OUT-LAW ANALYSIS 8 min. read
The EU has adopted a substantially revised foreign investment screening framework. Getty Images
27 Oct 2026, 4:35 pm
Latest figures published by the European Commission highlight a significant year-on-year increase in notifications made under the EU’s existing foreign direct investment (FDI) cooperation mechanism, marking the largest annual increase since the system was implemented in October 2020.
The growth in FDI notifications reflects both the continued expansion of national screening regimes across member states and increasing focus on investment-related scrutiny risks amid a more complex geopolitical environment.
Against that backdrop, the EU has adopted a substantially revised foreign investment screening framework. Regulation (EU) 2026/1386 on the screening of foreign investments in the Union was adopted on 17 June and will apply from 17 January 2028, replacing the existing FDI Screening Regulation 2019/452.
The reforms are part of the EU’s broader economic security agenda, under which FDI screening has been identified as an important tool for addressing risks linked to critical infrastructure, supply chain resilience and the transfer of sensitive technologies.
While decisions on whether to authorise, condition, prohibit or unwind an investment will remain with individual member states, the new framework is designed to drive greater convergence between national screening regimes and strengthen cooperation between national authorities and the European Commission. It establishes a common EU baseline for investment screening, without creating a single EU clearance mechanism or replacing national filing requirements.
The changes mean FDI considerations are set to become an increasingly important aspect of transaction planning, making it essential for businesses and investors to identify potential filing requirements and regulatory risks at an early stage.
The Commission reports an 8.9% increase in the stock of FDI between 2024 and 2025, measured by the cumulative number of recorded foreign acquisitions and greenfield projects. Annual investment activity remained broadly stable with the combined number of foreign acquisitions and greenfield projects increasing by just 0.2% compared with 2024.
However, the figures point to a change in the composition of investment.
While foreign merger and acquisition (M&A) activity increased by 4%, greenfield investments declined by 4.3%. The Commission describes this divergence as a shift towards acquisitions rather than new greenfield projects in a period of heightened macroeconomic uncertainty.
The US remained the largest source of foreign investment into the EU, accounting for 30% of foreign acquisitions and 38% of greenfield investment.
At the same time, investment screening activity increased significantly. The number of cases notified through the EU cooperation mechanism rose by 40% year-on-year, from 477 in 2024 to 667 in 2025. The share of notified cases requiring an in-depth security risk assessment by the Commission, known as a ‘Phase 2 assessment’, also increased, rising from 8% to 12%. This increase points to the growing proportion of investments being identified as potentially sensitive.
Manufacturing remains a particular focus, accounting for 27% of all notifications, reflecting the strategic significance of activities within this broad sector, including defence and semiconductors. Information and communication technologies followed as the second most frequently notified sector at 19%, before financial activities at 17%, wholesale and retail at 13%, and professional activities at 8%.
Manufacturing was still more prominent among cases requiring an in-depth assessment, accounting for 53% of all Phase 2 cases, nearly double its share of overall notifications.
The figures show that the continued expansion of national screening regimes is being accompanied by materially higher case volumes under the EU cooperation mechanism. The increase in transactions requiring an in-depth assessment also points to a growing proportion of investments being identified as potentially sensitive. Manufacturing remains a particular focus, reflecting the strategic significance of activities within this broad sector, including defence and semiconductors.
The report also highlights the continued expansion of national investment screening. Croatia, Cyprus and Greece adopted national FDI screening legislation in 2025, while Bulgaria and Ireland brought previously adopted regimes into operation. All EU member states now have an FDI screening framework in place.
The new regulation responds to differences between national screening regimes. The Commission’s latest report identifies continuing divergences concerning the scope of formal screening, procedural timelines, sectorial coverage and notification requirements.
These divergences have practical consequences. Transactions involving businesses or assets in several member states may be subject to different filing thresholds, review periods and substantive tests. Separate national reviews may therefore proceed on different timelines and require different information, even where they concern part of the same wider transaction.
The regulation seeks to address these inconsistencies by establishing a more harmonised baseline for national screening regimes across the EU.
Under the regulation, member states will be required to maintain screening mechanisms and screen investments in a defined set of sensitive areas.
The common minimum scope includes:
The regulation therefore moves the EU framework beyond a system based predominantly on cooperation between national authorities by introducing a minimum substantive scope within which foreign investments must be screened throughout the EU. Member states will, however, remain able to apply their screening regimes more broadly. A transaction-specific assessment of the relevant national regimes will therefore continue to be necessary to determine whether a filing is required.
The new framework also distinguishes between acquisitions and greenfield investments. Greenfield investments fall within the regulation’s broader concept of foreign investment, but the regulation does not require member states to subject them to prior authorisation. Member states remain free to include greenfield projects within their national screening mechanisms.
