within Environment, Wealth Management and Real Estate and Construction topic(s)
The Council and European Parliament have reached a provisional agreement to significantly revise the EU foreign direct investment (FDI) screening framework. The reform will require all member states to maintain screening regimes, set a minimum scope covering the most sensitive sectors and technologies, and reinforce cooperation between national authorities and the European Commission (EC).
Under the revised framework, decision-making power will remain at the national level and substantial differentiation will remain. Nevertheless, investors can expect a more harmonized, structured, digitally enabled process and greater accountability in multi jurisdictional cases.
The new rules are expected to apply 18 months after entry into force.
Why this matters
The upcoming changes aim to strengthen the EU’s security and public order, and to create a more consistent system of cooperation across EU member states.
In theory, this should make cross-border investment planning more predictable, with reduced regulatory fragmentation and greater certainty about which investments will trigger screening obligations. However, final decisions will continue to be taken at member-state level, national differences will remain, and we don’t yet have clarity on important issues such as the treatment of greenfield investments and retroactive reviews.
The upshot: despite some improvements the EU FDI landscape is likely to remain complex. Investors should carry out early risk assessments, develop a multijurisdictional FDI filing strategy, and build sufficient time into transaction timetables.
Key features of the revised framework include:
* Requirement for mandatory screening regimes in every member state.
* A common minimum sectoral scope, prioritizing defence and dual-use items, “hyper critical” technologies, critical raw materials, and certain critical entities.
* Inclusion of intra EU acquisitions by EU subsidiaries of non EU investors in the EU cooperation mechanism.
* Enhanced cooperation and transparency between member states.
* Procedural harmonization, including on review deadlines plus the introduction of digital tools to streamline processes.
Member states remain in control
The agreement confirms that screening decisions remain the exclusive responsibility of the member state in which the investment is made. The institutional balance therefore remains unchanged: member states retain full discretion in deciding whether to authorize, condition or prohibit an investment, and the EC does not gain veto power.
At the same time, the EU cooperation mechanism will be reinforced to improve coordination without undermining national authority.
Screening member states will need to explain how they considered comments from other member states and any EC opinion, including reasons for disagreement where national security sensitivities apply. We anticipate that this enhanced obligation will increase accountability and may encourage further convergence in sensitive cases.
Common minimum scope: a new baseline for all EU member states
Under the revised framework, every member state will be required to operate an FDI screening regime. While important, the practical implications of this will be limited — all member states have now adopted their own mechanism (with just Cyprus’ rules yet to become operational).
Crucially, however, the EU will impose a common minimum sectoral scope across national regimes, ensuring that the most sensitive areas are consistently covered across jurisdictions.
The baseline includes:
* military equipment and dual-use items
* “hyper-critical” technologies such as artificial intelligence (aligned with the EU AI Act), quantum technologies, and semiconductors
* critical raw materials
* entities in energy, transport, and digital infrastructure, identified through risk-based assessments by the member states
* electoral infrastructure, such as voter databases, voting systems, and election management systems
* a limited set of financial market entities, including central counterparties, central securities depositories, operators of regulated markets and payment systems (excluding central banks), and systemically important institutions.
Member states may go beyond this scope but cannot fall below it, preserving flexibility for national priorities while ensuring EU-wide coverage of the most sensitive sectors.
As a result of these changes, various member states will need to amend their national screening regimes to expand and/or specify the scope of application.
For instance, many member states will need to expand their screening mechanism to cover critical raw materials and electoral infrastructure. In addition, while some member states (e.g., Belgium, France and Italy) have a broadly defined scope of application in energy, transport and digital infrastructure, other member states (such as Germany and the Netherlands) will have to reconsider whether the existing scope of application suffices following a risk-based assessment.
Importantly, the press releases indicate that the mandatory scope of application will apply to all investors that are ultimately controlled by inpiduals or entities from non-EU countries. Certain member states currently provide preferential treatment to European Free Trade Association (EFTA) investors (such as Germany) or Organisation for Economic Co-operation and Development (OECD) investors (Poland). The revised framework will therefore introduce new filing obligations for non-EU investors in these jurisdictions. We anticipate that substantial national pergences will remain with respect to the level of non-EU ownership and control that would trigger a filing obligation.
More focused EU cooperation and new digital tools
To reduce administrative burden, the EU cooperation system will use filtering criteria so that only potentially sensitive cases are reviewed. Cooperation on unnotified investments will be strengthened, and the EC may assist in gathering information where cross-border implications arise.
The revised framework will expand the cooperation mechanism to intra-EU acquisitions where the acquirer is an EU subsidiary ultimately owned or controlled by a non-EU investor. While investments by EU subsidiaries of non-EU investors already require screening in most member states, the EU cooperation mechanism only applied to direct foreign investments. The revised screening regime addresses this inconsistency.
Various member states already screen intra-EU investments, including EU-owned and controlled investments. In a number of cases, member states have adopted mitigating measures on, or even prohibited, such investments. The press releases are silent on intra-EU investments by investors that are owned or controlled by EU persons/entities, and it appears unlikely that those investments would fall in the scope of the EU screening framework.
Digitalization is another key feature of the reform. The agreement foresees an optional single electronic filing portal, if requested by at least nine member states, and an EU-level database for national authorities containing information on previously notified cases and screening outcomes. These tools are designed to streamline multi-jurisdictional filings, reduce duplicative requests, and create a more predictable review experience.
National procedures will also be strengthened. The amended framework introduces a two-phase review architecture (in line with many national screening regimes), harmonized deadlines, and the ability to retroactively review unnotified transactions. To improve predictability, member states will be required to publish guidance clarifying the scope and operation of their regimes. Based on the available information, the revised framework does not appear to provide harmonized rules for transactions that take place via the stock exchange.
These measures aim to make reviews more consistent for investors while enhancing authorities’ ability to manage risks related to knowledge leakage and supply chain security.
Timing and transition
The new rules will apply 18 months after entry into force, giving member states time to align existing regimes, and to operationalize cooperation upgrades and digital infrastructure.
During this transition, investors should anticipate that authorities will begin moving toward the new baseline and should plan filing strategies accordingly.
Open issues to watch
Several aspects of the new framework will only become clear once the final legislative text is published, and these details could significantly influence how businesses plan transactions:
Interaction with the EC’s wider economic security agenda
Beyond these technical points, businesses should also consider how the revised EU FDI framework will interact with other elements of the EU’s recently published Economic Security Strategy, as this broader policy context informs substantive risk assessments in sensitive transactions.
While the strategy itself does not rewrite the rulebook, it systematizes existing provisions through a structured risk lens: critical technologies, data access, strategic inputs and infrastructure.
It also sets out the EC’s intention to issue guidance to align screening practice, including on cumulative risk, to pilot monitoring of start ups in sensitive technologies, and to encourage tracking of portfolio positions in high risk sectors outside traditional control thresholds.
More is on the way. Upcoming measures include the evaluation of dual use export controls, trade defense instruments, the Blocking Statute and Public Procurement directives, the continued development of technology industrial initiatives in semiconductors, AI, cloud and quantum technologies, the upcoming guidance and review of the Foreign Subsidies Regulation and ongoing consideration of outbound investment restrictions.
Together with the rise of “European preference” clauses across legislation relevant for emerging technology areas, the combined signal is one of closer coordination and additional screening, with clear implications for transaction feasibility and timing across strategic value chains.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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