In brief
On 8 May 2025, the European Parliament adopted an amended proposal to revise the EU Foreign Direct Investment Regulation (Regulation (EU) 2019/452) (the “FDI Regulation“)(the “Proposal“), amending the proposal originally published by the EU Commission and significantly deviating from it in certain important areas. In contrast to the EU Commission’s legislative proposal of January 2024 (see our blogpost here), the Proposal differs in proposing direct investigation and decision rights of the EU Commission and clarifying which business activities will require mandatory filing and clearance under EU Member State FDI screening regimes, including for greenfield investments in those sectors. Since then, the Council of the EU has further supported the Proposal with subsequent amendments.
The original proposal published by the EU Commission in January 2024 had already suggested the introduction of an obligation for EU Member States to implement domestic FDI screening regimes and a mandatory filing and clearance obligation to be introduced for specific sectors of target activity. The EU Commission’s proposal had – following the ECJ’s judgment in the Xella case (C‑106/22) – already suggested to clarify that the FDI Regulation would also be applicable to indirect investments.
The FDI Regulation revisions will bring into force significant changes to the foreign investment screening landscape across all Member States. It will be essential for investors to seek regulatory advice early in the planning stages of a transaction involving one or more EU Member States in order to formulate a robust FDI regulatory strategy.
We set out below:
- a summary of the key proposed revisions to the FDI Regulation;
- further details on the EU Commission’s original proposal of 2024;
- a detailed description of the EU Parliament’s amendments as set out in the Proposal of May 2025;
- an outline of the Council of the EU’s additional amendments to the Proposal as of June 2025; and
- an outlook towards next steps and key implications for business investors in the EU.
- Key proposed revisions to the FDI Regulation
The revisions aim to both harmonise foreign investment screening regimes across EU Member States and expand their scope.
The key revisions proposed are:
- to make the requirement for national foreign investment screening mechanisms mandatory across all Member States;
- to expand the scope of the FDI Regulation such that it explicitly applies to the screening of indirect investments under EU Member State FDI screening regimes;
- to harmonise the range of critical sectors requiring mandatory filing and clearance under EU Member State FDI screening regimes such that all regimes require the review of a minimum set of sectors; and
- to improve the cooperation mechanism procedure to allow for better coordination of screening transactions among EU Member States.
- The European Commission’s 2024 proposal to amend the FDI Regulation
The Commission’s proposal, published in January 2024, sought to address perceived shortcomings and fragmentation in the EU’s foreign investment screening landscape as follows.
1. Mandatory screening of foreign investments
While the FDI Regulation has been in force since 11 October 2020, Member States have approached the implementation of foreign investment review regimes differently and according to varying timelines. This is because the FDI Regulation is only intended to provide a framework for the creation of national regimes.
For instance, Ireland, Sweden and Greece have implemented their own domestic regimes fairly recently, while Croatia and Cyprus do not yet have their own fully fledged regimes. While the current FDI Regulation provides a framework, Member States have implemented screening regimes unevenly and with different timelines. The Commission proposed that all Member States must establish fully compliant screening mechanisms within a harmonised timeframe.
Once revised, changes to the FDI Regulation will make the implementation of a fully compliant domestic regime mandatory within 15 months of the changes coming into force.
2. Indirect foreign investments brought into scope of the FDI Regulation and greenfield investments
While the FDI screening of indirect investments made through, for example, subsidiaries in the EU is standard practice under most EU Member State FDI screening regimes, the ECJ held in its judgment in Xella that the FDI Regulation does not apply to indirect investments.
The judgment is arguably based on an incorrect understanding of the term “Foreign Direct Investment”, which is used to distinguish between direct investments and portfolio investments, rather than excluding investments in companies through other entities, including investment vehicles (see The ECJ and Investment Control – Intensified Investment Screening by Juliane Kokott, Advocate General of the ECJ).
The Proposal clarifies that the FDI Regulation shall also apply to indirect investments and thereby addresses the shortcoming identified in the Xella case.
In addition, the EU Commission’s proposal also encourages the screening of greenfield investments under the EU Member State screening regimes.
3. Minimum range of critical sectors established
Whereas Member States currently have discretion to define the sectors deemed to be “strategic” or “critical” to their national security interests and the FDI Regulation only proposes sectors to that end, the revised FDI Regulation proposes to establish a minimum set of critical sectors which will always be caught under any national regime within the EU, such that investments in these sectors will have to be screened under any domestic screening regime within the EU.
The critical sectors named within the mandatory minimum set (to be a set out in Annexes I and II to the revised FDI Regulation) are:
- export-controlled items;
- semiconductor technology;
- artificial intelligence;
- quantum technologies;
- biotechnologies;
- advanced connectivity and navigation;
- advanced sensing technologies;
- space and propulsion technologies;
- energy technologies;
- robotics and autonomous systems;
- advanced materials and manufacturing/recycling technologies;
- listed critical medicines; and
- specific entities critical to the EU financial systems.
The Proposal by the EU Parliament further expands this list as described below.
It is important to note that EU Member States will continue to have a broad discretion to include additional sectors within their respective national regimes. In any case, it will be important for clients to seek legal counsel on whether any target investments can be expected to fall within the scope of any EU screening regimes.
