EU Advances Update to FDI Regulation: Enhanced Screening Framework Expected

Executive Summary

What’s new: The EU has reached a provisional political agreement to revise the Foreign Direct Investment Screening Regulation, introducing mandatory screening in all EU member states, expanding scope, and enhancing transparency and coordination.
Why it matters: The revised EU FDI Regulation will result in more rigorous and consistent scrutiny of corporate transactions involving investments in covered sensitive sectors, impacting investors and acquirers in the EU.
What to do next: Investors should consider conducting thorough due diligence, planning for harmonised review timelines, coordinating filings across jurisdictions and closely monitoring ongoing legislative developments to ensure compliance with the forthcoming revised FDI Regulation.

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On 11 December 2025, the presidency of the Council of the European Union (Council) and representatives of the European Parliament (Parliament) reached a provisional political agreement to revise the EU’s Foreign Direct Investment Screening Regulation (EU FDI Regulation).¹ These revisions are intended to strengthen the EU’s FDI screening framework by introducing key provisions to address specific economic and national security risks relating to foreign investments in the EU, while ensuring that the EU remains open and attractive to such investments. The revised EU FDI Regulation forms part of the EU’s broader strategy to enhance the bloc’s economic security. Formal adoption of the updated EU FDI Regulation is expected in the first half of 2026, with the new rules likely take effect sometime in 2027.

The key measures of the agreement that are expected be in the revised EU FDI Regulation are:

Mandatory FDI screening mechanisms in all EU member states
Mandatory screening of foreign investments in specific sensitive sectors
Extended scope of EU screening to cover intra-EU investments where the EU investor is owned or controlled by a non-EU investor
Enhanced transparency and coordination between EU member states and the EU Commission (Commission)

While the framework will enhance harmonisation across the EU, national security screening of transactions will remain at the member state level. Investors and acquirers will need to ensure a coherent and coordinated global approach to EU, and global, FDI filings.

Background on the Current EU FDI Regulation

The existing EU FDI Regulation entered into force on 10 April 2019, and became fully effective on 11 October 2020.² Notably, the regulation created a cooperation mechanism between the Commission and screening authorities of EU member states to exchange information and identify concerns on notified FDI transactions. Under the cooperation mechanism framework, the Commission may issue opinions when it considers that an investment may pose a threat to the security or public order of more than one EU member state or could undermine a project of interest to the whole EU. However, the EU FDI Regulation does not grant any decision-making powers to the Commission regarding the approval or rejection of specific investments.

For more on the current EU FDI Regulation, see our 1 July 2019 client alert, “EU Adopts Regulation on Foreign Direct Investments.”

Key Measures in the Updated EU FDI Regulation

Mandatory FDI screening mechanisms in all member states. Under the current EU FDI Regulation, EU member states are encouraged — but not required — to establish FDI screening mechanisms at the national level. The revised EU FDI Regulation, however, will make it mandatory for all EU member states to implement such screening mechanisms. EU member states will continue to have exclusive authority to decide whether to authorise, impose conditions on or block foreign investments within their own jurisdictions, as is the case under the existing regulation.

At present, 25 out of 27 EU member states already have FDI screening mechanisms in place. The two remaining EU member states — Croatia and Cyprus — have begun the legislative process to adopt their own FDI screening regimes. The practical impact of the new mandatory requirement is expected to be minimal, since nearly all member states are already in compliance or are in the process of becoming compliant.
Minimum scope for mandatory screening of foreign investments in specific sensitive sectors. To address inconsistencies and potential gaps in how EU member states screen foreign investments in sensitive and strategic sectors, the revised EU FDI Regulation will require all EU member states to adopt a minimum scope for screening such investments. Specifically, every EU member state must ensure that foreign investments involving the following sensitive sectors are subject to screening: dual-use items; military equipment; hyper-critical technologies, including AI (in line with the EU’s AI Act), quantum technologies and semiconductors; critical raw materials; critical infrastructure, such as energy, transport and digital networks; electoral infrastructure; and certain financial entities.

This requirement is intended to establish a more consistent and robust framework throughout the EU for reviewing foreign investments that may affect security or public order, especially in sectors considered vital to the EU’s strategic interests. However, EU member states retain the flexibility to broaden their screening mechanisms to include additional sensitive sectors, as long as these measures remain consistent with the EU’s FDI framework. As a result, some differences in the screening regimes among EU member states are likely to persist, and the scaling back of broader regimes appears unlikely (the scope will be treated as a minimum for member states to supplement as they do already).
Extended scope of EU screening to include investments by EU investors ultimately owned or controlled by non-EU investors. Under the revised EU FDI Regulation, member states will be required to screen foreign investments by EU-based investors if such investors are ultimately owned or controlled by individuals or entities from non-EU countries. This new requirement is designed to address the considerations highlighted by the Court of Justice of the European Union in its ruling in Xella regarding intra-EU FDI screening.³

By extending the scope of the new EU FDI Regulation in this way, the EU aims to close potential loopholes where non-EU investors might gain indirect access to sensitive sectors through EU-based intermediaries, without undergoing FDI screening. This ensures a more comprehensive and effective approach to safeguarding security and public order across the EU, while also promoting consistency among member states’ screening practices.
Enhanced transparency and coordination between EU member states and the Commission. The new EU FDI Regulation aims to strengthen cooperation and transparency among EU member states and the Commission. According to the Council’s press release, the revised regulation will enhance the EU’s cooperation mechanism by requiring greater accountability from member states conducting investment screenings.

