Reform Of The EU FDI Screening Regulation: Key Changes And Impact On German Practice At A Glance

INTRODUCTION

The nearly final draft of the revised EU Screening Regulation ("Regulation") published in February 2026 fundamentally revises the existing Regulation from 2019. The aim is to harmonise investment control within the EU, close existing gaps and provide Member States with more effective tools for reviewing and controlling FDI.

• For the first time, the Regulation provides for an obligation on Member States to introduce national investment control mechanisms and sets out a number of mandatory requirements in this regard, in particular with regard to the procedure and the substantive screening decision.
• In addition, the Regulation aims to sharpen the focus of the cooperation mechanism established at Union level, particularly in the area of cross-border investments, which should contribute to procedural efficiency, but will also lead to increased information requirements for those involved in the investment.
• Next Steps:
  • The formal approval of the Regulation by the Parliament and the Council is still pending but is expected to take place in April or May 2026 without any major changes.
  • The Regulation will then enter into force in full after a transitional period of 18 months following its publication, expected to be at the end of 2027 or beginning of 2028.
  • Some Member States may decide to implement the Regulation earlier – Germany has already announced that it will do so.

OVERVIEW OF KEY CHANGES

• Revised definition of "foreign investment".
  • Extension of the scope to include a wide range of indirect acquisition scenarios – in particular, the inclusion of investments by EU investors.
  • Introduction of a definition of greenfield investments; reviewability is at the discretion of the Member States.
  • Extensive exemption of internal restructuring from the scope.
• Mandatory introduction of a national investment screening mechanism with division into Phase I and Phase II screening.
  • Notification requirement and pre-closing investment screening for investments in certain sectors.
  • Call-in right for all foreign investments in the territory of a Member State, regardless of the investment sector.
  • Uniform deadlines for Phase I reviews, followed by an in-depth Phase II review without a uniform deadline.
• Mandatory screening criteria within the Member States' investment screening assessment.
• Mandatory and expanded information and cooperation mechanism between Member States and the Commission.
• Provisions to increase the efficiency of national investment screening mechanisms, such as the mandatory publication of national guidelines.

DEFINITION OF "FOREIGN INVESTMENT"

The Regulation provides clarifications regarding the scope of investment screening with regard to the types of acquisitions covered. The adjustment of the definition of "foreign investment" now leads to the inclusion of a wide range of indirect acquisition structures.

Although so-called greenfield investments are defined, the ability to control them is left to the discretion of the Member States. Internal restructuring is largely excluded from the scope of application.

Investments by EU Investors

For the first time, the Regulation explicitly provides that investments by EU investors may also be covered:

Inclusion of investments by EU investors: Investments by EU investors are covered if they are "controlled" by a foreign investor. The scope now expressly extends to various forms of so-called indirect acquisition constellations.

Practice of Member States: Some Member States already provide for this or even go beyond it and also include investments by EU investors in which foreign investors hold only minority interests within the scope of application. Member States may retain these stricter rules. It will therefore be up to the Member States to lay down specific criteria for the coverage of such indirect participation constellations, including voting thresholds along the chain of participation, in accordance with the general requirement. However, the Regulation also provides that effective participation in management or control can be determined by actual factors such as contracts, representation on the board of directors or supplier relationships.

BMWE practice: According to the current practice of the Federal Ministry for Economic Affairs and Energy ("BMWE"), this new definition is already reflected, so that no changes will result from a German perspective.

Definition of Greenfield Investments

The Regulation now provides its own definition of greenfield investments:

However, the Regulation does not clarify further details and, in particular, the question of whether such greenfield investments should fall within the scope of investment control. Any regulations will be left to the Member States.

BMWE practice: According to the BMWE's current practice, greenfield investments are not covered as long as they do not substitute or anticipate a share acquisition. Nevertheless, the Federal Government has already considered controlling greenfield investments in the past. Any efforts in this direction could be resumed by way of adapting the national investment screening and the planned transfer of the provisions into a national investment screening law.

(Partly) Exemption for Internal Restructurings

Internal restructuring is not covered by the scope, provided that (i) the beneficial owner of the company remains unchanged and (ii) no new company from a third country that is not yet represented in the upstream ownership chain of the Union-based target company is included in this chain.

