EU Reforms of FDI Screening – Changes to European FDI Screening and impacts on the Irish FDI Screening Regime

Introduction

The EU has passed new legislation to reform the screening of foreign investments across Member States, including heralding changes for the recent Irish FDI screening regime under the Screening of Third Countries Transactions Act 2023 (the “Act”), under which the Department of Enterprise, Tourism, and Employment (the “Department”) reviews certain transactions to determine whether they affect, or would be likely to affect, security or public order. The new regulation (the “2026 Regulation”) aims to further harmonise the approach to FDI screening taken across Member States by setting a minimum common scope and aligning certain procedural rules.  It will repeal and replace the co-operation mechanism in the existing Regulation (EU) 2019/452 (the “2019 Regulation”).

While FDI screening decisions remain national and regimes will not be fully harmonised, the 2026 Regulation will advance key reforms that should simplify and harmonise the process for investors in multi-EU country deals, make decisions more transparent, enhance accountability and the procedural rights of notifying parties, and create a ‘common minimum scope’ for national regimes, while also strengthening information-sharing and deal transparency across EU Member States. The main changes investors should be aware of include:

1. Common minimum scope: There will be common ‘floor’ of sensitive sectors across the EU for mandatory filing requirements. From an Irish FDI screening perspective, this narrows some sensitive sectors, such as critical infrastructure and critical technologies, while adding others, such as electoral infrastructure.  It remains to be seen whether Ireland’s implementation reforms will go beyond the common minimum scope.
2. Notification form and enhanced information sharing: The European Commission will set out a notification form template and create an EU database of FDI screening decisions (covering decisions since October 2020).
3. Timeline and procedural alignment: The Phase 1 review stage will be harmonised at 45 calendar days and Member States are to align their reviews as far as possible to grant their decisions in multi-country notifications at similar times. Common procedural standards on due process and decision reasoning are set out in the 2026 Regulation.
4. Broader definition of ‘Foreign Investor’: This will include all non-EU investors, whereas the Act included non-EEA / Swiss investors.
5. Reorganisations and greenfield investments: Reorganisations are generally excluded, except where a new non-EU entity is introduced to the ownership structure above the EU target entity. Greenfield investments will not require a mandatory notification, but notifications concerning them will be subject to the same 2026 Regulation rules.

The 2026 Regulation is expected to come into force during the Irish Presidency of the Council of the European Union, 20 days following its publication in the Official Journal of the EU, with an 18-month implementation period for Member States before the 2026 Regulation fully replaces the 2019 Regulation.

Key changes of the 2026 Regulation

The 2019 Regulation did not require Member States to introduce national FDI screening regimes, but did put in place a co-operation mechanism between Member States to enhance co-ordination between those that chose to implement one. Today, all Member States have a national FDI screening mechanism and geopolitical and economic events since 2019 have created the impulse for further reform and harmonisation of FDI screening regimes across the EU.  FDI screening decisions will remain national and the 2026 Regulation will not eliminate national differentiation in this area; however, the 2026 Regulation constitutes a significant advance of European harmonisation in the sensitive area of national security.

Key reforms introduced by the 2026 Regulation include:

1. Mandatory and suspensory prior FDI screening: All 27 Member States must establish and operate FDI regimes that require mandatory notifications of transactions falling within the ‘common minimum scope’ of the 2026 Regulation. Mandatorily notifiable transactions will be subject to a standstill obligation, preventing their completion before clearance has been granted.
2. Call-in powers: Member States must implement call-in powers for transactions that are (i) subject to a mandatory notification requirement but not notified before completion, within a period of at least 24 months of completion, and (ii) not subject to a mandatory notification requirement but is considered may affect public order or security, within a period of at least 15 months to a maximum of 5 years following completion.
3. Common minimum scope: The 2026 Regulation sets a harmonised baseline defining which sectors and activities trigger mandatory review across all Member States. Member States may add to these in their national regimes, where any transactions caught by the broader scope of any national regime must be reviewed according to the same process as those falling within the common minimum scope.
4. Aligned timelines for multi-country transactions: The 2026 Regulation will introduce coordinated filing and assessment timelines, including harmonising the Phase 1 review timeline (at 45 calendar days). The review periods for Phase 2 will not be harmonised, however Member States must endeavour to align the timing of their respective FDI screening processes, including in respect of adopting their FDI screening decisions.
5. Common EU form and potential common notification portal: The European Commission will be required to produce a standard notification form for Member States. There will also be an option to create a common notification portal in the event that nine or more Member States request this of the European Commission.
6. Enhanced information sharing: Member States must report their review outcomes to the European Commission and to other concerned Member States. Member States can submit comments and the European Commission can submit an opinion regarding a transaction to a Member State, even where the transaction is not being screened by the Member State receiving the comments.  An EU-level database for all notified investments and national FDI screening outcomes since October 2020 will be established.
7. Due process and proportionality: The 2026 Regulation provides for a legally binding right to be heard for investors, and a requirement for reasoned decisions to be given (although no reasoned decision is required for referring cases from Phase 1 to Phase 2). The 2026 Regulation also introduces the proportionality principle into the area of imposing conditions to clearance or prohibitions, so that authorities can only impose these if they are proportionate to the security or public order concern.

