What the European Union's Proposed Industrial Accelerator Act Means for Foreign Investors

The IAA's foreign investment contribution regime is a proposed mandatory pre-clearance regime for FDI in designated strategic sectors. It also covers greenfield investments, which would thus be subject to much more scrutiny than what currently exists under national FDI rules.

Under Chapter IV of the IAA proposal, foreign investors that meet the applicable thresholds must notify their planned investment to the relevant EU Member State before proceeding, and the investment cannot be implemented unless the Member State—or, in certain cases, the EC—explicitly approves it. Approval is conditioned on satisfying certain mandatory requirements; these are binding prerequisites, not voluntary guidelines.

The cumulative effect of ownership caps, forced joint-venture structures, IP-licensing obligations, workforce quotas, and local-sourcing mandates may risk making Europe a materially less attractive destination for FDI than jurisdictions that do not impose equivalent requirements.

The Commission proposed the IAA on March 4, 2026. The Council's compromise text and the Parliament committees' September 8, 2026, report have each reportedly broadened the scope and strengthened the conditions applicable to foreign investment.

Each institutional text appears to have moved in the direction of making the regime more burdensome for foreign investors.

The IAA's Scope Is Broadening in the EU Legislative Process

Article 17 of the IAA defines which investments fall within the IAA's foreign investment contribution regime by reference to certain criteria: geographic origin, meaning which countries' investors are covered; sectoral scope, meaning which manufacturing sectors are designated; and an investment-value threshold. Importantly, investments are covered only when the investments originate from a country commanding 40% of the relevant industry's global manufacturing capacity.

The subsections below examine how each criterion is evolving. Across all three, the trend is expansion, meaning that a growing number of investments and investors could be caught by the regime.

Proposed Narrowing of Free Trade Agreement ("FTA") Exemptions Would Widen Geographic Reach (Article 17(3)). The FTA exemption matters because the original proposal carves out the European Union's existing free trade and economic partnership agreements, an exemption understood to shield investors from major trading partners. Parliament's amendments would narrow this exemption: Subsidiaries of investors established in a country meeting the 40% manufacturing-capacity test would be excluded, even if the subsidiary sits in an FTA jurisdiction. That could bring investors from, for example, the United States, Japan, the United Kingdom, and South Korea within the scope of the regime.

For those investors, structuring through a subsidiary in an FTA jurisdiction would no longer provide a safe harbor. Any qualifying investment would trigger the full notification and pre-clearance process, with the mandatory Article 18 conditions attaching regardless of the subsidiary's location. This would have significant implications for future investments, as companies analyzing a potential deal must account for regulatory filing timelines, Investment Authority review periods that may extend for several months, and the risk of transaction-structuring conditions.

Sectoral Coverage May Expand Significantly Beyond the Initial Four Sectors (Article 17(2)). The EC's proposal initially limits the regime to four designated sectors. But the mechanism for expansion is built into the legislation itself. The initial sectors are batteries, electric vehicles and related charging and fuel-cell technologies, solar PV, and critical raw materials.

Article 24 lets the EC add sectors by delegated act. Under Article 290 TFEU, delegated acts allow the EC to supplement or amend non-essential elements of the legislation without a full legislative procedure, subject only to a European Parliament or Council objection period of two months, extendable by two, making sectoral expansion procedurally straightforward once the basic act is in force. Parliament's amendments would extend that power to every net-zero technology listed in the Net-Zero Industry Act. Parliament's amendments also flag fertilizers, rail rolling stock, advanced robotics, and aerospace for future inclusion. The current sector list may therefore expand over time.

For investors, this creates a moving-target problem: A sector outside the regime today could be brought within scope by delegated act during the life cycle of an investment, subjecting existing operations to conditions not anticipated when capital was committed. Investment committees therefore cannot treat the current sector list as a stable planning assumption.

The IAA's reach is widening on two fronts simultaneously. Not only are more sectors being brought within scope, but Parliament's amendments would also halve the investment threshold from €100 million to €50 million. Together, these developments materially widen the number of transactions and investors caught by the regime. At €50 million, the regime also would capture (modest) mid-sized expansions, bolt-on acquisitions, and capacity upgrades that are routine elements of industrial investment planning. The notification and clearance burden, and the resulting deal uncertainty, would therefore attach to a far wider range of transactions than the EC originally envisaged.

The 40% Manufacturing Capacity Threshold Has Broader Reach than Initially Apparent (Article 17(1)). Article 17(1) of the IAA limits the regime to investors from countries holding more than 40% of global manufacturing capacity in a covered sector. This threshold was widely understood as targeting the People's Republic of China. But in practice, its reach is broader. Several Asian countries and the United States hold significant manufacturing positions in sectors that could become covered (as do some European economies). A country at 25% today could cross 40% during a single investment cycle. The threshold may therefore apply to investors from a broader range of home jurisdictions than initially anticipated.

From a deal-planning perspective, this introduces significant uncertainty. An investor whose home country is below 40% at project approval could find itself within scope if that country's manufacturing capacity grows during the investment cycle; absent a grandfathering mechanism, shifting manufacturing shares could bring the investment within the regime's notification and conditions requirements after the original capital commitment.

Article 18 Conditions: From Four-of-Six to a Cumulative Requirement

Article 18 of the IAA sets out the conditions that qualifying investments must satisfy to receive regulatory clearance. Under the EC's proposal, the Investment Authority must approve the investment if it fulfills at least four of the six listed conditions. But Parliament's amendments would require all six. This would be a qualitative shift: A four-of-six test gives investors some (albeit burdensome) flexibility to structure around conditions that are commercially unworkable; an all-six test means every condition becomes a non-negotiable prerequisite to approval, with no room for maneuver. If Parliament's position is adopted, all six conditions would apply to every qualifying investment.

In practice, that removes the structuring flexibility a four-of-six test would provide; an investor could no longer accept commercially manageable workforce or R&D commitments while avoiding deal breakers such as an ownership cap or forced joint venture. Every condition would apply, requiring the investor to accept the full package or abandon the investment.

• Ownership Cap: Foreign ownership cannot exceed 49%. The investor is permanently relegated to minority-shareholder status, likely losing the ability to make unilateral management, operational, or strategic decisions regarding its own facility.
• Mandatory Joint Venture: The investor must form a joint venture with EU entities and remain capped at 49%. The investor must identify, negotiate with, and depend on an EU partner who holds the controlling interest, introducing counterparty risk, governance complexity, and potential misalignment of commercial incentives.
• IP Licensing: Licensing IP to the EU target requires the investor to license proprietary technology to an entity it does not control—a step most companies regard as a red line, particularly in sectors where IP is the primary source of competitive advantage.
• R&D Spending: At least 1% of the target's annual gross revenue must be spent on R&D in the European Union. R&D allocation is dictated by a regulatory formula rather than commercial logic, potentially diverting resources from higher-return research programs elsewhere.
• EU Workforce Quota: At least 50% of employees must be EU workers; Parliament proposes 60%. This constrains the investor's ability to deploy its own technical specialists, rotate international staff, and manage workforce composition based on operational needs.
• Local Content Sourcing: At least 30% of inputs must be EU-sourced; Parliament proposes 50% subject to reciprocity. The investor must restructure its supply chain to meet EU-sourcing minimums, even where non-EU suppliers offer superior quality, reliability, or cost.