The term "beneficial owner" is broadly defined and includes all persons who own or control the foreign company, who benefit from the investment, or on whose behalf the investment is made or control is exercised.

The Regulation will also not apply to foreign investments made in application of the EU's resolution tools for failing banks or insurance companies as these require decisions to be made rapidly.

BMWE practice: Under current German law, there is already exemption for internal restructuring, which essentially complies with the requirements of the Regulation.

MANDATORY FDI SCREENING MECHANISM AND PROCEDURAL REQUIREMENTS

For the first time, the Regulation requires Member States to establish a investment screening mechanism. Two different procedures are specified: a pre-closing investment screening for certain investments subject to pre-closing clearance and a subsequent ex officio control for investments not subject to clearance. In addition, the Regulation provides for a coherent screening procedure with uniform review periods for Phase I.

Mandatory Investment Screening – Minimum Scope of Sectors covered

Member States must provide for a clearance or notification requirement for foreign investments, in particular (but not exclusively) if the target company is active in one of the following sectors:

• develop, produce or commercialize items on the EU Common list of dual-use items subject to export controls;
• develop, produce or commercialize items on the EU Common Military List;
• produce, research or develop semiconductor or quantum technologies, or research AI, each of which is further defined;
• are active in the transport, energy or digital infrastructure sector; and considered critical pursuant to a risk-based assessment of the individual Member State;
• explore, extract, process, recycle, recover or stockpile critical raw materials as defined in the Critical Raw Materials Act;
• are on a list of financial institutions: central counterparties, central securities depositors and operators of regulated markets, operators of payment systems, excluding central banks, other systemically important institutions, global providers of specialized financial messaging services;
• own, develop or operate certain voting systems.

Member States will also be allowed to maintain or introduce more comprehensive national authorisation or notification requirements.

BMWE practice: German investment screening already largely covers the above sectors, so there is little need for adjustment in the context of the planned reorganisation of German investment screening law.

Ex Officio Investment Screening

In addition, national investment screening mechanisms must also provide for the power of national authorities to initiate ex officio screenings of foreign investments in their territory.

This covers investments that fall within the scope of the Regulation but are not subject to clearance and which, in the opinion of the authority, could potentially affect public security or order.

The limitation period for initiating ex officio investment screening is determined independently by each Member State and must be between 15 months and five years.

Please note: The Regulation does not oblige Member States to allow investors to submit a voluntary application in order to avoid the legal uncertainty associated with ex officio screening (in Germany, this option is available by applying for a clearance certificate).

BMWE practice: In Germany, the limitation period is five years from signing so that no statutory adjustments are necessary.

Investment Screening Procedure and Synchronization of Phase I Screening Period

The Regulation requires all Member States to divide their investment screening procedure into two phases and, for the first time, stipulates a binding screening period, at least for Phase I:

• Phase I: An initial examination within 45 calendar days (non-extendable) to decide whether a Phase II examination is necessary;
• Phase II: An in-depth investigation for which the Regulation does not specify a time limit, leaving this matter to the discretion of the Member States.

If an investment requires notifications in several Member States (cross-border investment), the applicant must 'endeavour' to submit the notifications in all Member States concerned on the same day. Unlike in earlier drafts, however, this is not a mandatory obligation.

These provisions are primarily intended to ensure that the assessment procedures and the cooperation mechanism procedure take place simultaneously in all Member States, in order to avoid previous scenarios where Member States received notifications at very different times or notified the other Member States, which made coordination between them difficult.

Please note: Although it is encouraging that the screening periods are thus shorter overall than under current German law, the parallel expansion of the cooperation mechanism means that more investment controls might go to Phase II due to time constraints.

CRITERIA FOR SUBSTANTIVE REVIEW

The Regulation maintains the previous standard for the substantive review, i.e., whether the Foreign Investment is likely to negatively affect security or public order. Whereas the Regulation previously only specified criteria that Member States could take into account in their investment screening, the new version now provides for a whole range of criteria that must be taken into account in the substantive review of whether foreign investment is likely to affect security or public order. This also applies to comments from other Member States or the Commission within the framework of the cooperation mechanism.

The criteria can be divided into two main groups, the first of which primarily addresses general security risks and the second of which concerns criteria directly related to the foreign investor.

