Although the EU does not operate its own FDI screening mechanism, the European Commission (EC) continues to be a driver of FDI screening across the union, encouraging member states to adopt and adapt their regimes, and to move toward coordinated enforcement. The EC also involves itself in Member States' screening via the EU coordination mechanism.

EU FDI Screening Regulation

The current EU FDI Screening Regulation does not mandate that Member States must screen investments domestically. It does, however, encourage Member States to adopt screening regimes. Indeed, it provides a skeleton framework that has been relied on by newer members of the FDI club in the EU, prescribing a list of sectors Member States may want to consider for these purposes, for example. These have been incorporated into newer regimes, including those in Romania and Ireland, the latter of which just came into force in January 2025.

The implementation of the Screening Regulation has also created an impetus for Member States to align themselves better with the regulation. For instance, Germany broadened and clarified the thresholds for mandatory review to align itself more with the Screening Regulation, and Hungary enacted legislation to harmonize its national regime with the Screening Regulation.

The other big impact of the Screening Regulation is the coordination mechanism that it created. Through this, Member States reviewing a foreign investment at the national level will notify certain transactions, thereby alerting all other Member States, and the EC, of the deal.

Other Member States and the EC can then provide comments to the "reviewing" Member State. The reviewing Member State retains the final say under its national FDI screening procedures. However, in practice, Member States will at least try to resolve the issues raised by the EC and other Member States. The cooperation mechanism also means that Member States with the power to call in transactions that do not meet their national notification thresholds—or who have a different view on the reportability of an investment—will receive outline information on transactions that might have otherwise escaped their attention.

National FDI authorities take different approaches regarding the notification of deals under the Screening Regulation. Certain FDI authorities have systematically notified every transaction involving non-EU investors, while others do so under specific circumstances only.

The Screening Regulation also mandates that the EC produce an annual report on its implementation, which provides a useful snapshot of FDI screening trends and developments across the union.

According to the EC's Fourth Annual FDI Report, published on October 17, 2024, the number of cases notified under the cooperation mechanism continues to rise. In 2023, 18 EU Member States notified 488 transactions, an increase of 67 compared to 2022. At the same time, notifications remained highly concentrated, with 85 percent originating from just seven Member States: Austria, Denmark, France, Germany, Italy, Romania and Spain. Notably, some Member States with an FDI screening mechanism did not notify a single transaction to the cooperation mechanism in 2023.

The annual report highlights a growing number of multijurisdictional deals, which accounted for 36 per- cent of all notifications, involving transactions being screened in multiple Member States. The main sectors subject to these notifications were: information and communication technology (ICT) at 23 percent; manufacturing at 21 percent; wholesale and retail at 19 percent; professional activities at 13 percent; and energy at 5 percent. Other sectors, including administrative activities, finance, health and transport, collectively accounted for 20 percent of the multijurisdictional transactions.

In terms of active regimes, the annual report also indicates that more and more transactions are being formally screened, no doubt at least in part as a function of the general move toward stringency. In 2023, as in 2022, 56 percent of all cases required formal review. The good news, however, is that clearance remains the norm, with 85 percent of notifications subject to formal screening cleared without conditions.

View full image: Formal Notifications (2023) (PDF)

At the time of writing, 25 of the 27 EU Member States have a screening regime or are about to introduce one. The regimes differ widely in a number of areas, for instance whether they provide for mandatory or voluntary filings, or ex officio intervention rights of the government.

There are differing approaches to filing requirements, and whether there is a threshold related to the percentage of voting rights or shares acquired, a turnover-based threshold, or another type of trigger. Different Member States take differing views on which industries are viewed as "critical" and may trigger a filing obligation or government intervention, and whether the government has a right to intervene below the thresholds.

Some regimes are suspensory—providing a standstill obligation during the review—and others are not. Some cover only investments by non-EU or EFTA-based investors, and others cover investments by any non-domestic investor. The duration and structure of the proceedings, including whether clearance subject to remedies such as compliance or "hold separate" commitments is possible, also varies.

