Global rules on foreign direct investment: EU

The European Union (EU) framework for foreign direct investment (FDI) screening is set out in Regulation 2019/452 (as amended, the Current FDI Regulation). In 2026, the EU is expected to adopt a new FDI screening regulation (the Proposed Regulation) to strengthen and further harmonize FDI screening in the EU,  based on a January 2024 proposal from the European Commission (EC). The Proposed Regulation will require all EU Member States to adopt FDI screening mechanisms and impose minimum requirements for these (see also our update here).

Neither the Current FDI Regulation nor the Proposed Regulation creates an EU-level FDI screening mechanism. But they do set out minimum requirements for Member States’ FDI screening mechanisms and create a framework for the EC and national authorities to share information and views.  

According to both the Current FDI Regulation and the Proposed Regulation, the host Member state has the final say over whether to approve FDIs. However, the host Member State must give the comments and opinions of the EC and other interested Member States “due consideration.” In the case of investments deemed to be of “Union interest,” the EC will have greater authority, as host Member States have to take “utmost account” of EC opinions and explain any non-compliance. 

Compared to the Current FDI Regulation, the Proposed Regulation aims to make the cooperation between the Member States and the EC more effective and efficient by obliging Member States to notify the EC and other Member States of certain proposed investments. Member State authorities and, upon request, the EC, will be required to coordinate.

The Current FDI Regulation covers investments by a foreign investor aiming to establish or to maintain lasting and direct links between the foreign investor and the target company, including investments that enable effective participation in the management or control of the target, but excluding “portfolio investments”. Foreign investor means a natural person or business (“undertaking”) of a non-EU country. The Proposed Regulation would broaden the framework’s scope to include EU investors controlled by non-EU entities.

The Current FDI Regulation requires that national FDI screening mechanisms be transparent and not discriminate between third countries. Member States will have to set out the circumstances triggering the screening, the grounds for screening and detailed procedural rules. Member States must establish timeframes for issuing screening decisions that allow them to consider the comments and opinions of Member States and the EC. Confidential information must be protected, and foreign investors and other parties concerned must have the possibility to seek judicial redress against screening decisions of the national authorities. These protections will remain under the Proposal.

The Current FDI Regulation also sets out a uniform set of areas for screening by Member State authorities, including:

• critical infrastructure (including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, as well as sensitive facilities and investments in land and real estate crucial for the use of such infrastructures);
• critical technologies and dual use items (including artificial intelligence, robotics, semiconductors, cybersecurity, quantum, aerospace, defense, energy storage, and nuclear technologies, nanotechnologies and biotechnologies);
• supply of critical inputs (including energy or raw materials, as well as food security);
• access to or the ability to control sensitive information (including personal data); and
• freedom and pluralism of the media.

Under the Proposed Regulation, FDI screening would be mandatory in certain sectors, which largely overlap with the list in the current FDI Regulation set out above. 

The EC has published a number of documents providing further insight into the application of the Current FDI Regulation, including frequently asked questions, a notification form and a factsheet. The EC also publishes annual reports on FDI screening in the EU. 

According to the EC’s fifth annual report (the Report) published in October 2025, 24 Member States had active FDI screening mechanisms in place at the end of 2024. Three Member States (Greece, Cyprus and Croatia) were in the process of adopting such legislation. Greece has in the meantime adopted its screening legislation (see our update here). As mentioned, under the Proposed Regulation, all Member States will be required to implement FDI screening mechanisms.

Even without an EU-wide mandate, the Current FDI Regulation has dramatically changed the EU landscape for FDI screening in just a few years. According to the Report, 21 Member States submitted a total of 477 notifications pursuant to the current FDI Regulation’s cooperation mechanism in 2024. The EC closed 92% in Phase 1, with 8% proceeding to Phase 2. Manufacturing and information, communications and technology accounted for a significant majority of Phase 2 cases (50% and 19%, respectively). Where a decision was reported, 86% were approved without conditions, 9% of decided cases entailed mitigating measures (a slight decrease compared to 2023), 1% of decided transactions were blocked and 4% of the filings was withdrawn by the parties before a formal decision was taken.

Given the widespread implementation of FDI screening mechanisms under the current framework, the Proposed Regulation’s mandate for Member States to adopt such mechanisms may not lead to more transactions being subjected to EU-level coordination. Indeed, the opposite may be true, since Member States will only need to notify other Member States and the EC of proposed investments in sensitive sectors. However, the higher level of harmonization under the Proposed Regulation should lead to a more joined-up approach and more effective intervention.