EU adopts new foreign investment screening regulation

Background

The current regulation was adopted in 2019 and marked a landmark step by establishing, for the first time, an EU framework for the screening of foreign investments. While it introduced a mechanism for information sharing and cooperation between Member States and the European Commission, it did not require Member States to establish national screening mechanisms or introduce a common minimum scope for mandatory screening. As a result, although most Member States have since adopted national screening mechanisms, significant differences remain in terms of scope, review processes and enforcement. 

To address these shortcomings, combined with the increasing geopolitical concerns, the European Commission proposed a revised regulation in January 2024. Following months of negotiations between the European Parliament and the Council, a new foreign investment screening regulation (the "Regulation") was finally adopted in June 2026. The Regulation will apply from January 2028.

Key elements of the Regulation

The Regulation introduces a more detailed and coordinated framework for the screening of foreign investments in the EU, while preserving national discretion. The key elements and their practical impact are outlined below.

Mandatory screening mechanism in all Member States

The Regulation requires all Member States to establish a mandatory screening mechanism. Since most Member States have already adopted such mechanisms, the practical impact of this requirement will be to ensure that their existing regimes comply with the minimum requirements in the Regulation.

Common minimum sectoral scope for mandatory screening 

One of the most significant changes introduced in the Regulation is the establishment of a common minimum sectoral scope for mandatory screening. Accordingly, all Member States are required to screen foreign investments in target companies active in the following sensitive sectors:

• Dual-use and military: Development, production and commercialisation of dual-use items listed in Annex 1 to the EU Dual Use Regulation and military items on the EU Common Military List. 
• Critical technologies: Production, research and development of semiconductors, quantum technologies, and certain artificial intelligence technologies listed in the Regulation.
• Critical infrastructure: Activities in the transport, energy or digital infrastructure sectors that are identified as critical on the basis of a risk-based assessment taking into account national security interests and vital societal functions.
• Critical raw materials: Activities relating to exploration, extraction, processing, recycling, recovery and stockpiling of critical raw materials listed in Section I of Annex I to the Critical Raw Materials Act.
• Electoral infrastructure: Ownership, development or operation of voter registration databases, voting systems and other relevant information systems specifically designed to manage electoral operations, including the counting, auditing and displaying of election results and post-election reporting to certify and validate results.
• Certain financial market infrastructure entities: Central counterparties, central securities depositories, operators of regulated markets, operators of payment systems (excluding central banks), other systemically important institutions, and global providers of specialised financial messaging services.

The common minimum sectoral scope is intended to increase consistency and legal certainty for investors by ensuring that investments in these sectors are subject to mandatory screening in all Member States. However, as the Regulation establishes only a minimum sectoral scope, Member States remain free to extend their mandatory screening mechanisms to additional sectors. The practical effect is therefore likely to be greater convergence at the core of national screening regimes, while investors may still need to assess filing requirements on a jurisdiction-by-jurisdiction basis. 

Expanded scope of investments subject to screening

The Regulation expands the scope of investments that may be subject to screening in several respects, thereby capturing a broader range of investments. 

First, it expands the scope of investments that may be subject to screening to include indirect investments, i.e., investments made through EU-based entities that are ultimately owned or controlled by non-EU investors. This addresses a limitation in the current regulation, which does not cover such investments, as confirmed by the European Court of Justice in the Xella judgment.

Second, it expands the scope of investments that may be subject to screening by clarifying the concept of "effective participation in the management or control" of a target. It makes clear that the concept extends beyond acquisitions conferring formal control and also encompasses transactions that enable a foreign investor to materially influence the target's commercial policy or decision-making, even where no change of control occurs. 

Third, it expands the scope of investments that may be subject to screening to include greenfield investments, i.e., the establishment of a new undertaking with a view to carrying out an economic activity in a Member State. However, Member States are not required to subject greenfield investments to mandatory screening, but the Regulation leaves it to the Member States to determine whether such investments should be subject to screening. 

Conversely, the Regulation excludes certain internal restructurings from its scope, provided that (i) there is no change in the beneficial ownership of the target, (ii) no new non-EU entity is introduced into the upstream ownership or control chain of the target, and (iii) no additional participation or control rights are acquired in an existing foreign entity within the control chain.

Overall, these amendments reflect the objective of ensuring that potentially sensitive investments do not fall outside the screening framework because of the way a transaction is structured. In practice, investors will increasingly need to assess not only whether an investment results in control, but also whether the transaction structure, ownership chain or level of influence may bring the investment within the scope of a national screening mechanism.

More harmonised review process 

The Regulation introduces a more harmonised review process for foreign investment screening across the EU. Member States are required to structure their review process in two phases consisting of an initial review (phase 1) and, where relevant, an in-depth investigation (phase 2). 

The initial review must not exceed 45 calendar days from the date on which the filing is considered complete. By contrast, the Regulation does not prescribe a deadline for in-depth investigations, leaving Member States to determine the applicable timeframe under their national regimes with the result that differences in review timelines may continue to exist across Member States. 

The Regulation also seeks to align the review timelines in multi-jurisdictional transactions by encouraging parallel filings and closer alignment of national review processes. Investors are encouraged to submit notifications in all relevant Member States at the same time, while national screening authorities are expected to coordinate both the timing and substance of their reviews. 

While the two-phase structure and enhanced coordination are intended to increase consistency and predictability in the screening process, the practical impact is likely to vary. The absence of harmonised deadlines for in-depth investigations means that, where such investigations are required, transaction timetables will depend on national rules. Accordingly, transaction planning will continue to require careful coordination across the relevant jurisdictions.