Some regimes are truly hybrid, and the answer to these questions depends on the target's activities and other factors.

Regimes with and without standstill obligations

There is broad divergence among legislative regimes regarding whether they provide for mandatory filings, voluntary filings, ex officio investigations or a mixture thereof.

The German regime is illustrative. It provides for a mandatory filing requirement based on the target's activities, the size of the stake (voting rights) acquired and the "nationality" of the investor. If these thresholds are not met, the government may still intervene, and investors may hence consider making voluntary filings, under certain circumstances.

For an ex officio investigation, there needs to be a direct or indirect acquisition of at least 25 percent of the voting rights of a German target, an increase of an existing stake above 40, 50 or 75 per- cent, or an acquisition of "atypical control" by a non-EU/EFTA-based investor—otherwise the government does not have jurisdiction to review the transaction. The regime provides for a standstill obligation where filings are mandatory, but not where they are voluntary.

Some regimes also give the parties the possibility to formally consult the authorities as to whether a specific transaction is covered by FDI rules—for example, Czechia, Spain or France.

Coverage of investments by non-EU investors only

The various national regimes also differ in terms of whether they only cover investments by non-EU-based investors or if they cover investments by any non-domestic acquirer. Some regimes are, again, hybrid.

For instance, the German regime scrutinizes investments by any non-domestic acquirer in the defense/crypto-tech sector acquiring at least a 10 percent stake, while in all other sectors, investments by EU or EFTA-based acquirers do not trigger a filing requirement and cannot be reviewed ex officio—although the government takes a very broad view as to whether an investor is non-EU/EFTA-based.

The French regime, for its part, captures acquisitions of control by any non-French investor, but minority acquisitions only if the investor is non-EU/EEA-based (having 25 percent of voting rights for all kinds of entities).

In contrast, the Spanish regime only captures acquisitions by non-EU/EFTA investors if they exceed a 10 percent share or control threshold and the target is active in certain sensitive sectors. However, a filing is required irrespective of the target's activities if the investor meets certain circumstances: being government-controlled; being subject to sanctions or illegal activities; or having already invested in sensitive sectors in another Member State. In addition, EU/EFTA investors are required to make an FDI filing in Spain if the investment in Spain exceeds €500 million in a non-listed company or involves the acquisition of more than 10 percent of a Spain-listed company.

Similarly, the regimes in Czechia or Belgium define a "foreign investor" for filing purposes as one from a non-EU country.

Industries subject to scrutiny

Views across the US, Europe and elsewhere are converging to a consensus that so-called "sensitive" sectors need to be protected from what is being described in the US as "adversarial capital" in a more or less coherent way. This trend is displayed through both the lowering of thresholds that trigger FDI reviews and an expansion of what qualifies as a sensitive sector for purposes of FDI reviews, export controls and international trade compliance. As an example, Germany added 16 case groups to its screening scope in its latest revision in 2021, while France supplemented the list of strategic sectors to include extraction and processing of critical raw materials.

Sensitive sectors are no longer limited to the traditional sectors associated with national security at a macro level (defense, energy or telecoms), but are now expanding to biotechnologies, hi-tech, new critical technologies such as artificial intelligence or 3D printing, and data-driven activities. There is increased scrutiny in the EU of transactions involving access to patients' health data.

Moreover, the COVID-19 pandemic brought FDI into sharper focus and accelerated movement on a national level across Europe. Governments were concerned about foreign investors taking advantage of European companies being in distress and, of course, the crisis led the governments to add the healthcare sector to the list of sensitive industries. In line with the Screening Regulation, FDI screening is also expanding to the area of food security, which has become a priority concern in the EU. Investments in the agri-food sector are subject to review in several Member States such as Estonia, France, Germany, Italy, Latvia, Malta, Poland and Spain.

