Foreign Investment Screening in the EU: Revised Regulation to Take Effect in 2028

The European Union has adopted a new regulation (Regulation (EU) 2026/1386) on the screening of FDIs into the Union ("New Regulation"). This will replace Regulation (EU) 2019/452 ("2019 Regulation"), which first established a framework for screening cooperation between Member States and the European Commission (see our White Paper of April 2019). The New Regulation, which takes effect on January 17, 2028, creates a mandatory common minimum EU standard while allowing Member States to have stricter national rules.

A key change compared to the 2019 Regulation is that all Member States will be required to establish a national FDI screening mechanism. In practice, however, this will have limited impact, as all 27 Member States already have screening regimes, the last having been introduced in Cyprus in April 2026.

The more significant change is the introduction of a mandatory minimum scope for screening. Member States will be required to preauthorize foreign investments into targets that are active in the following sectors: dual-use items; defense-related products; semiconductor, quantum, and artificial intelligence technologies; critical raw materials; critical infrastructure in transport, energy, and digital sectors; financial services; and electoral infrastructure. Several of these categories remain broadly defined and will likely require further interpretive guidance from the European Commission. Member States may extend this minimum EU scope by including additional sectors.

The mandatory minimum scope does not, however, apply to certain types of investments: (i) those that constitute passive financial investments (portfolio investments) with no intention to influence management or control; (ii) purely internal restructurings that do not introduce a new non-EU entity into the upstream ownership chain; and (iii) greenfield investments. Member States remain free to subject these excluded types of investments to screening under their national regimes, meaning that differences between national regimes are likely to persist.

The New Regulation harmonizes the treatment of indirect investments across Member States by expressly bringing within scope investments made through EU-based acquiring entities which are ultimately owned or controlled by non-EU investors. In most Member States, however, indirect investments are already subject to screening. The reform therefore primarily closes the gap at the EU level, following the 2023 Xella judgment of the Court of Justice of the European Union (see our Commentary of July 2023).

With regard to review, the New Regulation also aligns procedures through a harmonized two-phase structure. National screening mechanisms must complete an initial review within 45 calendar days to determine whether an in-depth second phase of investigation is required. The timelines for the second phase of review remain at the discretion of each Member State, meaning that overall review durations will continue to vary across jurisdictions. Authorities will also have a call-in power: Non-notifiable investments may be called in for review for at least 15 months and up to a maximum of five years after completion, where such investments may affect security or public order. Notifiable investments that were not filed or were filed after their completion may be reviewed for at least 24 months after completion. These extended call-in periods add a layer of deal uncertainty that foreign investors should factor into their risk assessments.

The New Regulation strengthens the cooperation mechanism between Member States and the European Commission that was introduced by the 2019 Regulation. For example, Member States will need to notify the Commission and other Member States of transactions in which the buyer is directly or indirectly controlled by a non-EU state. Such notification will also be required where a Member State initiates an in-depth investigation of a target that is active in a project or program of EU interest or that has subsidiaries in at least one other Member State. In practice, however, increasing cross-border cooperation has already been observable under the existing framework. The New Regulation will intensify this trend.

For M&A transactions, the key practical implication is that FDI screening in the European Union is becoming broader and more coordinated. Although Member States retain final decision-making authority, the revised framework will increase the interconnection of national reviews that are currently in place. Parties should build a meaningful regulatory buffer into transaction timelines, particularly because the second-phase review periods will remain fragmented and because call-in powers introduce uncertainty for below-threshold transactions.

Additionally, it will become even more important for parties to develop a filing strategy that is coordinated across the European Union. Because the New Regulation establishes only minimum standards, national differences in scope, thresholds, and procedures will persist. Concerns about broad jurisdictional triggers are therefore likely to remain. In some respects, they may intensify as more transactions become subject to mandatory filings. Overall, for cross-border transactions involving sensitive sectors, complex ownership structures, or state-linked investors, longer lead times and heightened scrutiny should be anticipated.