Following political agreement in December 2025, the Representatives of the European Parliament, Commission and Council have published a close-to-final version of the new EU Foreign Investment Screening Regulation (the “Regulation”) which is intended to replace the existing 2019 Screening Regulation.
The Regulation will:
- redefine reviewable foreign investments to include investments by foreign-controlled EU companies;
- exclude certain internal restructurings;
- require all EU Member States to make certain investments subject to prior authorization, while leaving room for national divergences;
- require all EU Member States to introduce call-in right for transactions not subject to prior approval;
- streamline timelines, including a uniform 45-day review period for Phase I cases;
- list detailed risk factors that EU Member States must take into account, including a detailed list of sectors of particular relevance; and
- provide for broader information exchange between EU Member States and the Commission on foreign investment undergoing screening, including a common EU database.
The Regulation allows EU Member States to go beyond the required scope and provisions. Like the previous regulation, this will not lead to complete harmonization but defines only a minimum standard.
Nevertheless, the Regulation is expected to have a major impact in shaping investment screening rules in EU Member States going forward. The below therefore covers its provisions in more detail.
Definition of “Foreign Investments”
The Regulation only captures Foreign Investments, which are now defined to include investments by EU investors controlled by non-EU investors. The details, including the question of whether greenfield investments are captured, will be left to the Member States.
Definition of “Foreign Investment”
- “Foreign Investment” refers to any investment by a foreign investor aiming to establish or maintain lasting and direct links between the foreign investor and a Union target to which the foreign investor makes capital available in order to carry out an economic activity in an EU Member State, enabling effective participation in the management or control of that Union Target.
- Foreign investors are entities established or organized under the laws of a non-EU country or natural persons that do not hold the nationality of an EU Member State.
- Investment from EU entities will be captured if they are “controlled” by a non-EU investor. This closes the loophole that became apparent in the Xella Judgement of the European Court of Justice that ruled EU entities to be outside of the scope of EU investment screening. EU institutions saw this as a risk to the effectiveness of EU investment screening. Many EU Member States go even further and also include investments by EU investors in which non-EU investors have only minority shareholdings – they will be allowed to maintain these broader regimes.
- It will be up to the EU Member States to define specific criteria for foreign investments – including by providing voting rights thresholds. However, the Regulation also provides that effective participation in management or control can be established through de facto factors like contracts, board representation or supplier relationships. It will be the choice of the EU Member States to implement a definition that can be easily applied in practice.
- Whether greenfield investments will be captured is up to the individual EU Member States.
Exemption for internal restructurings.
Internal restructurings will not be captured, provided that:
- The beneficial owner of the company does not change;
- no new entity from a third-country not already present in the upstream ownership chain of the Union target is introduced into that chain.
“Beneficial owner” is defined broadly and includes anyone owning or controlling the foreign investor, or benefiting from the investment, or on whose behalf the investment is made or control is exercised.
The Regulation will also not apply to foreign investments made in application of the EU’s resolution tools for failing banks or insurance companies as these require decisions to be made rapidly.
Mandatory screening and room for divergence
The list of sectors in which EU Member States will need to require a pre-closing approval for all Foreign Investments has been a key battleground between Commission, Parliament and Council in the legislative process. The list is currently relatively short:
Sectors subject to mandatory prior approval
Union targets that:
- develop, produce or commercialize items on the EU Common list of dual-use items subject to export controls;
- develop, produce or commercialize items on the EU Common Military List;
- produce, research or develop semiconductor or quantum technologies, or research AI, each of which is further defined; the AI category will only capture general-purpose AI models or AI systems based on such models suitable for the development of space or defense applications; or AI models with systemic risks as defined in the EU AI Act;
- are active in the transport, energy or digital infrastructure sector; and considered critical pursuant to a risk-based assessment of the individual EU Member State;
- explore, extract, process, recycle, recover or stockpile critical raw materials as defined in the Critical Raw Materials Act;
- are on a list of financial institutions: central counterparties, central securities depositors and operators of regulated markets, operators of payment systems, excluding central banks, other systemically important institutions, global providers of specialized financial messaging services;
- own, develop or operate certain voting systems.
Overall, the list falls short of the far-reaching demands of the Commission and the Parliament. While some categories will raise difficult questions of interpretation and application, the list is relatively concise. EU Member States will however be allowed to maintain or introduce more extensive national approval requirements.
