The EU has reached the next stage in the evolution of foreign direct investment (FDI) screening. Following the adoption of Regulation (EU) 2026/1386 of 17 June 2026 on the screening of foreign investments in the Union (the New FDI Regulation), the EU is moving towards a more aligned and comprehensive screening framework while preserving Member States’ ultimate responsibility for investment screening decisions. 

The New FDI Regulation does not fundamentally change the architecture of EU FDI screening. Instead, it introduces a common baseline across the EU by imposing mandatory minimum requirements that Member States will have 18 months to implement in their national regimes.

Key changes

These include:  

• Mandatory FDI screening across the EU, with all Member States required to operate a screening mechanism meeting minimum EU standards.
• A common minimum sectoral scope, bringing greater consistency to the screening of investments in strategically sensitive sectors across the EU.
• Greater procedural alignment, including a harmonised Phase I review period of up to 45 calendar days, mandatory availability of an in-depth investigation phase, standstill obligations and expanded call-in powers.
• Expanded scope, with investments made through EU-incorporated entities ultimately controlled by non-EU parents now expressly brought within the framework.

What does this mean for investors? More transactions are likely to fall within scope, FDI assessments will need to begin earlier, and regulatory approvals are set to play an even greater role in transaction planning and execution. 

Mandatory screening and a common minimum sectoral scope 

Under the New FDI Regulation, all 27 Member States will be required to maintain an FDI screening mechanism. In practice, the impact of this requirement is likely to be limited, as all Member States have already established, or are in the process of establishing, national screening systems.

More significantly, the Regulation introduces for the first time a mandatory minimum sectoral scope. Member States must require prior authorisation for investments in specified strategic sectors and technologies, including dual-use and military items; critical technologies such as AI, quantum technologies and semiconductors; strategic raw materials; critical entities and infrastructure in the energy, transport and digital sectors; certain financial market infrastructure; and electoral infrastructure, such as voter registration databases and voting systems. 

This common baseline is intended to reduce divergences between national regimes and ensure that key strategic sectors are subject to screening throughout the EU.

Greater alignment of procedures and expanded call-in powers

The New FDI Regulation introduces a harmonised Phase I review period of up to 45 calendar days, with most transactions expected to be resolved within that timeframe. Member States must also provide for an in-depth Phase II investigation and impose standstill obligations preventing completion before clearance.

To facilitate further convergence, the European Commission (the EC) is expected to publish a standard notification form by January 2028.

The New FDI Regulation also expands post-closing review powers. Member States must be able to call in investments that were not subject to mandatory notification but may raise security or public order concerns. Such powers may generally be exercised within 15 months of completion, subject to a maximum review period of five years. The Regulation also requires Member States to maintain powers to review transactions that should have been notified but were not, for at least 24 months following completion.

Against this backdrop, assessing potential filing requirements at an early stage of the transaction will be critical.

Intra-EU transactions involving non-EU ultimate ownership

A particularly significant change is the extension of the framework to investments made through EU-based entities that are ultimately controlled by an individual or entity from a non-EU country. 

This change addresses a gap highlighted in the European Court of Justice's case law and reflects an increased focus on the identity of the ultimate investor rather than solely the immediate acquisition vehicle. As a result, transactions involving EU holding companies or intermediate acquisition vehicles may trigger filing obligations in circumstances where no filing would previously have been required.

Enhanced co-operation 

The New FDI Regulation further strengthens co-operation between the EC and Member States. National authorities will be required to explain how they have taken into account comments from other Member States and opinions issued by the EC and, where relevant, to explain any departure from those views.

The EC will also be able to support national authorities in gathering information during reviews. In addition, an EU-wide database is expected to become operational by July 2027, allowing authorities to exchange information on notified investments and screening outcomes. 

In a nutshell

The New FDI Regulation has been described as an evolution rather than a revolution. Instead of overhauling the existing framework, it builds on it by introducing a common minimum sectoral scope, greater procedural alignment and enhanced co-operation between authorities. While screening decisions remain national, the overall system is set to become more consistent and predictable.

The EU may have upgraded the rulebook, but investors will need to adapt their playbook accordingly.