Specifically, when other member states provide comments or the Commission issues an opinion on a particular investment, the member state responsible for the screening must explain how these comments or opinions are taken into account. If the screening member state disagrees with the input received, it must provide reasons for its position. The Commission will also be able to assist the host member state in gathering relevant information during the screening process.

To further support these efforts, a new shared database will be established. This database will enable EU authorities to detect potential attempts to circumvent the screening rules and will facilitate more effective information sharing among member states and the Commission, including information on investments previously notified under the cooperation mechanism and the outcome of the review.

Despite these enhancements in transparency and coordination, the ultimate authority to approve, impose conditions on or block foreign investments will remain with each individual member state. This means that while cooperation and information exchange will be improved at the EU level, the final decision on foreign investments will continue to rest with national governments.

Potential Additional Measures Expected in the Updated EU FDI Regulation

In addition to the key measures outlined above, it is expected that the updated EU FDI Regulation will likely incorporate additional harmonisation measures.

Same-day filings across EU member states. To better coordinate the timeline and review process for transactions subject to screening in multiple EU member states, foreign investors may be required to make all relevant filings on the same day and to cross-reference these filings. The authorities involved will also seek to synchronise their review and decision-making processes for such transactions.

Furthermore, an optional electronic filing portal may be introduced if requested by at least nine EU member states.
Harmonised review timeline. According to the draft agreement reached by member states in June 2025, a standardised initial review period of 45 calendar days will apply, beginning from the date the relevant EU member state deems the filing complete. Under this fixed timeline, member states must complete their phase one review of the transaction within 45 calendar days. It is expected that nonsensitive transactions will generally be cleared during this initial screening phase.

It is not yet clear in what form these provisions will ultimately be incorporated into the final text.

Practical Considerations for Investors

The forthcoming revised EU FDI Regulation is expected to significantly strengthen the EU’s FDI screening regime and harmonise the review process across all 27 EU member states. In practical terms, this will result in more rigorous and consistent scrutiny of corporate transactions involving investments in covered sensitive sectors. These covered sectors include artificial intelligence and advanced technologies, semiconductors, critical infrastructure, and industries with connections to the defense sector, among other sensitive sectors.

As a result, the revised EU FDI Regulation is likely to have a substantial impact on cross-border transactions that trigger FDI review requirements within the EU. Deal parties will need to carefully consider several key aspects to successfully the FDI review process in the EU, including:

Pre-transaction planning. Early identification of FDI screening requirements in relevant EU member states will be critical. Investors should consider conducting thorough due diligence to assess whether a transaction is likely to fall within the scope of the FDI regime of an EU member state.
Deal timing. The harmonised review timelines may affect transaction schedules, requiring parties to build in sufficient time for regulatory review and potential delays.
Transaction structure. Parties may need to structure deals in a manner that anticipates and addresses FDI screening requirements in multiple EU jurisdictions.
Coordination across jurisdictions. Given the potential same-day filing requirement and harmonised review periods, close coordination among legal and regulatory teams in different member states will be essential to ensure compliance and avoid procedural missteps.
Engagement with EU authorities. Proactive engagement with the relevant EU FDI authorities may help to clarify expectations, address potential concerns early and facilitate a smoother review process.
Post-closing commitments. Investors should be prepared for the possibility of mitigation measures imposed by the relevant EU authorities as a condition for approval.

As the final text of the revised EU FDI Regulation is not yet settled, investors should consider closely monitoring the ongoing legislative developments and be prepared to adapt their strategies as new details emerge.

Next Steps and Timeline for Adoption

The provisional agreement must undergo formal approval by both the Council of the European Union and the European Parliament. Once these institutions have given their consent, the text will be subject to a final legal review, during which legal experts will ensure its accuracy and consistency. Following this review, the finalised text will be translated into all official EU languages and published in the Official Journal of the European Union, making it legally binding.

The formal adoption of the agreement is anticipated to occur in the first half of 2026. After publication, there will likely be a transitional period to allow member states and stakeholders to prepare for implementation. As a result, the new rules are expected to enter into force sometime in 2027.

Updated guidance on the implementation of the new regime is also expected in advance of the new rules entering into force.

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1 This provisional agreement marked the conclusion of the interinstitutional negotiations — commonly known as trilogues — between the European Commission (Commission), Parliament and the Council that commenced in June 2025.

2 See Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the EU.

3 See Paragraphs 3 and 39 of Case C-106/22, Request for a preliminary ruling under Article 267 TFEU from the Fővárosi Törvényszék (Budapest High Court, Hungary), made by decision of 1 February 2022, received at the Court on 15 February 2022, in the proceedings Xella Magyarország Építőanyagipari Kft. See also recital 10 of Regulation (EU) 2019/452 of the European Parliament of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the EU.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.