The Council of the European Union adopted the new EU Regulation on the screening of foreign investments in the Union (the “EU FDI Screening Regulation”) on 8 June 2026. The European Parliament had already approved the reformed Regulation on 19 May 2026. The Regulation replaces the current FDI Screening Regulation (EU) 2019/452, which has been in force since October 2020. The new Regulation will enter into force twenty days after publication in the Official Journal of the European Union. But the substantive rules will only apply from early 2028, 18 months from the date of entry into force.
In our newsletter of 12 December 2025, we reported on the provisional agreement reached in the trilogue negotiations on the reform of the FDI Screening Regulation. Now that the final Regulation text is available, we provide an overview of the reform’s key content and assess which innovations will be particularly relevant for M&A practice.
Background and overview
The prior FDI Screening Regulation of 2019 established, for the first time, a cooperation framework for the screening of foreign direct investments (“FDI”) at EU level. In practice, however, the European FDI screening landscape exhibited significant gaps: not all Member States had their own screening mechanisms, and there were significant differences in scope, thresholds, and procedures. Heightened geopolitical tensions – particularly Russia’s war of aggression against Ukraine – as well as growing risks in global supply chains and rapid technological developments have made stronger harmonization necessary from the EU’s perspective and that of many Member States. This includes levelling the playing field and increasing planning certainty for transaction parties.
While the prior Regulation merely offered a cooperative framework with only a few binding requirements, the reformed FDI Screening Regulation creates binding minimum harmonization. All EU Member States must in future have FDI screening mechanisms covering a common minimum scope. However, since Croatia and Greece introduced national FDI screening regimes at the end of 2025, followed by Cyprus in early 2026, the Regulation now only requires adjustments to existing national regimes, though to varying degrees.
The scope of the FDI Screening Regulation is also extended – as is already practice in Germany – to intra-Union investments made through EU-based direct or indirect subsidiaries of non-EU investors. Previously, the scope of the existing Screening Regulation (EU) 2019/452, and in particular its cooperation mechanism, was limited to direct investments by non-EU investors, as confirmed by the CJEU in 2023 in its judgment in the Xella case. This “Xella gap” is now closed by the broader definition of “foreign investment” in Article 2 (1).
In addition, the reform substantially strengthens the existing cooperation mechanism between the Member States and the Commission. Although the mechanism has generally been viewed as useful by the EU, certain shortcomings have become apparent in practice.
Key provisions of the reformed EU FDI Screening Regulation
During the legislative process, the original Commission proposal of January 2024 was substantially revised in several respects. The main changes relate to the minimum scope for screening mechanisms and the cooperation mechanism:
- Common minimum scope for mandatory screening
To ensure a minimum level of uniformity across the sectors in which Member States are to impose mandatory investment screening with a prior authorization requirement (Vorabgenehmigungspflicht), the new Regulation contains a predefined minimum catalogue of sensitive sectors. Foreign acquisitions of Member State companies active in these sectors must be subject to investment screening. The “prior authorization requirement” means that such acquisitions may not be completed until clearance by the national screening authority or authorities has been obtained. The Regulation thus requires Member States to adjust their national screening mechanisms in terms of both the covered business activities of Union targets and the legal consequences of a mandatory filing and clearance obligation.
Under the new Regulation, Member States must impose a prior authorization requirement in the following sectors:
Dual-use items and defense goods: Foreign acquisitions of Member State companies that develop, produce, or commercialize certain dual-use and defense items and technologies are to be subject to national investment screening going forward. The new Regulation links directly to the entire EU Dual-Use List (Annex I to Regulation (EU) 2021/821) and the EU Common Military List (the Annex to Directive 2009/43/EC) (Article 4(15)(a) and (b)). Compared to the current regime in Germany, the extension of the filing obligation to all dual-use items rather than only selected list positions represents a significant tightening.
Critical technologies and other sensitive sectors: Member States must also provide for mandatory prior authorization requirements in additional technology sectors, some of which are set out in more detail. In particular, semiconductor and quantum technologies and artificial intelligence – further specified in Annex I to the new Regulation – are covered. Furthermore, investments in certain financial market infrastructure and systemically important financial entities are subject to filing and clearance obligations.
