Foreign Investment Screening: the European Union takes a step forward

On 8 June 2026, the Council of the European Union (EU) adopted a revised regulation on the screening of foreign investments in the EU, repealing the 2019 EU Regulation that had established a framework for foreign direct investments screening. 

The new regulation, expected to apply from early 2028, should improve transaction certainty and predictability for investors, through enhanced harmonization and coordination across the EU.

The previous regulation, in force since October 2020, aimed to “establish a framework” and covered only “direct” investments in Europe. It did not create an EU-level screening mechanism or require Member States to establish one. It merely set minimum standards for national mechanisms where they existed and set up a cooperation framework enabling Member States and the Commission to exchange information and raise concerns regarding specific transactions.

That objective seems to be achieved: all Member States now operate a screening mechanism. However, significant differences remain among them regarding scope, thresholds, timelines and procedures (including with respect to the timing of authorization relative to the completion of the transaction). This has created uncertainty and compliance costs for investors pursuing multi-jurisdictional transactions and encouraged regulatory arbitrage within the EU, certain foreign investors selecting countries with more favorable regulations as a gateway to the European market.

Thus, the EU decided to go a step further: while preserving the exclusive responsibility of Member States for national security, the new regulation makes screening mechanisms mandatory, sets forth common rules on key principles and expands the screening to certain indirect investments. 

Here are the key changes introduced by the new regulation: 

• Mandatory screening in all Member States: all Member States must establish and maintain a national screening mechanism for foreign investments.

• Extension of the scope to investments made through EU-based subsidiaries: the new regulation applies not only to foreign investments carried out directly by a foreign investor, but also to those made through a foreign investor’s subsidiary established in the Union.

• Sensitive sectors: Member States shall ensure that investments in EU businesses active in the following sectors are subject to prior authorization: 
  • dual-use items (i.e. items that can be used for both civil and military purposes);
  • defense-related products and technologies; 
  • semiconductor, quantum or artificial intelligence technologies; 
  • transport, energy or digital infrastructure sectors to the extent that they are considered critical pursuant to a risk-based assessment; 
  • exploration, extraction, processing, recycling, recovery and stockpiling of critical raw materials; 
  • financial market infrastructure and systemically important financial entities; and
  • electoral operations management. 

• Harmonization of timeline: Member States shall complete an initial review of a foreign investment within 45 calendar days of the filing to decide whether an in-depth investigation is required. The duration of any subsequent review phase remains subject to national rules. 

• Strengthened EU-level cooperation and coordination: 
  • introduction of mandatory notification of certain foreign investments to the other Member States and the European Commission; 
  • where a foreign investment is subject to filing in more than one Member State, the notifying party shall file in all relevant Member States on the same day, and the said Member States shall coordinate through the process, and in particular endeavor to align the timing of their respective screening decisions.