Member States will have 18 months from the 2026 Regulation coming into force to make any necessary changes to their national law to bring it into compliance with the new EU rules. Member States retain a level of discretion in how they shape their FDI regimes beyond the core harmonised standards of the 2026 Regulation, so it is for each Member State to determine if they will take this as an opportunity to overhaul their national regimes following their experiences in FDI screening in recent years, or if they will make only the changes necessary to ensure compliance with the new EU rules.

The 2026 Regulation therefore opens up the possibility for reflection and reform across the EU in a regulatory area that is still, for many Member States, new and quickly developing.

Potential changes to the Irish FDI screening regime

In Ireland, the FDI regime that recently came into force in January 2025 was designed in the context of the 2019 Regulation and the European Council’s conclusions of 26 March 2020. There is therefore significant scope for change as the regime adapts to the 2026 Regulation.

Key potential changes from the 2026 Regulation that may be broadly good news for investors include:

• Potentially narrower scope for the jurisdictional test: The ‘common minimum scope’ covers a more narrowly defined range of sensitive sectors:
  1. dual-use and defence-related products;
  2. critical technologies of semiconductors, quantum computing, and artificial intelligence;
  3. critical infrastructure in the transport, energy, or digital infrastructure sectors;
  4. critical raw materials;
  5. critical financial infrastructure; and
  6. electoral infrastructure.

The sensitive sectors of critical technologies, critical infrastructure, and critical raw materials are more narrowly drawn than their equivalents under the Act, and the media and access to sensitive information sectors are not included at all.  However, both these and the current sensitive sectors under the Act are considerations for the substantive review of whether a transaction is likely to negatively affect security or public order when Member States or the European Commission make comments or issue an opinion.  It remains to be seen if the Act will be amended to refer only to the common minimum scope in terms of sensitive sectors for the mandatory notification requirement.

• New threshold for imposing conditions / prohibitions: Authorities must base any FDI screening decision granting conditional approval or prohibiting / unwinding transactions on a risk-based assessment. Prohibitions can only be made where the impact on security or public order cannot be adequately addressed through other means.
• Common EU form: The current Irish FDI notification form is based on the common form developed in collaboration between the Member States and European Commission, although this is not required under the 2019 Regulation. Greater harmonisation of notification forms should reduce the information burden for transactions requiring multi-country notifications.
• Greenfield investments: While greenfield investments are covered by the 2026 Regulation, mandatory pre-completion notifications are not required for these transactions by the draft law.

However, other potential changes investors should be aware of include:

1. Enhanced and historical data sharing: Investors should bear in mind the enhanced data sharing between European FDI authorities both for future and historical FDI notifications back to October 2020 via a new EU database when considering their FDI analysis scope and filing strategies.
2. Broader definition of ‘Foreign Investor’: This will now cover all non-EU natural persons and entities, whereas the Act’s equivalent definition of ‘third country undertaking’ covered non-EEA and non-Swiss natural persons and entities.
3. Reduced discretion for ‘Screening Out’ transactions: The 2026 Regulation will require Member States to review transactions falling within the ‘common minimum scope’, and for transactions notified in more than one Member state, the Member States shall consult with each other and the European Commission on meets the jurisdictional test in the 2026 Regulation, so the Department will have less discretion in how it applies the jurisdictional criteria.
4. Reorganisations: While internal reorganisations are generally excluded from the scope of FDI screening regimes (as they currently are in the Irish FDI regime), the 2026 Regulation would introduce a caveat permitting the review of internal reorganisations where a new non-EU entity is introduced to the ownership structure above the EU target entity.
5. Call-in powers: The Irish FDI regime already provides for a call-in power for notifiable transactions completed without authorisation and transactions that do not meet the mandatory notification criteria but which the Minister believes may present risks to security or public order in the State. The current look-back period for this power is 15 months from completion, but this would likely be extended to 24 months under the 2026 Regulation.

Updated Irish FDI screening guidance and next steps

Once the 2026 Regulation comes into force, Member States have an 18-month implementation period to make any amendments to national legislation and procedure to implement the new regulation’s reforms, before the 2026 Regulation becomes fully applicable and replaces the 2019 Regulation.

The Department addressed these European legislative developments in its updated guidance on the operation of the screening regime in its publication Inward Investment Screening: Guidance for Stakeholders and Investors (the “Guidance”).[1] The updated Guidance notes the anticipated reforms to relevant EU legislation, and confirms that the Act and the Guidance continue to refer to the 2019 Regulation.  Though the Department has not yet indicated any anticipated changes to its screening regime under the Act that may follow from the 2026 Regulation, the Department has said that it will continue to engage with the European Commission on how the new regulation will be implemented.

Contact us

Matheson’s Competition and Regulation group regularly advise on all aspects of Irish FDI screening and merger control and are on hand to provide any support as needed.

[1] For more information on the recent update to the Guidance, and on the Department’s report on the first year the Irish FDI screening regime, see our insight article here.