “value-added” conditions.  Depending on the project, investors may need to demonstrate contributions to strategic EU objectives such as employment creation within the EU, R&D investment, sourcing of inputs within the internal market and/or limit foreign ownership to 49% or below.  Exemptions would apply where there are trade agreements in force that cover the investment, the investment is targeted at providing services, or the acquisition is made purely for financial investment without any intention to control the company. 

While reviews would be undertaken primarily by national Investment Authorities, all notifications would also be transmitted to the EC to issue a written opinion on whether the investment should be approved, with the EC also having powers to take over reviews in certain circumstances (either on its own initiative or at the request of a national authority). 

The IAA would operate in parallel with national FDI screening regimes, meaning that affected investors may face dual FDI screening for qualifying investments. 

Practical takeaways

The new FDI Regulation will be published in the EU’s Official Journal shortly, and will enter into force 20 days after publication.  Member States will have a period of 18 months to implement changes in their national regimes.

The increased harmonization of national FDI regimes and central coordination of national screening mechanisms may provide greater clarity and predictability to investors.  However, material differences at a national level will remain, including during the implementation period, so it remains important to pay attention to the development of the various national regimes.

Once transposed at a national level, investors will need to re-map exposure based on whether the target operates in any of the shared minimum sectors and should consider their ownership structure.  With the gap created by the Xella judgment closed, non-EU investors investing through EU entities can no longer assume they fall outside the scope of foreign investment screening in any Member States (at least for the list of shared minimum sectors).

In parallel, the IAA will now move through the EU legislative process, requiring agreement between the European Parliament and the Council.  If approved, certain investors may face a complex FDI regulatory landscape, with dual screening for qualifying investments.  With that said, cumulative conditions and exemptions – in particular the requirement that the investor’s home state holds 40% of global manufacturing capacity – may mean that the approval requirement is unlikely to apply to many planned investments, with commentators quick to suggest the proposal is targeted at China.

The EU’s overhaul of its investment screening rules does not come in isolation.  It forms part of the EU’s wider Economic Security Doctrine, which shaped reforms such as the Foreign Subsidies Regulation, and more recently, the EU’s revised Merger Guidelines.