Security Interests to be taken into Account by Member States

• Availability of critical technologies, including the question of whether they would become available outside of the EU due to the Foreign Investment, and the protection and availability of IP. The Regulation contains an annex that lists examples of critical technologies, including biotechnologies, advanced connectivity, navigation and digital technologies, advanced sensing technologies, space and propulsion technologies, energy technologies, robotic and autonomous systems and advanced materials, manufacturing and recycling technologies;
• Projects and programs of Union interest contained in an Annex;
• Security of critical infrastructure;
• Continuity of supply of critical inputs, including services;
• Protection of sensitive information;
• Freedom and pluralism of the media;
• Protection of electoral processes;
• Protection of public health, including the provision of availability of critical medicines listed in an Annex;
• The protection of food security, including farming, when the Union target possesses or operates more than 10.000 hectares of farmland;
• Security of military facilities and other sensitive public facilities in the immediate geographic proximity of the Union target.

Criteria relating to the Foreign Investor

• The foreign investor is likely to:
  • pursue a third country's policy objectives, including by using the investment to coerce Member States or the Union to prevent or obtain the cessation, modification or adoption of a particular act;
  • facilitate the development of a third country's military; or
  • use the foreign investment to support internal repression;
• the investor made previous investments that were not authorized or only authorized subject to mitigating measures which were significantly or repeatedly not complied with;
• the foreign investor is sanctioned;
• the foreign investor has been involved in activities negatively affecting security or public order in a Member State;
• the foreign investor has engaged in illegal activities, including circumventing sanctions;
• the foreign investor is established in a country that has been identified as a third country with significant strategic deficiencies in its anti-money laundering and terrorism-financing regimes in accordance with the relevant EU regulation;
• the foreign investor is subject to legislation of a third country that imposes obligations to share information for intelligence purposes without due process or oversight mechanisms;
• the foreign investor has an opaque ownership structure.

Please note: These criteria must be taken into account not only in relation to the direct foreign investor but also with regard to all relevant shareholders within the respective chain of ownership.

TRANSPARENT RULES FOR THE EU COOPERATION MECHANISM

The Regulation maintains the cooperation mechanism under which Member States exchange notifications received by them and give each other and the Commission the opportunity to comment on those notifications.

Contrary to the Parliament's request, the decision on whether to approve or prohibit a foreign investment ultimately remains with each individual Member State. They are only required to "take due account" of the opinions of other Member States and the Commission and to organise a meeting with representatives of the Member States that have submitted opinions and the Commission to discuss their final decision and subsequently communicate it to them.

The new text of the Regulation now contains guidelines on when Member States must notify an investment via the cooperation mechanism:

• All investments made by certain investors that relate to mandatory sectors. These are:
  • state-controlled or -owned investors,
  • sanctioned investors, or
  • investors that were previously subject to a prohibition under a national screening mechanism, or that have violated mitigation measures imposed on them;
• Screening procedures in which the Member State opens a Phase II investigation or plans to impose mitigating measures or prohibit or unwind a transaction in Phase I and where:
  • the target is active in a project or program of Union interest, or
  • the target is part of a group with subsidiaries in other Member States;
  • Investments that could negatively affect security or public order in at least one other Member State – this is an opening for Member States to notify transactions that do not meet the above criteria.

INCREASED EFFICIENCY OF INVESTMENT SCREENING REGIMES

The Regulation also contains several provisions aimed at increasing the efficiency of national investment screening regimes, including provisions on guidelines and reporting, the establishment of a database for authorities and expanded possibilities for gathering information. These include, among others:

• Obligation for Member States to publish guidelines on their national screening regimes (in particular regarding the scope of application and the applicable thresholds). This could significantly increase transparency, as most Member States currently neither provide guidelines nor publish their decisions.
• The Commission will maintain a database of all investment screening decisions taken by Member States. The database will not contain details of the cases, but only the names of the companies involved and the outcome of the proceedings.
• The Commission will publish a new form setting out the minimum information to be provided by a party when a case is notified to the cooperation mechanism.
• Member States should be able to request each other and the Commission to share confidential information about natural or legal persons from other Member States if the information is relevant and necessary for the review of an investment.
• Possibility of setting up a joint online portal for the submission of notifications – however, participation by Member States is voluntary, and the portal will only be set up at the request of at least nine Member States. It is unclear whether there will be sufficient interest in such a move.

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