Call-in rights in all EU Member States
In addition, all EU Member States will possess a call-in right for any foreign investment in their territory, independent of the sector of investment. The deadline for exercising such a call-in right will be defined by each EU Member State independently and must be between 15 months and five years. The Regulation does not require EU Member States to grant investors the possibility to file on a voluntary basis to avoid the legal uncertainty accompanying such a call-in right.
Streamlined timelines
The Regulation will require all EU Member States to divide their screening procedure into two phases:
- Phase I: An initial review within 45 calendar days (non-extendable) to decide whether an in-depth investigation is necessary;
- Phase II: an in-depth investigation for which the Regulation does not prescribe a deadline, therefore leaving that question to the EU Member States.
If a transaction requires filings in multiple EU Member States (multi-country transactions), the applicant shall “endeavor” to submit filings in all EU Member States concerned on the same day; however, unlike in previous drafts, it is not a hard obligation. The EU Member States must then coordinate with each other as to whether the case qualifies for notification through the cooperation mechanism, and if it does, endeavor to notify it on the same day. They shall also coordinate their final decisions, in particular possible mitigating measures.
These provisions primarily serve to ensure that the screening procedures and the procedure under the cooperation mechanism happen simultaneously in all EU Member States, to prevent previous scenarios where EU Member States would receive filings or notify the other EU Member States at very diverging points in time, making coordination between them more difficult.
Clear rules for EU cooperation mechanism
The Regulation maintains the cooperation mechanism under which EU Member States exchange filings they have received and give each other and the Commission the opportunity to comment on such filings.
The Regulation now provides helpful guidance on when EU Member States shall notify a transaction to the Commission and the other EU Member States through the cooperation mechanism:
Investments that need to be notified to the Commission and other Member States
- All investments made by certain investors that relate to mandatory sectors (see above). These are:
- state-controlled or -owned investors,
- sanctioned investors, or
- investors that were previously subject to a prohibition under a national screening mechanism, or that have violated mitigation measures imposed on them;
- Screening procedures in which the EU Member State opens a Phase II investigation or plans to impose mitigating measures or prohibit or unwind a transaction in Phase I and where
- the target is active in a project or program of Union interest, or
- the Target is part of a group with subsidiaries in other EU Member States;
- Investments that could negatively affect security or public order in at least one other EU Member State – this is an opening for EU Member States to notify transactions that do not meet the above criteria.
In practice, and absent clearer guidance, this likely means that all filings by (non-EU) state-owned investors, including from friendly countries, that relate to a sensitive sector will require a notification to the cooperation mechanism. EU Member States and Commission will have the opportunity to review and comment on the transaction. If the EU Member States or the Commission want to comment on an investment and fully use the deadlines the Regulations grants them, the 45 days allocated for phase I will not be sufficient, de facto forcing the opening of a phase II investigation.
Blanket rules may be helpful for sanctioned investors or those that have violated mitigating measures. But they will inevitably also capture non-political state-owned sovereign wealth or investment and pension funds.
Contrary to what the Parliament had demanded, the decision whether to clear or prohibit a transaction ultimately remains with each individual EU Member State. They are only required to give “due consideration” to the comments of other EU Member States and the Commission, and to organize a meeting with representatives of commenting EU Member States and the Commission to discuss and inform them of their final decision afterwards.
Finally, the Regulation also allows other EU Member States and the Commission to comment on investments in another EU Member State that are not subject to mandatory investment screening – it will however be up to the EU Member States where the investment takes place to decide whether they call in the transaction.
Sectors in which notifications are not mandatory but will likely attract increased scrutiny
Furthermore, the Regulation contains a long list of factors that, while they do not lead to a mandatory filing, must be taken into account by the EU Member States in their assessment. Many of these factors would have been triggers for mandatory filings in the Commission’s or the Parliament’s drafts. It is not unlikely that some EU Member States will be inspired by these factors when drafting their national regimes:
Security interests to be taken into account by EU Member States
- Availability of critical technologies, including the question of whether they would become available outside of the EU due to the Foreign Investment, and the protection and availability of IP. The Regulation contains an annex that lists examples of critical technologies, including biotechnologies, advanced connectivity, navigation and digital technologies, advanced sensing technologies, space and propulsion technologies, energy technologies, robotic and autonomous systems and advanced materials, manufacturing and recycling technologies;
- Projects and programs of Union interest contained in an Annex;
- Security of critical infrastructure;
- Continuity of supply of critical inputs, including services;
- Protection of sensitive information;
- Freedom and pluralism of the media;
- Protection of electoral processes;
- Protection of public health, including the provision of availability of critical medicines listed in an Annex;
- The protection of food security, including farming, when the Union target possesses or operates more than 10.000 hectares of farmland;
- Security of military facilities and other sensitive public facilities in the immediate geographic proximity of the Union target.