In the area of critical infrastructure, the Regulation specifically refers to the transport, energy, and digital infrastructure sectors. Whether a particular facility falls under “critical infrastructure” remains largely within the Member States’ discretion. In Germany, the Regulation on the Determination of Critical Infrastructures pursuant to the Act on the Federal Office for Information Security (Verordnung zur Bestimmung kritischer Anlagen nach dem BSI-Gesetz, BSI-KritisV) and the Umbrella Act for Critical Infrastructure Protection (Dachgesetz zur Stärkung der physischen Resilienz kritischer Anlagen, KRITIS-Dachgesetz) will therefore remain relevant going forward.
Strategic raw materials: The FDI Screening Regulation now contains a dynamic reference to the strategic raw materials of the Critical Raw Materials Act (Regulation (EU) 2024/1252). Six categories of activity are covered: exploration, extraction, processing, recycling, recovery, and – going beyond the original Commission proposal – stockpiling (Article 4(15)(e)). Article 2 no. 22 defines this as “storing a quantity of a particular raw material for future use, including in anticipation of possible shortages.” This reflects the EU’s intention to require closer investment screening in the geopolitically relevant area of critical raw materials. This is consistent with existing administrative practice in Germany, where the prior variants in Section 55a(1) no. 25 of the Foreign Trade Regulation (Außenwirtschaftsverordnung, “AWV”) – “extracts, processes or refines” – were already interpreted very broadly.
- Procedural matters and the EU cooperation mechanism
The cooperation mechanism has been structurally overhauled and strengthened by the reformed FDI Screening Regulation. Cooperation between national screening authorities and the European Commission has been enhanced.
The cooperation mechanism enables the Member States and the Commission to exchange relevant information on foreign investments, assess their potential effect on security or public order, and identify potential concerns to which due consideration shall be given by the Member State in which the investment is made (Article 1(3)). This mechanism requires all Member States to notify certain foreign investments to the other EU Member States and the Commission (Articles 5 and 6). The obligation to notify through the cooperation mechanism is triggered where (i) a foreign investment is made (ii) in a Union target established in the respective Member State’s territory, which (iii) is active in one of the sectors for which the Regulation imposes a prior authorization requirement (see above) and (iv) at least one of the three prescribed investor-related criteria is met – in particular, where the foreign investor is government-owned or -financed, is subject to EU sanctions, or was involved in a previously prohibited or restricted investment and severely or repeatedly violated such restrictions.
Following notification, other Member States may issue comments and the Commission may issue opinions if they have concerns about adverse effects on their own security or on EU projects – which may extend the national procedure by several weeks (Articles 8 – 11). The screening Member State must give “due consideration” to such submissions and, where appropriate, discuss them in meetings, but ultimately retains sole decision-making authority (Article 12(3)).
The Regulation introduces a tiered deadline system for Member State notifications in the cooperation mechanism (15 or 45 calendar days depending on risk category, Article 6), strengthens the accountability of the screening Member State (obligation to state reasons if comments or opinions are not followed, Article 12(4)(b)), and enables Member States and the Commission to issue comments on non-notified investments for up to 15 months after their completion (Article 13(1), (2) and (13)).
The Regulation also establishes a common secure database (Article 18(6)), into which Member States must upload certain information upon completion of their FDI reviews, and provides for an optional online EU portal for electronic submissions (Article 18(2)).
- Rules for specific investment types
In addition to the explicit provision that indirect acquisitions through European subsidiaries fall within the scope of the Regulation, the reformed FDI Screening Regulation also contains specific rules for internal restructurings and greenfield investments, which had occasionally given rise to legal uncertainty and were handled differently across Member States.
Internal restructurings are generally excluded from the scope of the new FDI Screening Regulation. However, this exclusion only applies where the restructuring does not introduce a new legal entity established in a third country that is not already represented in the upstream ownership chain. A clarification in German law is also expected, as the German provision on internal restructurings in Section 55a(1b) AWV has repeatedly caused difficulties of application due to its narrow wording.
Greenfield investments – defined as investments carried out through the establishment of new facilities or of an company for the performance of an economic activity in the Union (Article 2 no. 2) – fall within the scope of the reformed FDI Screening Regulation but are expressly excluded from the mandatory prior authorization requirement (Article 4(17)). Member States may therefore decide themselves how to treat greenfield investments in their national screening mechanisms.