4. Improved cooperation procedures
Although a cooperation mechanism to assist the European Commission (the “Commission“) and EU Member States in coordinating their approach for transactions caught by multiple screening regimes in the EU, the existing mechanism has been criticised for failing to provide sufficient certainty of process to investors – particularly in relation to expected timelines and outcomes of regulatory clearances.
The revised mechanism intends to standardise timelines for screening investments, partly by granting additional powers to the Commission for both information-gathering and resolving disagreements between the Commission and the Member States involved. Additionally, the Commission will be required to publish more detailed guidance on the factors relevant for assessing the risk profile of proposed investments in order to provide greater certainty to investors.
- The European Parliament’s amended Proposal and its divergence from the Commission’s original proposal
The European Parliament’s May 2025 amendments endorse the Commission’s approach but go significantly further in several key aspects:
- New decision-making powers for the European Commission
Final decision authority in case of disagreement: Unlike the Commission’s proposal, which left the final decision up to the relevant Member State, the Proposal grants the Commission the power to make the final decision if it disagrees with the screening Member State on whether to approve or block a foreign investment, including the ability to impose conditions. This represents a fundamental shift in sovereignty over screening decisions and has been controversial among Member States.
Direct investigative powers: The Proposal empowers the Commission to request information directly from investors and target companies to assess risks to security or public order affecting multiple Member States. These requests suspend procedural deadlines, and failure to comply may result in penalties modeled on those in EU merger and foreign subsidy control regimes. Previously, the Commission could only ask the screening Member State to collect such information.
Guidance on filing and risk assessment: To reduce investor uncertainty, the Proposal requires the Commission to publish detailed (non-binding) guidelines on filing thresholds and factors relevant to assessing the risk profile of investments. This transparency is intended to harmonise expectations across Member States.
- Expanded and clarified list of critical sectors
The Proposal adopts the Commission’s approach of a mandatory minimum list but expands and clarifies it by:
- Broadening the scope of six sectors as follows:
- Semiconductor technology now includes legacy semiconductors, not only advanced ones.
- Artificial intelligence excludes generic analytics technologies.
- Advanced connectivity and navigation explicitly includes 5G and light/laser technologies.
- Space and propulsion technologies cover signalling and traffic management systems.
- Energy sector coverage extends beyond technologies to include services and infrastructure.
- Entities critical to the EU financial system have an expanded list.
- Adding five new sectors:
- transport industry (including aerospace, rail, automotive, maritime);
- media industry;
- electoral infrastructure;
- critical raw materials (covering extraction, refining, recycling, and storage); and
- farming land.
This expansion materially increases the scope of mandatory screening compared to the Commission’s proposal and the current FDI Regulation.
- Mandatory screening of certain greenfield investments
The Proposal transforms the Commission’s non-binding encouragement of a mandatory obligation to screen greenfield investments that either: concern a mandatory screening sector; involve a “sensitive investor” (as defined in the FDI Regulation); or exceed a value threshold of EUR 250 million.
- The Council of the EU’s amended Proposal
On 11 June 2025, the Council of the EU, which is made up of representatives of each Member State, indicated its support for the Proposal. In particular, the Council backed the minimum harmonisation of the mandatory sectors and timelines across Member States, while proposing a stronger focus on military and dual-use goods among the minimum range of sectors to be covered by domestic screening regimes. The Council also clarified that Member States retain the discretion to subject additional industry sectors to their domestic FDI screening regimes and tempered the suggestion for a greater role of the Commission by clarifying that the final decision on investments rests with the individual Member States. Importantly, the Council also confirmed that the EU-wide FDI Screening Regulation shall not apply to internal reorganisations; although it is worth noting that these are already within the scope of multiple domestic Member State screening regimes.
- Next steps in the legislative process and implications for foreign investors
The European Parliament’s suggested amendments to the FDI Regulation – and the Council’s support for the same – represent a decisive move towards a more harmonised, comprehensive, and robust foreign investment screening framework in the EU. By building on and extending the European Commission’s 2024 proposal – particularly through the inclusion of indirect investments, expanded sectoral coverage, mandatory greenfield screening, and enhanced Commission powers – the Proposal of the European Parliament addresses key shortcomings and signals a tougher regulatory landscape for foreign investors.
While the Proposal for amending the FDI Regulation offers greater legal certainty and transparency, it also significantly increases the scope of application of FDI screening mechanisms in the EU, including indirect acquisitions and certain greenfield projects. The Proposal’s enhanced powers mean investors may face increased scrutiny and potential intervention. Investors should seek early regulatory advice to navigate the expanded and harmonised screening regime and develop robust compliance strategies.
On 17 June 2025, the Proposal entered trilogue negotiations between the European Parliament, the Council of the EU and the Commission, during which some of the amendments may be moderated. In particular, we expect the EU Member States to push back on some of the EU Parliament’s proposals to increase the decision-making powers of the EU Commission regarding FDI screening of foreign investments. Nonetheless, the direction is clear: the EU is moving towards a more coordinated and assertive approach to safeguarding its security and public order in the face of increasing foreign investment flows. Prior to implementation of the Proposal across EU Member States, the amendments of the FDI Regulation will be subject to legislative scrutiny by both the Council of the EU and Member States themselves. Once agreed, it is anticipated that the revised FDI Regulation will come into force between one and two years after the legislative process is complete. Companies, including investors in European target companies, should start preparing themselves now for the enhanced restrictions which will be implemented when the revised FDI Regulation comes into force.
