The new EU FDI Screening Regulation: (un)welcome changes for dealmakers

Regulation (EU) 2026/1386 on the screening of foreign investments (the Regulation) enters into force on 16 July 2026 and applies effectively from 17 January 2028, when it replaces the current foreign direct investment (FDI) harmonisation framework. 

The intervening 18-month period is intended to allow Member States to bring their national screening regimes into line with the new requirements. 

For dealmakers, the reform brings some welcome procedural developments, including a capped initial review period of 45 days, a carve-out from mandatory screening for internal restructurings and greenfield investments, and a potentially more standardised and centralised notification mechanism. On substance, the Regulation introduces a more harmonised set of risk assessment criteria and confirms that prohibition and unwinding should operate as measures of last resort.

But the new regime also brings changes that may increase the regulatory burden: it leaves no room for the lighter treatment some Member States have so far afforded to US and other allied non-EU investors; foreign controllers of EU entities will be subject to greater scrutiny; it mandates post-closing call-in powers of up to five years; and it requires parties to multi-jurisdictional transactions to endeavour to file in all relevant Member States on the same day.

Below, we set out the key features of the Regulation - first those that will likely facilitate deal planning, then those that may add uncertainty and risk¹.

Main features facilitating deal planning 

• Common initial review period of 45 calendar days: this may be followed by an in-depth investigation where necessary (the length of which is not prescribed by the Regulation).
   
• Exclusion of internal restructurings: such transactions will fall outside the scope of the Regulation where the beneficial owner of the EU target remains unchanged – unless a new third-country entity is inserted into the ownership chain.
   
• Exclusion of greenfield investments: the mandatory prior authorisation requirement will not apply to foreign investments effected through the establishing of new entities or facilities.
   
• Standard EU-wide form - and potentially a single EU filing portal: the Regulation requires the Commission to establish a standard form for information submitted through the co-operation mechanism². Whilst this does not require Member States to use the same form for national filings, it could see them gradually converge towards the EU template. An online EU portal may also be established at the request of at least nine Member States, for electronic filing of foreign investments and communications with screening authorities.
   
• Standard risk assessment checklist: the Regulation introduces a more harmonised set of assessment criteria for Member States and the Commission when considering whether an investment may negatively affect security or public order. This covers, among other things: projects and programmes of Union interest; critical technologies and intellectual property; critical entities and infrastructure; continuity of supply of critical inputs; sensitive information and personal data; media freedom and pluralism; electoral processes; public health and critical medicines; food security and large farmland; and military or other sensitive public facilities in close proximity to the target. It also requires authorities to consider investor-related factors, including links to third-country Governments, sanctions exposure, prior problematic screening history, conduct negatively affecting security or public order, and illegal activities.
   
• Remedies before prohibition: if investment is considered likely to negatively affect security or public order, the host Member State must either impose mitigating measures or prohibit/unwind it. However, prohibition or unwinding is available only where the likely negative effect cannot be adequately addressed through other EU or national law measures. 

Main features that may increase regulatory risk and burden

• Post-closing call-ins: the Regulation requires Member States to establish call-in powers for completed transactions. For investments within the relevant screening regime but not subject to prior authorisation, national authorities must be able to call in the transaction on their own initiative where there are grounds to believe that it may affect security or public order, for at least 15 months and up to five years after closing. Where a transaction was subject to prior authorisation but the filing obligation was not complied with, authorities must be able to call it in for at least two years after closing (no upper limit is specified).
   
• Same-day filing pressure: the new Regulation encourages parties to file in all relevant Member States on the same day and to cross refer between related filings in different Member States. Although this will help authorities co-ordinate their reviews, it may also increase pressure on dealmakers to complete their analysis and prepare filings across several jurisdictions at the same time.
   
• Minimum mandatory sectoral scope: all Member States are now required to establish FDI screening regimes in line with the Regulation, with a common minimum scope of sensitive sectors in which foreign investments will be subject to prior authorisation requirements. These cover key industries and technologies, including dual-use items, defence technologies, semiconductors, quantum technologies, certain AI technologies, critical infrastructure, strategic raw materials, financial market infrastructure and, electoral infrastructure. While this common sectoral scope will give dealmakers a clearer framework for assessing filing requirements, it may also increase the regulatory burden by bringing more transactions within mandatory screening. It should also be noted that the minimum scope is a floor, not a ceiling: Member States may maintain broader national screening regimes and cover additional sectors if they wish. The new Regulation therefore does not eliminate national variation between Member States.
   
• Beneficial ownership scrutiny: once a transaction falls within the EU FDI framework, the analysis does not stop at the relevant foreign investor. The new Regulation introduces the concept of the “beneficial owner”, allowing authorities to identify the person (or, where no natural person can be identified, the entity) that ultimately owns, controls, benefits from, or stands behind an inbound investment. This will be particularly important for the substantive risk assessment, which requires authorities to consider risk factors linked to the beneficial owner, including links to third-country policy objectives or military capabilities, involvement in human rights violations, previous blocked or conditioned investments, activities negatively affecting security or public order, and illegal activities, including circumvention of EU sanctions.
   
• No safe countries: the Regulation requires screening rules not to discriminate between third-country investors on the basis of their country of origin. As a result, national regimes that currently treat certain non-EU investors more favourably may need to change (Poland is a useful example: its current regime generally exempts investors from OECD countries from the standard screening procedure). 

Other features worth noting

• Database of national screenings: after completing a national screening procedure, Member States must upload information on the investor, the target and the screening decision, into a secure database to be established by July 2027. The Commission must also upload information already available to it from notifications submitted since 12 October 2020 under the 2019 FDI Regulation. This should help authorities identify repeat investors, previous prohibitions and possible breaches of mitigation measures. Over time, this shared information base may make screening more consistent and less fragmented across the EU, while also increasing scrutiny of high-risk investors.
   
• A guaranteed right to judicial review: Member States will be required to ensure that parties subject to a screening decision have access to an effective judicial remedy. This may require changes in jurisdictions such as Sweden, where substantive screening decisions are currently appealed to the Government rather than the courts.
   
• Xella gap addressed: the new Regulation also responds to the uncertainty highlighted by the 2023 Xella judgment. An indirect acquisition by a foreign purchaser can appear to be an intra-EU transaction – and thereby fall outside of FDI regimes – simply because the direct purchaser is incorporated in a Member State. The new Regulation explicitly closes that gap by changing the scope of the concept of “foreign investment” – capturing scenarios in which a non-EU investor makes an investment through a (direct or indirect) EU subsidiary.
   
• Streamlined co-operation procedure: unlike under the current system, not every screened investment will need to be notified to the Commission and other Member States by the reviewing authority. Instead, the new Regulation sets out certain notification triggers, including the presence of certain risk factors, the launch of an in-depth investigation, and where the referring authority believes another Member State’s security or public order may be affected by the transaction.

Conclusion 

The new regime establishes a more harmonised framework and more predictable procedural rules across the EU Member States, while preserving the ability of Member States to maintain or introduce screening rules that go beyond the EU baseline. For dealmakers, this should ultimately facilitate transaction planning and execution, although it is also likely to result in more mandatory filings and increased scrutiny in relevant cases.

It remains to be seen whether other jurisdictions will in due course adopt some of the procedural features of the new EU Regulation. In this regard, it should be noted that the UK National Security and Investment Act regime already benefits from some of them, including fixed review timelines and jurisdictional tests that are country-agnostic. Forthcoming refinements (on which see our previous article) will also introduce an exemption for internal reorganisations.