Articles

Foreign Direct Investment Screening in the EU

Foreign Direct Investment Screening in the EU

Foreign Direct Investment Screening in the EU

26.03.2019 EU law

On 21 March 2019, Regulation 2019/452/EU was published providing for a framework for the screening of foreign direct investments into the European Union and its Member States. This Regulation shall apply from 11 October 2020.

Objectives

Regulation 2019/452/EU aims to strike a balance between maintaining the EU’s openness to foreign direct investments (‘FDIs’) and ensuring that the EU's essential interests are not undermined.

Member States are allowed to implement FDI screening mechanisms for foreign direct investments, provided (i) that all rules and procedures of the FDI screening mechanism are transparent and non-discriminatory, (ii) that confidential and commercially-sensitive information are protected, and (iii) that foreign investors have a right to appeal.

Member States are also instructed to cooperate with each other and the European Commission by notifying any foreign direct investment undergoing screening. Other Member States or the European Commission can also draw attention to foreign direct investments in a Member State that are not undergoing screening.

Affected investments

Screening is limited to foreign direct investments likely to affect the security or the public order of a Member State or of the EU.

Foreign direct investments are – simplified – all investments by an investor from a third country aiming to establish or to maintain lasting and direct links with an EU company, including investments which enable effective participation in the management or control of that company (art. 2(1)).

In determining whether a foreign direct investment affects the security or the public order, Member States may take into account the potential effects on:

  • critical infrastructure, such as energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities;
  • critical technologies, such as artificial intelligence, robotics, semiconductors, cybersecurity, quantum technologies, nuclear technologies, nanotechnologies and biotechnologies;
  • supply of critical inputs, such as energy, raw materials, and food security;
  • access to sensitive information, including personal data, or the ability to control such information; or
  • the freedom and pluralism of the media.

Furthermore, Member States may take into account:

  • whether the foreign investor is directly or indirectly controlled by the government, including state bodies or armed forces, of a third country, including through ownership structure or significant funding;
  • whether the foreign investor has already been involved in activities affecting security or public order in a Member State; or
  • whether there is a serious risk that the foreign investor engages in illegal or criminal activities.

Impact of Brexit

All investments by an investor from a third country may be subject to the FDI screening mechanism. Given that the United Kingdom will become a third country after Brexit, investments by British investors may therefore also become subject to a FDI screening mechanism.

Reporting and evaluation

The Regulation also provides for a reporting and evaluation mechanism.

By 31 March of each year, Member States must submit to the European Commission an annual report covering the preceding calendar year, which shall include aggregated information on foreign direct investments that took place in their territory. The Commission will collect all information and provide an annual report on the implementation of the Regulation to the European Parliament and to the Council. That report will also be made public. The Commission already published a first in-depth analysis of foreign direct investment flows into the EU on 13 March 2019.

By 12 October 2023 and every five years thereafter, the European Commission will evaluate the functioning and effectiveness of the Regulation and present a report to the European Parliament and to the Council with recommendations to amend the Regulation.

Next steps

Regulation 2019/452/EU does not require Member States to implement an FDI screening mechanism, but Member States who do, must comply with the Regulation. Flanders recently implemented an FDI screening mechanism. To read our blog post on the Flemish FDI screening mechanism: click here.

Team

Related news

25.03.2020 NL law
Key considerations for management and owners of Dutch privately held companies in distress due to COVID-19

Short Reads - The COVID-19 pandemic has a significant and immediate adverse effect on many companies in different industries. Many PE portfolio companies are particularly vulnerable given the typical high leverage finance structure and inherent need to maintain cash flow. To meet these challenges and mitigate liability risks, management and owners may need to take clear and immediate action (and refrain from certain other actions) in the interest of all stakeholders. The following sets out some key legal guidelines for management and owners when dealing with a Dutch subsidiary in distress.

Read more

05.11.2019 LU law
Stibbe renforce son cabinet au Luxembourg avec l’arrivée de Johan Léonard en qualité d’associé au sein du département de droit fiscal

Inside Stibbe - Luxembourg, 5 novembre 2019 – Stibbe renforce son cabinet luxembourgeois avec le recrutement latéral de Johan Léonard, associé au sein de la pratique de droit fiscal. Son arrivée permettra au cabinet d’augmenter son offre fiscale au Luxembourg afin de mieux répondre à l’évolution des besoins du marché. Johan a rejoint Stibbe le 4 novembre 2019.

Read more

17.01.2020 LU law
Stibbe boosts service offering in Luxembourg with new partners and counsel for asset management/funds and corporate & finance

Inside Stibbe - Luxembourg, 17 January 2020 – Stibbe reinforces its corporate & finance and asset management/funds practices in Luxembourg with the hire of Bernard Beerens (corporate partner), Audrey Jarreton (banking and finance counsel), Edouard d’Anterroches (investment funds partner), Victorien Hémery (investment funds partner), and Dayana Bert (investment funds counsel). Their arrival comes after the recent hire of tax partner Johan Léonard. All of these new additions demonstrate the firm’s commitment to expanding Stibbe’s service offering in Luxembourg.

Read more

17.01.2020 LU law
Stibbe Luxembourg étend son offre de services par la venue de nouveaux associés et counsels au sein des pratiques spécialisées en gestion d’actifs/fonds d’investissement, en droit des sociétés ainsi qu’en droit financier

Inside Stibbe - Luxembourg, le 17 janvier 2020 – Stibbe renforce ses pratiques spécialisées en droit des sociétés, en droit financier ainsi qu’en gestion d’actifs/fonds d’investissement par la venue de Bernard Beerens (associé, droit des sociétés), Audrey Jarreton (counsel, droit bancaire et financier), Edouard d’Anterroches (associé, fonds d’investissement), Victorien Hémery (associé, fonds d’investissement) et Dayana Bert (counsel, fonds d’investissement).

Read more

This website uses cookies. Some of these cookies are essential for the technical functioning of our website and you cannot disable these cookies if you want to read our website. We also use functional cookies to ensure the website functions properly and analytical cookies to personalise content and to analyse our traffic. You can either accept or refuse these functional and analytical cookies.

Privacy – en cookieverklaring