- Expanded risk factors
The final FDI Screening Regulation significantly expands the catalogue of factors to be taken into account in the risk assessment (Article 19) compared to the original Commission proposal. New factors include the protection of food security, electoral infrastructure, proximity to military installations, the investor’s involvement in serious human rights violations, anti-money laundering deficiencies in the investor’s country of origin, and intelligence-sharing obligations without rule-of-law safeguards. Additionally, opaque ownership structures on the investor’s side are now explicitly listed as a risk factor, although it remains to be seen how this criterion will be assessed in practice and whether complex fund structures, common in the private equity space, could trigger such concerns.
- Mitigation measures and restrictions (remedies)
Where a Member State concludes that a screened investment is likely to negatively affect security or public order, it must adopt a screening decision (Article 20): either authorization subject to mitigating measures or prohibition or ordering the unwinding of the foreign investment. The screening decision must be proportionate and rely on a risk-based analysis.
The principle applies that the host Member State shall only adopt a screening decision prohibiting or ordering the unwinding of a foreign investment where the likely negative effect on security or public order cannot be adequately addressed through other means. Before a prohibition, the Member State must therefore consider whether other measures under EU or national law can address the identified risks. The Regulation introduces a (non-exhaustive) catalogue of possible remedies:
Changes to the proposed governance structure of the Union target
Modifications to the voting rights conferred on the foreign investor
Restrictions on access to sensitive technologies or information
Commitments to ensure continuation of supply/customer relationships
Measures to ensure the continuation of business activities
Requirements to source critical components from secure and reliable suppliers
Implementation of cybersecurity protocols
An obligation to store and process specific data within the Union
Such measures are already common in European FDI practice; nevertheless, their codification in EU law is welcome.
Relevance for M&A practice
- Simultaneous filings for multi-country transactions (Article 7)
In practice, larger transactions often trigger FDI filing obligations in multiple EU Member States, for example where they target the (direct or indirect) acquisition of several subsidiaries in different Member States. While it was already common practice to file the required notifications roughly simultaneously, the new FDI Screening Regulation makes this mandatory: “the person making the filing shall endeavor to do so in all Member States concerned on the same day, and each filing shall make reference to the other filings” (Article 7(a)). Multi-country transactions thus require a coordinated filing strategy.
On the other hand, the envisaged alignment also extends to the screening authorities, which may lead to a more consistent timeline overall. The Member States concerned will be in close alignment and endeavor to align their screening decisions and their timing (Article 7(d)).
- Further factors for transaction planning
Investors should anticipate that greater scrutiny will be applied to regulatory filing and clearance obligations going forward. Larger transactions may need to be filed and cleared in many jurisdictions.
The expansion of the common minimum scope for mandatory investment screening ultimately means a broadening of filing obligations, although in many areas the precise extent of this will remain subject to national implementation and specification and should be closely monitored.
Due to the expansion of the filing obligation with respect to dual-use items (see above), transaction parties should prepare to clarify, in the course of transaction preparation, whether and to what extent the Union target or targets develop, produce, or even merely commercialize such items. This may pose particular challenges for non-exporting companies and for companies that do not manufacture potentially dual-use items themselves but source them from third parties and only distribute them.
Companies that stockpile raw materials in larger quantities should also expect increased regulatory requirements in the transaction context.
Outlook
The entry into force of the FDI Screening Regulation depends on its publication in the Official Journal of the EU, which is expected in summer 2026. It shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
The requirements of the reformed FDI Screening Regulation are expected to be implemented in Germany through a planned new Investment Screening Act (Investitionsprüfgesetz), which is to consolidate and recodify the relevant provisions currently contained in the Foreign Trade Regulation (Außenwirtschaftsverordnung) and the Foreign Trade and Payments Act (Außenwirtschaftsgesetz). This legislative project is expected to be initiated promptly and will, in addition to implementing the increased EU requirements, also address additional regulatory needs that have emerged from German screening practice.
In light of the FDI Screening Regulation, the German legislature will have to expand and specify the categories of notifiable acquisitions. Of particular relevance will be the extension of the filing obligation to companies that manufacture, develop, or commercialize any type of dual-use items. Furthermore, the existing privilege for acquisitions by investors domiciled in EFTA states – which were previously treated on par with EU investors – will cease to apply. The procedural rules applicable to the Federal Ministry for Economic Affairs and Energy (BMWE) will also need to be revised with regard to the cooperation mechanism.
We would be happy to advise you on the implications of the new Regulation for your planned transactions and assist you in developing appropriate filing strategies.
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