FDI – Reform of Investment Control in the EU

Control of Foreign Direct Investments: EU Intensifies and Harmonizes Screening

The European Union is reforming its system for controlling foreign direct investments (FDI). In December 2025, the European Parliament and the Council of the European Union reached a political agreement on a more extensive reform. The goal is to make investment screenings within the EU more binding, coherent, and effective in terms of security policy.

Under the EU regulation of 2019, which has been decisive until now, member states were not required to introduce their own investment screening procedure; furthermore, the cooperation system has only led to limited uniform standards. That is set to change: In the future, every EU member state is to maintain a national screening process or adjust existing regulations to union law minimum standards. This could have noticeable impacts on companies, investors, and transaction processes.

Note: The concrete implementation depends on the final wording of the reform and subsequent national implementation. Companies should therefore regularly check whether new reporting requirements, deadlines, or sectoral expansions are already in effect.

Investment Screening Mechanism in All EU States: Minimum Standards Instead of Patchwork

The previous EU FDI regulation (2019) created a cooperation mechanism between member states and the European Commission without obligating the states to introduce their own screening regimes. In practice, significant differences arose: Some member states have established extensive screening systems, others only very limited or sector-supported controls. For investors, this meant a legal situation that was difficult to predict, as thresholds, procedural deadlines, and substantive review criteria significantly differed from one another.

The reform addresses this issue: In the future, all 27 member states are to maintain a national investment screening procedure that meets union law minimum standards. This effectively turns the previous cooperation framework into a more obligatory system. In particular, clearer guidelines are expected for:

• Transparency (e.g., comprehensible criteria, information on procedural statuses),
• Procedural Workflows (e.g., structured review phases, standardized information requirements),
• Review Criteria (security and public order perspectives, risk indicators),
• Deadlines (better planning for transactions).

Additionally, cooperation between member states is to be structurally deepened. Investments with potentially cross-border relevance are expected to be evaluated less in isolation nationally and more within the European overall context – especially when supply chains, critical infrastructure, or supra-national projects are involved.

Range of Sensitive Sectors Expanded: Focus on Key Technologies and Criticality

A central element of the reform is the expansion of sensitive sectors. In addition to traditional areas such as defense, energy supply, and telecommunications, future technologies and strategic key industries are coming into sharper focus. Specifically mentioned are:

• Semiconductors,
• Artificial Intelligence,
• Quantum Technologies,
• Critical raw materials,
• Companies in the areas of energy, transport and digital infrastructure,
• Election infrastructure,
• as well as a limited number of companies in the financial system, insofar as security interests are affected.

Dual-use goods also remain a central area of review. At the same time, it is clarified that not only traditional acquisition controls may be captured. Depending on how it is structured, minority stakes or atypical rights of influence (e.g., special veto rights, information rights, governance rights) may also come into focus if they can have security-relevant impacts.

For screening decisions, the member state where the investment occurs remains fundamentally responsible. Member states are expected to retain a margin of discretion, particularly in risk assessment and the choice of remedial measures (e.g., conditions instead of prohibitions).

Role of the European Commission: Greater Influence in Cross-Border Cases

The reform strengthens the role of the European Commission. While opinions previously had a primarily coordinating character, their influence is expected to increase politically and factually in the future. In cases related to programs or projects of Union interest or involving multiple member states, the Commission can conduct a deeper examination and provide an assessment with greater practical impact.

A formal veto right for the Commission is not necessarily associated with this. Nevertheless, it is expected that opinions will be more strongly considered in practice and that investment control will become more European in character overall.

Prepare transactions early: Screening as a fixed component of deal planning

For practice, the reform primarily means: A well-founded FDI risk analysis will become more important already during transaction preparation. Companies and investors should in particular examine:

• Whether the target company is active in a sensitive sector (also indirectly, e.g., through subsidiaries or significant supplier relationships),
• whether the investor structure — including indirect participation chains — can trigger a notification or approval requirement,
• whether parallel national proceedings in different EU states are to be expected,
• whether the deal must include time buffers for potential information requests and conditions.

Particularly in international M&A transactions, parallel reviews may occur in several countries. This increases complexity and may extend the transaction duration. Schedules should be realistically calculated and suspensive conditions (Closing Conditions) carefully crafted, for example with regulations on:

• Obligations of the parties in the screening,
• Handling conditions (e.g., “hell-or-high-water” clauses or graduated commitments),
• Long-stop dates and extension mechanisms,
• Risk allocation in the event of prohibitions or significant conditions.

Since the circle of sensitive sectors is being expanded and minority shareholdings can come more into focus, transactions that previously seemed less critical will also be covered in the future. For investors, this increases the risk of conditions or stipulations. In exceptional cases, prohibitions are also possible if significant security concerns cannot be addressed otherwise.

Check FDI risks in transactions: Importance for Germany and cross-border deals

In Germany, the reform will likely not replace the existing system under the Foreign Trade and Payments Act (AWG) and Foreign Trade and Payments Ordinance (AWV), but will be more strongly embedded within a Europeanized framework. Germany already has an expanded review regime. Nevertheless, adjustments may follow, particularly regarding procedural deadlines, cooperation obligations, information requirements, and possibly in the delimitation of sensitive sectors.

For transactional practice, this means: FDI checks should be planned as routinely in cross-border projects as antitrust reviews or tax structuring issues — especially when critical technologies, infrastructure, security-relevant supply chains, or state-influenced investor situations are involved.

General note: This article serves for general information and does not replace an individual review of the specific case. The applicable legal bases and application practice of the competent authorities are always decisive.

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