Foreign investments under scrutiny – EU FDI Regulation adopted

The European Union ("EU") regulation on foreign direct investment ("FDI") screening is published on 21 March 2019 in the EU Official Journal and will enter into force on 10 April 2019, whilst this screening mechanism will be applicable as from 11 October 2020.

As indicated in our earlier message, the EU FDI regulation encompasses a framework for screening of FDI into the EU which:

  • does not require EU Member States to adopt or maintain a formal FDI screening mechanism;
  • requires EU Member States (with or without national screening mechanism) to inform to European Commission on FDIs in their territory;
  • provides for the possibility for EU Member States to express their views on proposed and completed FDI in a specific EU Member State if this is likely to affect its security or public order;
  • provides for the possibility for the European Commission to express its view on proposed as well as completed FDI likely to affect the security or public order of one or more EU Member States;
  • introduces non-binding ex-ante and ex-post FDI screening by the European Commission on projects or programmes likely affecting EU interest, security or public order.

Developments FDI screening by EU Member States

Besides the non-binding EU FDI screening mechanism, certain EU Member States have formal FDI screening mechanisms in place that are in fact legally binding, and can prevent (ex-ante) or prohibit and unwind (ex-post) a merger or acquisition of (parts of) a business that is deemed undesired as it is considered as contrary to e.g. its national security or public order. It therefore is important to (also) take note of any changes related to the national screening mechanisms of the EU Member States (if any), or introductions of such mechanisms in the remaining EU Member States that have no formal FDI screening mechanism (yet).

For example, in the Netherlands, the legislative proposal on FDI screening in the telecom sector – on which we have reported earlier – is now submitted to the Dutch Lower House for parliamentary approval. In Hungary, a FDI screening mechanism has entered into force on 1 January 2019. The Hungarian FDI screening mechanism is the latest national FDI screening mechanism that is recently adopted in the EU. Considering this recent adoption in Hungary, the following EU Member States currently maintain a formal FDI screening mechanism in view of foreign mergers and acquisitions of (parts of) businesses in the defence sector or other sectors or industries deemed sensitive (e.g. dual-use, electricity, telecom and critical technologies such as artificial intelligence, robotics, semiconductors, quantum technologies, nanotechnologies and biotechnologies):

FDI screening in defence and other sectors

 #  EU MS  Defence Other (sensitive) sector(s) 
 1  Austria  x  x
 2  Denmark  x  x
 3  Germany  x  x
 4  Finland  x  x
 5  France  x  x
 6  Hungary  x  x
 7  Italy  x  x
 8  Latvia  x  x
 9  Lithuania  x  x
 10  Poland  x  x
 11  Portugal  x  x
 12  Spain  x  x
 13  UK  x


Although the EU FDI Regulation is expected to increase awareness and transparency on EU FDIs, it is important to realise that:

  • the EU FDI screening mechanism as well as the national FDI screening mechanisms of the relevant EU Member States do not apply in relation to every single FDI in the EU;
  • the EU FDI screening mechanism is non-binding and does not award any veto or enforcement power to the European Commission. It does, however, introduce a framework (and tool for the European Commission) which may influence and affect the final decision taken by an individual EU Member State in relation to FDI, especially where the latter involves projects or programmes of EU interest;
  • the national FDI screening mechanisms vary in scope and application, possibly leading to different approaches and outcomes in the event of the same type of FDI in multiple EU Member States that maintain FDI screening mechanisms;
  • where the EU FDI screening mechanism does apply to the relevant FDI, investors will have to take into account the new EU-level tool as well which may lead to a more time-consuming and burdensome process in practice.

Overall, navigating through the FDI screening mechanism(s) – of the individual EU Member States as well as the EU – involves now a more complex and burdensome process in practice. Our experienced team would be happy to provide clear and concise guidance e.g. by – at the outset – assessing whether your transaction draws any security or public order related sensitive interests in the respective EU Member State(s) which may trigger the scope of the national and/or EU FDI screening mechanisms and reviews.

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