Finally, 5G technology has become a source of concern for certain Member States that had issued specific rules to ensure FDI screening in relation to 5G networks and equipment. In Italy, the government's "Golden Power" pre­clearance process is mandatory for contracts or agreements with non-EU persons relating to the supply of 5G technology infrastructure, components and services.

France introduced a specific ad hoc authorization process for operating 5G technology in French territory. In Germany, the Federal Network Agency has published a security catalog for telecoms and data processing, highlighting the critical nature of 5G networks, and the federal government has the ability to prohibit the use of certain components due to threats to public order and security even where these have passed the technical certification process.

Despite the converging views as to what sectors are considered critical, the exact definition of critical activities may differ greatly between Member States—for example, whether only the production of the semiconductor value chain is covered, or also the required equipment, input materials or chip design.

Filing thresholds

Some national FDI regimes determine filing requirements or intervention rights based solely on the size of the stake acquired, and cover share deals and asset deals alike; others rely on different or additional factors, such as the target's revenues.

By way of illustrative example, in the healthcare sector, the German regime provides for a filing obligation for an investment by a non-EU/EFTA-based acquirer of at least 10 percent if the target is considered an operator of critical infrastructure (as defined in great detail, for example hospitals handling at least 30,000 inpatient cases per year, or diagnostic and therapeutic laboratories handling 1.5 million orders per year). The threshold increases to at least 20 percent if the target: develops or manufactures personal protective equipment; develops, manufactures or markets essential medicines; develops or manufactures medicinal products for diagnosis, prevention, monitoring, predicting, forecasting, treating or alleviation of life-threatening and highly infectious diseases; or develops or manufactures in vitro diagnostics relating to life-threatening and highly infectious diseases.

Prior approval is required in Austria only if the target company employs ten or more people, and if it has annual turnover or an annual balance equal to or more than an annual revenue of €2 million.

As a general rule, pure passive investments such as limited partnerships do not trigger individual FDI requirements. However, a case-specific analysis is recommended since there could be some exceptions ,and FDI authorities have taken nuanced interpretation in certain jurisdictions.

Interventions outside the formal scope

Even where transactions are out of the formal scope of the FDI regimes, Member States may be prepared to intervene through targeted measures. As an example, the German authorities intervened through a German state-owned company to acquire a minority interest in a biopharmaceutical company whose focus was on developing vaccines for infectious diseases like COVID-19 and drugs to treat cancer and rare diseases, in order to avoid its potential acquisition by any foreign investor.

Similarly, the German federal government decided to prevent a Chinese investor from investing in the power grid operator by arranging for an investment by a German state-owned company, because it did not have jurisdiction to block the deal under the then-pertinent FDI regime. The German government officially confirmed that the acquisition was aimed at protecting critical infrastructure for energy supply in Germany.

Duration of proceedings (including scope for extensions)

The duration of proceedings differs widely between jurisdictions. Generally, the process takes several months, and many feature a two-phase process—an initial review period followed by an in-depth review—and provide for stop-the-clock mechanisms, such as suspension based on information requests, or negotiation of mitigation requirements.

Possible outcomes of proceedings

Blocking decisions on national security grounds remains an exception in most Member States. As noted above, the EC's 2023 annual report indicates that only 1 percent of all decided cases were eventually blocked by national authorities, while for a further 4 percent, the transaction was withdrawn by the parties.

Issuing a formal veto to a potential foreign investor may leave the target business without a new investor, as illustrated by a recent case in France. In October 2023, the French Ministry of the Economy, for the first time, formally vetoed the acquisition of Velan's French subsidiaries, Ségault and Velan, by the American group Flowserve. Ségault and Velan supply components for French nuclear-propelled submarines and nuclear power plants respectively. Following the French veto, Flowserve announced that it had abandoned its plans to take over Velan worldwide.

In November 2023, the Italian government prohibited the sale to the French group Safran of Microtecnica, Collins Aerospace's Italian subsidiary, citing national security concerns over the future of a "strategic" asset.