The regulation also excludes certain categories of transaction from its scope. These include purely financial portfolio investments without an intention to influence the management or control of the target, certain internal reorganisations that do not alter beneficial ownership or confer additional influence, and specified transactions carried out under financial resolution frameworks.
National regimes may nevertheless remain relevant, particularly where national law applies more broadly to internal restructuring.
One of the most significant changes is the treatment of investments made through EU entities controlled by foreign investors.
The existing regulation is directed at investments made directly by foreign investors. The new regulation extends the EU framework to certain intra-EU investments made through an undertaking established in an EU member state which is directly or indirectly controlled by a foreign investor.
The provision targets investment structures where a non-EU investor – a ‘third-country’ investor – seeks to make an investment through an EU-incorporated subsidiary, allowing authorities to look through the intermediary vehicle to the ultimate third-country investor.
An EU-incorporated acquirer will therefore not necessarily place a transaction outside foreign investment scrutiny.
Transaction parties will need to consider the acquirer’s entire ownership and control chain, including indirect control by a third-country investor. The place of incorporation of the immediate purchaser will not, by itself, determine whether the new framework applies.
The reform is also intended to make national procedures more consistent.
For investments that fall within a national screening mechanism and are subject to a filing requirement, the relevant mechanism must provide for an initial review within 45 days of the filing. The purpose of this phase is to determine whether an in-depth investigation is necessary.
This does not mean that every national FDI review will be completed within 45 days. An in-depth investigation may follow, and the regulation does not harmonise the duration of that subsequent investigation, which will remain subject to national law.
The regulation also seeks better coordination where a transaction requires screening in several member states.
Applications in multi-country transactions should endeavour to submit separate national filings on the same day, while the authorities concerned should coordinate their screening procedures and endeavour to align their timing.
The relevant authorities should also discuss their proposed decisions and, where they intend to impose mitigating measures, consider whether those measures are compatible and adequately address the identified risks.
These provisions may help to reduce procedural fragmentation, but they do not turn parallel national proceedings into a single review. Nor do they require the authorities to reach the same conclusion.
In addition, the coordination requirements are framed in terms of best efforts. The relevant authorities are required to “endeavour” to align their timelines and to “discuss” their respective decisions, rather than being required to reach a common position.
The framework also stops short of introducing a mandatory EU-wide filing system. The regulation provides for an EU online portal only if at least nine member states request its establishment and participating member states may subsequently opt out. Unless a member state participates in a future EU portal, filings will continue to be made through the relevant national procedure.
The cooperation mechanism between national authorities and the European Commission will also become more structured.
Where another member state submits justified comments, or the Commission issues an opinion, the member state responsible for the investment must give those views due consideration. It must also provide information on how they have been taken into account including, where applicable, the reasons for disagreeing with them.
The obligation does not give the Commission or another member state a formal veto over the transaction. It does, however, increase the accountability of the member state conducting the review by requiring cross-border concerns to be addressed, even where the reviewing member state ultimately disagrees with them.
The Commission and other member states will also be able to raise concerns about investments that were not notified through the cooperation mechanism, generally no later than 15 months after the investment was completed.
The regulation also strengthens the enforcement framework. Member states must ensure that their screening authorities have the power to impose effective, proportionate and dissuasive sanctions on foreign investors who fail to comply with screening requirements, including where they fail to notify a transaction or breach mitigating measures. Where sanctions are imposed in relation to a transaction that was subject to the cooperation mechanism, the member state concerned must inform the Commission and the member states that submitted comments on that investment.
Despite this stronger coordination, ultimate responsibility for individual screening decisions remains at national level. The revised framework does not create a single centralised EU investment screening authority.
The regulation also introduces a more risk-based approach to deciding which screening transactions should be notified through the EU cooperation mechanism.
Relevant circumstances include whether the foreign investor is directly or indirectly controlled by a third-country government, whether the investor has previously been involved in transactions that were prohibited or made subject to mitigating measures that were significantly or repeatedly not complied with, and whether the target is connected with projects or programmes of EU interest or with other member states.
The identity, ownership and previous conduct of the investor, the nature of the target’s activities and the investment’s potential cross-border implications may all be relevant to the assessment.
Businesses should expect ownership structures and links to third-country governments to receive particular attention. Complete and accurate information on beneficial ownership, governance rights and sources of influence will be important when preparing notifications and responding to information requests.
The regulation will make FDI screening an increasingly important component of transaction planning. Although it introduces a common EU baseline and closer coordination between national authorities, it does not replace national filing regimes or establish a single EU clearance procedure. Businesses should assess potential filing requirements at an early stage, taking into account the investor's ownership and control structure, the target's activities in each relevant member state and the possibility of parallel national reviews.
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