EU Publishes New FDI Regulation: Harmonization—But Only Up to a Point

Today, Regulation (EU) 2026/1386 (“FDI Regulation”), the EU’s new regulation revising the Foreign Direct Investment (FDI) screening framework, was published in the Official Journal following its adoption by the Council of the EU earlier this month. The FDI Regulation will enter into force 20 days after its publication, and will begin to apply 18 months thereafter, by which time Member States must ensure compliance with its requirements. The FDI Regulation will replace Regulation (EU) 2019/452, which has governed EU-level coordination of FDI reviews since 2020.

The FDI Regulation has been labelled an “evolution rather than a revolution.” It moves the EU from an enabling framework toward a more harmonized model but does not create a single EU filing system or give the European Commission final decision-making authority. Member States will continue to decide whether to approve, condition, prohibit or unwind transactions.

For many Member States, the practical impact is somewhat limited. Although the FDI Regulation will require every Member State to maintain an FDI screening mechanism, all Member States already have some form of screening regime in place, and many already exceed the regulation’s minimum requirements. Implementation is therefore likely to focus on aligning national rules with the new EU baseline, refining procedures and addressing issues that have emerged in practice.

Key Takeaways

• Mandatory national regimes, but limited practical change in many jurisdictions. Regulation (EU) 2019/452 did not require Member States to screen FDI. The FDI Regulation will, although the practical impact may be modest where national regimes already exist and are extensive.
• Common minimum scope. Member States will need to ensure that their regimes cover sensitive sectors, including defense and dual-use items, certain critical technologies, critical infrastructure, strategic raw materials, financial market infrastructure and electoral infrastructure.
• Harmonization will have limits. Member States may go beyond the EU minimum scope, and many already do. Broader sectoral coverage, lower filing thresholds and different procedures may therefore continue to limit convergence in practice.
• Certain intra-EU investments will be caught. The FDI Regulation extends screening to certain intra-EU transactions where the EU investor is owned or controlled by a non-EU investor, but does not require Member States to screen all purely intra-EU transactions (though some may choose to).
• National divergences will remain. Member States will continue to interpret national security and public order through their own policy lens.

Key Changes
The key legal change is that Member States will take on specific obligations under the FDI Regulation. The current EU regime enabled Member States to screen FDI and created a cooperation mechanism among Member States and the Commission. The FDI Regulation goes further by requiring national screening mechanisms and introducing minimum requirements for their scope, procedure and operation.

Those requirements include a common minimum scope of review, structured timelines, standstill obligations preventing completion before clearance, call-in powers for certain non-notifiable transactions, a catalogue of potential remedies and a formal channel for third-party stakeholder input.

Member States will need to ensure that their regimes cover a common minimum set of sensitive sectors, including defense and dual-use items, certain critical technologies such as semiconductors, quantum technologies and artificial intelligence, critical energy, transport and digital infrastructure, strategic raw materials, certain financial market infrastructure, and electoral infrastructure.

The FDI Regulation introduces a Phase 1 review period of 45 calendar days once a filing is complete. This should provide a clearer timing baseline, but challenges will remain because the period starts only once a filing is considered complete, and Member States may take different approaches to completeness. The regulation does not require every Member State to adopt a Phase 2 process, which may remain a source of divergence.

The regulation encourages more coordinated parallel filings. In multi-jurisdictional transactions, parties should consider filing on the same day where possible and ensuring that submissions are consistent. Even without a formal sanction for staggered filings, inconsistent timing may complicate coordination and increase delay risk.

For Member States with mature FDI regimes, such as Germany, France, Italy, Spain and the Netherlands, the regulation is unlikely to transform the basic screening analysis. These jurisdictions already review investments in many sensitive sectors, scrutinize ownership and control, and participate in the existing EU cooperation mechanism. They will, however, need to confirm that their regimes cover all elements of the new minimum scope and may still update definitions, sector lists, timelines and other procedures.

In older regimes, implementation may provide an opportunity to clarify rules that have caused uncertainty. The impact may be more meaningful in Member States with newer, narrower or less frequently used regimes, which may require more significant amendments. For newer regimes, this will also provide an opportunity to correct shortcomings that have emerged over the last few years.

Intra-EU Investments and Restructurings
The FDI Regulation will capture transactions where the immediate investor is established in the EU but is owned or controlled by a non-EU investor. This addresses structures where a non-EU investor uses an EU subsidiary, holding company or acquisition vehicle to make the investment.

The FDI Regulation does not require Member States to screen all purely intra-EU transactions, although some already do and may continue to apply broader rules. For investors, using an EU acquisition vehicle will not necessarily remove FDI risk if ultimate ownership or control sits outside the EU. Control analysis will remain important, particularly for private equity and fund structures, where questions may arise around indirect ownership, minority stakes, governance rights, limited partner exposure and state-linked capital.

The FDI Regulation also excludes internal restructurings from its scope, although Member States may continue to regulate them under national law. Given business concerns about reviewing internal reorganizations where overall control does not change, some Member States may use implementation to narrow or clarify their approach.

Member States Retain Control
Unlike the EU’s merger control regime, the FDI Regulation does not create a single EU review process. Filing triggers, thresholds, foreign nexus, review intensity, remedies and enforcement will continue to vary across Member States. Because Member States may exceed the EU minimum requirements, and many already do, the regulation’s harmonization aims may be hampered in practice. This is particularly important because FDI screening is grounded in national security and public order, concepts likely to be interpreted differently across the EU. Decisions and remedies may therefore vary between Member States.

It remains unclear whether the FDI Regulation will reduce over-notification. Many FDI filings are made on a precautionary basis where parties are uncertain whether a transaction is in scope or where the consequences of failing to notify are significant. That is likely to continue, particularly because Member States will retain their own approaches to national security risk.

Both the existing framework and the FDI Regulation make clear that FDI screening is a tool to address security and public order concerns. However, there have been some general concerns that certain Member States apply their regimes more broadly in practice, taking account of broader industrial policy or protectionist considerations alongside security concerns. Whether the FDI Regulation will meaningfully constrain such scope creep will depend largely on how Member States implement and apply their national regimes. In an increasingly protectionist geopolitical environment, however, some governments may view national security and national interest as increasingly intertwined, particularly in transactions involving strategic assets, critical technologies or supply chain resilience.

Practical Implications and Next Steps
The FDI Regulation confirms that FDI screening is a permanent and increasingly coordinated part of EU dealmaking. Investors should assess FDI issues early, particularly where transactions involve sensitive technology, infrastructure, defense, energy, transport, strategic raw materials, financial infrastructure, electoral systems, data-rich businesses or non-EU ownership.

Transaction planning should also account for standstill obligations, call-in risk, third-party stakeholder input, remedies and coordination across Member States. Merger control clearance will not replace FDI approval: The two regimes have different objectives and may need to be managed in parallel.

Member States will have 18 months to align their national frameworks with the FDI Regulation, although some may act earlier. Businesses considering transactions with a potential EU FDI nexus should monitor national implementation and ensure that transaction timetables, risk allocation and filing strategies take account of evolving national rules.