Enhanced cooperation and stronger role for the European Commission

The Regulation significantly expands the cooperation between Member States and the European Commission by increasing the number of transactions that must be notified through the cooperation mechanism. 

Notification will, in particular, be required for investments where the investor is directly or indirectly controlled by a third-country government, is subject to EU sanctions, or has previously been involved in investments that were prohibited or authorised subject to mitigating measures that were repeatedly not complied with. Notification will also be required where an in-depth investigation is initiated in relation to a target participating in a project or programme of Union interest, or where the target has subsidiaries in other Member States or forms part of a group with subsidiaries in other Member States.

The Regulation also strengthens the role of the European Commission. While the European Commission will not have decision-making powers, it may issue opinions on its own initiative, including in relation to transactions that have not been notified, propose mitigating measures, and intervene in cases involving multiple Member States or projects and programmes of Union interest. Member States remain responsible for the final decision but must give due consideration to comments and opinions issued under the cooperation mechanism and explain any divergence from the concerns raised by the European Commission.

Although the final screening decision remains with the reviewing Member State, the enhanced cooperation mechanism is likely to result in greater involvement of the European Commission and other Member States throughout the review process. In practice, transactions with cross-border implications are increasingly likely to be assessed with input from authorities beyond the reviewing Member State.

Harmonised criteria for substantive review 

The Regulation does not alter the substantive assessment standard, which remains whether the foreign investment is likely to negatively affect national security or public order. It does, however, introduce a more detailed, non-exhaustive list of factors that national screening authorities must consider.

In relation to the target, these factors include whether its activities affect areas of strategic importance, such as critical technologies, critical infrastructure, critical inputs, sensitive information, media pluralism, electoral processes, public health, food security, military facilities, or other sensitive public facilities.

In relation to the investor, the factors include the investor's ownership and control structure, including whether it appears opaque, whether the investor is directly or indirectly linked to a third-country government, and whether the investor has previously been engaged in illegal or criminal activities, has been subject to EU restrictive measures (sanctions), or has otherwise been involved in activities negatively affecting security or public order in a Member State.

While the more detailed criteria are intended to promote a more consistent substantive assessment across the EU by ensuring that national screening authorities consider broadly the same factors, they also leave national screening authorities with discretion in weighing the relevant factors. Differences in substantive outcomes may therefore persist despite the harmonised framework.

Call-in powers for the national screening authorities 

The Regulation requires Member States to empower their national screening authorities to call in investments falling within the mandatory screening mechanism that have not been notified. The timeframe for exercising such call-in powers is to be determined by each Member State but must be at least 24 months from completion of the investment.

The Regulation further requires Member States to empower their national screening authorities to call in investments falling outside the mandatory screening mechanism where national security or public order concerns may arise. The timeframe for exercising such call-in powers is likewise to be determined by each Member State but must fall between 15 months and five years from completion of the investment.

As the Regulation does not require Member States to establish a voluntary notification procedure for investments falling outside the mandatory screening mechanism, investors may not always be able to eliminate the risk of a subsequent review and with it the associated regulatory uncertainty. Transaction parties should therefore consider not only whether a filing obligation exists, but also whether there is a risk that the transaction could be called in after completion.

Implications for the Danish FDI regime

The Danish Investment Screening Act already includes many of the elements introduced with the Regulation, including a mandatory screening mechanism covering particularly sensitive sectors, indirect investments and investments granting the investor influence on the target, call-in powers for the Danish Business Authority in respect of both investments that have not been notified despite falling within the mandatory screening regime and investments falling outside the mandatory screening regime, and a two-phased review process with an initial phase 1 of 45 calendar days from receipt of a complete filing.

However, certain adjustments will be required to ensure compliance with the Regulation. In particular, the list of particularly sensitive sectors will need to be reviewed and potentially expanded, including in relation to dual-use and military items, critical technologies and critical raw materials. The factors to be taken into account when assessing foreign investments will also need to reflect the Regulation's more detailed criteria for assessing whether a foreign investment may negatively affect national security or public order.

The Regulation is also likely to have implications for the Danish Business Authority's review of notifications, as a broader range of transactions will be subject to the EU cooperation mechanism. This will result in increased information exchange and coordination between the Danish Business Authority, the European Commission and other Member States. Transactions involving Danish targets are therefore more likely to form part of a broader European coordination process than under the current regime. 

Plesner comments

The Regulation marks a significant step towards a more harmonised framework for foreign investment screening across the EU. The introduction of a common minimum scope for mandatory screening, more harmonised procedural requirements and enhanced cooperation between Member States and the European Commission will contribute to greater consistency and transparency in the screening process across the EU.

For Denmark, the practical impact is expected to be focused on targeted adjustments rather than a fundamental overhaul, as the Danish Investment Screening Act already incorporates many of the elements introduced by the Regulation. That said, Danish screenings will become more closely integrated with the EU cooperation mechanism, increasing the potential involvement of the European Commission and other Member States in Danish FDI cases.

At the same time, the Regulation stops short of establishing a uniform EU screening regime. Member States retain discretion in implementing and applying their national screening mechanisms, including by extending screening beyond the common minimum scope. Investors will therefore continue to navigate diverse national screening regimes and should assess foreign investment screening requirements at an early stage of any transaction, taking into account that filing obligations and review processes may continue to differ across Member States.

Want to know more?

If you have any questions about the Regulation or its implications, please contact Plesner's FDI team.

Read Regulation (EU) 2026/1386 of the European Parliament and of the Council