Criteria for substantive review
The Regulation maintains the previous standard for the substantive review, i.e., whether the Foreign Investment is likely to negatively affect security or public order. It defines several factors for the substantive review that the EU Member States must take into account.
Criteria for substantive review
EU Member States should take into account whether:
- the foreign investor is likely to
- pursue a third country’s policy objectives, including by using the investment to coerce EU Member States or the Union to prevent or obtain the cessation, modification or adoption of a particular act,
- facilitate the development of a third country’s military, or
- use the foreign investment to support internal repression;
- the investor made previous investments that were not authorized or only authorized subject to mitigating measures which were significantly or repeatedly not complied with;
- the foreign investor is sanctioned;
- the foreign investor has been involved in activities negatively affecting security or public order in an EU Member State;
- the foreign investor has engaged in illegal activities, including circumventing sanctions;
- the foreign investor is established in a country that has been identified as a third country with significant strategic deficiencies in its anti-money laundering and terrorism-financing regimes in accordance with the relevant EU regulation;
- the foreign investor is subject to legislation of a third country that imposes obligations to share information for intelligence purposes without due process or oversight mechanisms;
- the foreign investor has an opaque ownership structure.
The beneficial owner of the foreign investor must also be taken into account.
All screening decisions must comply with EU rules on freedom of establishment and free movement of capital (where applicable). The European Court of Justice had reminded the EU Member States in its Xella Judgement that these requirements also apply to investments by EU companies controlled by non-EU investors.
The Regulation includes an exemplary list of mitigation measures that can be imposed by national authorities, including changes to the proposed governance structure of the Union target, modifications to voting rights, conditions on access to sensitive information and technologies, commitments on continuation of supply and/or business activities, sourcing requirement and cybersecurity and data protection requirements.
Increased efficiency of national regimes
The Regulation also includes several provisions aimed at increasing the efficiency of the national investment screening regimes, including provisions in guidance and reporting, on the establishment of a database for the authorities and increased possibilities to gather information:
Further measures to increase the efficiencies of national regimes
- EU Member States must publish guidance on their national screening regime, in particular regarding the scope of their regime and applicable thresholds. This could significantly increase transparency, as currently most EU Member States do not provide any guidance or publish their decisions.
- The Commission will maintain a database of all screening decisions of the EU Member States. The database will not contain details of the case, but will contain the names of the companies involved and the result of the procedure – including where the transaction was prohibited or subjected to mitigating measures or where the application was withdrawn.
- The database will also include information on past screening procedures under the old Screening Regulation (since October 2020).
- The database will also include risk assessments carried out by the Commission relating to specific sector, critical technologies, foreign investors or Union undertakings.
- The EU will publish a new EU Form that must be submitted by a company if a case is notified to the cooperation mechanism. Each EU Member State will have the right to ask for further information from the companies involved.
- The Regulation provides for a mechanism by which an EU Member State can ask another EU Member State or the Commission to obtain information from persons living in another EU Member State.
- Stakeholders will have the possibility to anonymously submit comments on investments.
- The Regulation provides for the possibility for a joint online portal for the submission of filings – however participation by the EU Member States will be voluntary, and the portal will only go online if at least nine EU Member States request it. It is unclear whether there will be sufficient interest for such a step.
Next steps
The Regulation still needs formal approval by the Parliament and the Council which is expected to be granted in April or May 2026 without major modifications. The Regulation will only fully apply after a transitional period of 18 months following publication, likely at the end of 2027 or the beginning of 2028. Some EU Member states might opt to implement the Regulation earlier – Germany has already announced its intention to do so, and Spain may also do so.
The current Regulation will continue to apply to all investments that are filed before the new Regulation starts to apply, as well as to all investments that are completed before the new Regulation starts to apply (i.e., the call-in right will not apply retroactively).
If you would like to discuss this update in more detail, please get in touch with any of the authors or reach out to your Freshfields contact.
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