EU FDI Screening: New Rules Will Transform Cross-Border Deals
18 December 2025
Authors: Christoph Barth, Tim Castorina, Elisha Kemp
After months of intense trilogue negotiations, the EU has finally hammered out a deal to overhaul its foreign direct investment (FDI) screening rules. The message is clear: the EU is getting serious about protecting strategic assets while preserving openness to global investment. This marks a significant milestone towards a more harmonised EU FDI screening framework – though investors will likely need to wait until late-2027 before the new rules take effect.
What's changing – and why it matters
The push to revamp the EU FDI Screening Regulation kicked off in early 2024, driven by frustration over the patchwork of highly different national screening systems and the inefficient handling of multi-jurisdictional filings at Member State level. Now, with political agreement secured and formal adoption expected in the first or second quarter of 2026, the finish line is in sight.
Definitely
Here's what's happening following the recent agreement reached by Council and Parliament:
Extending the scope to cover investment by EU entities owned by non-EU investors. Investments made by EU entities controlled directly or indirectly by a foreign entity will be subject to FDI screening. This reform responds to the Court of Justice’s judgment in Xella, removing the requirement to show that involved EU companies are an “artificial arrangement” and thereby effectively covering – also at EU level – investments made by companies under foreign control (as is already the case in a range of Member States).
Mandatory FDI legislation and screening - but Member States have the last say in authorisations. All Member States will be required to establish screening mechanisms with a common minimum scope and to carry out investment screening – but ultimate decisions on whether to authorise, condition or prohibit an investment will remain with the Member States. The impact of this requirement is now somewhat less significant considering that during 2025 the last holdouts (Croatia, Cyprus and Greece) introduced local regimes. Member States will also be able to adopt FDI provisions not coordinated by the regulation, provided they are consistent with it – an element that will likely continue to result in considerable heterogeneity of screening regimes within the EU.
Mandatory screening for a broader defined list of sensitive sectors. Expect mandatory screening for dual-use items, military equipment, cutting-edge tech (AI systems under the EU AI Act, quantum tech, semiconductors), medicines, critical raw materials, critical infrastructure (energy, transport, digital), electoral systems, and select financial entities.
Better coordination between Member States. A new shared database will help authorities spot circumvention attempts and share intelligence, plus there's an optional single e-filing portal (if at least nine Member States want it).
Probably
The following changes look likely, though we'll need to see the final text to be certain. These include:
Clearer (and expanded) risk assessment criteria. The Council’s commentary on the recent agreement suggests we'll get formal guidance on what risk factors matter when evaluating foreign investments. This may include requiring consideration of effects on critical entities and infrastructure under EU Directives, and taking into account relevant Union-level coordinated security risk assessments. An interesting question for Member States implementing the EU FDI Regulation will be how they will apply this, especially as the original broad Annex II (which includes a long list of activities) is poised to become an assessment criterion instead of a formal screening trigger.
Mandatory notifications based on past prohibitions. Member States will be required to notify other Member States and the EC if an investor’s deal was previously not authorised or if that investor previously ‘significantly or repeatedly’ failed to comply with remedies following conditional clearance. This information will be taken into account in the screening process for any new investments.
Standardised timelines for straightforward deals. Member States agreed in June this year on a 45-day initial review period. This matches current practice for simple cases and is generally a positive signal for investments that are unlikely to face more detailed scrutiny. (See our earlier blog for more on the Member States proposal.)
Coordination in multi-jurisdictional transactions. In order to help align timing on multi-jurisdictional deals, parties will be asked to ‘endeavour’ to file multi-jurisdictional deals in all Member States on the same day. Member States must then discuss with each other whether an authorisation is required and ‘endeavour’ to align their respective screening procedures in terms of timing and – if appropriate – the substance of their respective decisions. It remains to be seen what (if any) impact this obligation will have on notifying parties from a practical standpoint, but it may result in filing parties needing to group (rather than stagger) notifications across Member States.
Accelerated cooperation timelines. Member States will have 20 calendar days (down from 35) to provide comments, and the EC will have 30 calendar days (down from 45) to issue opinions, speeding up the coordination process.
Clearer mitigating measures. The agreed text provides a detailed list of potential conditions that screening authorities can impose, including governance changes, technology access restrictions, supply or sourcing commitments, cybersecurity protocols, and EU data storage requirements, providing greater predictability for investors.
Unlikely
What's off the table:
Mandatory screening of greenfield investments. Earlier drafts pushed Member States to screen greenfield projects, but the updated Council proposal excluded greenfield foreign investments from the minimum scope. Member States can choose whether to screen these investments, though specific conditions and thresholds will apply to any such screening.
EC power to launch reviews. The EC's proposed 'own initiative" procedure – allowing Brussels to review unnotified deals – was killed by Member States earlier this year. Don't expect a resurrection.
Hard deadlines for complex reviews. The June 2025 iteration of reforms disappointingly omitted any maximum timeframe for in-depth 'phase 2' reviews, leaving deal timelines uncertain for complex transactions. A firm deadline for extended reviews is unlikely to appear in the final version.
EU FDI Reforms: Not a silver bullet
The reforms were first tabled in response to significant divergences between Member State screening mechanisms - a problem that has persisted. For instance, France reported that 54% of its authorisation decisions in 2024 were subject to conditions, compared to an EU average of just 9%. The most recent EU FDI Report also acknowledged ongoing divergence on screening timelines across Europe. While the changes relating to procedural and substantive harmonisation should address some of these divergences - providing greater uniformity on timelines and assessment criteria - the absence of a hard deadline for Phase 2 reviews means that timeline uncertainty for complex cases may continue.
More significantly, the reforms appear unlikely to tackle the growing problem of unnecessary reviews. This issue has worsened as FDI regimes have matured: while foreign direct investment into the EU decreased by 8.4% in 2024, authorisation requests submitted to Member States surged by 73%. The decisive question will be how Member States will transpose the recast Screening Regulation into their national laws and whether, in particular, assessment criteria will remain merely aspects for the substantive assessment or also become filing triggers (as it is currently the case in several Member States, including for example Italy – resulting in considerable unpredictability of its Golden Powers Regime).
The problem is likely to worsen further by the expansion of the minimum sectors which Member State FDI regimes should address (despite Member State pushback) and by the expansion of the EU FDI regime to investments by EU subsidiaries of non-EU companies.
What’s next?
First, the provisional agreement needs formal sign-off from both the Council and Parliament. Then the text will need to be finalised by lawyers, translated, and published in the Official Journal of the EU before it enters into force - a process that usually takes around 2-4 months.
The new rules will start applying 18 months after the entry into force of the regulation, likely in late 2027. This implementation period will give Member States time to establish or update their FDI legislation to comply with the new requirements. We are aware that several Member States are already actively working on major reforms for their screening regimes, so considerable legislative action should be expected during 2026 – this being the key step that will inform investors whether Europe gets the balance right in establishing a robust but also proportionate set of FDI screening regimes.
Investors should use this transition period to assess how the expanded scope and harmonised requirements will affect their investment strategies and deal pipelines, particularly where investments involve EU subsidiaries with non-EU ultimate owners or fall within the newly defined sensitive sectors.