Clearance with "remedies" (mitigation agreements or clearance subject to formal orders) is becoming customary in an increasing number of Member States. Remedies generally include maintaining sufficient local resources related to the sensitive activities; restrictions on the use of intellectual property rights or on the governance of the target company; mandatory continuation of sensitive contracts to ensure continued services; appointing an authorized security officer within the target company and reporting obligations; strict data protection obligations going beyond the General Data Protection Regulation; and so on. In extreme cases, national authorities may also impose mandatory disposal of sensitive activities to an approved acquirer.

Investors' origin

According to the EC's 2023 annual report, the six main countries of origin of the 488 cases notified to the EC were the US (33 percent), the UK (11 percent), the UAE (7 percent), China (6 percent), Canada (5 percent) and Japan (5 percent). Russia and Belarus together accounted for 1.6 percent of total notifications to the cooperation mechanism, maintaining the same levels as the previous year.

The investor origin continues to be one of the most relevant considerations in making the risk assessment. For example, Germany issued or threatened an increasing number of prohibitions on transactions originating from China and Russia. Prominent recent examples concern the partial prohibition of the proposed investment by Chinese state-owned company Cosco Shipping Group in a container terminal in the Port of Hamburg (while the investment originally was for a 35 percent stake, the German Chancellor only authorized the acquisition of a stake below 25 percent), and the intervention against the proposed sale of MAN Energy Solutions' gas turbine division to Chinese CSIC Lingjiang GH Gas Turbine Co. (a subsidiary of China State Shipbuilding Corporation due to CSSC's involvement in building warships for the Chinese navy).

Proposed reform and monitoring of outbound investments

That divergence in national approaches has led to headaches for multijurisdictional transactions in particular, as assessments and procedures continue to diverge. These transactions often require notification under the coordination mechanism. As noted in its 2023 annual report, the EC acknowledged that this divergence results in increased regulatory complexity for the parties involved. The EC called for more synchronized and coordinated handling of such cases by national screening authorities to alleviate these challenges, echoing a similar concern raised in its 2022 annual report.

This lack of coordination is part of the driver for the EC's proposal for a new FDI screening mechanism, published in January 2024. Among many other updates in the process, the proposal will include mandatory requirements for all Member States to implement a national screening mechanism within 15 months of its coming into force.

Of more relevance are efforts to standardize the timelines for the way that Member States will engage with the cooperation mechanism, as well as a prescribed minimum scope for national screening regimes.

In addition to the above, the EC also published in January 2024 a white paper on outbound investments. There is currently no monitoring of outbound investment flow outside of the EU; however, following open debates with Member States that started in spring 2023, including an expert group that was formed in July 2023, the EC's findings in the white paper were that there are substantial knowledge gaps around the potential risks that could accompany relevant investments—for example in relation to potential misuse of EU technology and know-how in third countries—due to a lack of specific or systematic monitoring of outbound investments at the EU or Member State levels.

The EC acknowledged that this is a complex and sensitive policy area, meaning that a gradual approach is required to gather data and evidence on potential risks and determine any policy response. The EC also underscored that before designing any specific policy measures, the EU would first need to make full use of existing instruments. Proposed next steps on a potential policy change include: a public consultation period throughout 2024; monitoring and review of current transactions throughout most of 2025; and the announcement of any need for a policy response by autumn 2025.

As part of this process, on January 15, 2025, the EC published its "Recommendation on Reviewing Outbound Investments in Technology Areas Critical for the Economic Security of the Union. " The primary objective of the recommendation is to address the lack of systematic data collection on individual outbound investments, as identified in previous efforts.

It urges Member States to collect such data, particularly through the review of outbound investment transactions in sectors such as semiconductor technologies, artificial intelligence and quantum technologies. While the recommendation does not mandate the creation of a new screening mechanism, it encourages Member States to establish a coherent system that would facilitate the voluntary provision of transaction information. Additionally, the recommendation suggests utilizing existing mechanisms, particularly export control regimes, to achieve these objectives.

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