EU revises Foreign Direct Investment Screening Regulation

On 8 May 2025, the European Parliament adopted its first reading position concerning the revision of the Foreign Direct Investment (FDI) Screening Regulation. With the proposed regulation, the EU legislator aims at preventing foreign investors from gaining a dominant position in key strategic sectors, and at the same time preserve the attractiveness of the EU from an investment point of view. The scope of FDI Screening Regulation covers only direct investments; however, the proposed regulation would apply to indirect investments as well (i.e. where the investor is established under EU law or for other reasons considered as a non-foreign investor but its ultimate beneficial owner is a foreign person/entity).

With the FDI Screening Regulation, the EU legislator let Member States decide whether they create a screening regime or not. Every Member State would be obliged to create and maintain such a system where the rules shall be transparent and non-discriminatory and where the data processed by Screening Authorities shall be kept confidential. The national screening regimes should meet the minimum criteria.

Screening is mandatory in case of investments relating to projects or programmes of EU interest listed in Annex I of the proposed regulation (e.g. the Space Program, the Horizon Europe and other programmes linked to common transport, defence, telecommunications, etc.) The same applies to investments in sensitive economic sectors that are listed in Annex II (e.g. advanced semiconductors, AI, quantum technologies and biotechnologies). However, Member States will have the power to subject other sectors to the national mandatory screening regime on the basis of their national security needs. The Commission can subject further economic sectors to the proposed regulation at the EU level.

Investments screened will have to fulfil filing obligations, but the completion of filing could happen only after a one or two-phase screening procedure. Member States shall designate a Screening Authority, which can, in case of non-compliance with a foreign investment, impose mitigating measures including prohibition of the investment. However, before any mitigating measure is imposed, the applicants must always be granted the right to a hearing. Foreign investors have the right to judicial review of decisions of the Screening Authorities. Another novelty is that Member States would have a reporting and publishing obligation annually about the FDI screening-related legislative developments and the investments screened (after anonymisation of data).

The European Commission would maintain a Cooperation Mechanism as a platform for Member States and the Commission for exchange of information about FDIs and the procedures conducted in the Member States. Following informal negotiations between the European Parliament, the Council and the Commission, the legislative institutions are expected to reach a provisional agreement, after which the law could finally be adopted. The proposed FDI Screening Regulation is likely to be applicable by 2026.