Linda Harroch, Partner in the Corporate and M&A department and Head of the Private Equity department, and Danai Bastouli, Associate in the Corporate, M&A, and Private Equity department. (Photo: BSP)

Linda Harroch, Partner in the Corporate and M&A department and Head of the Private Equity department, and Danai Bastouli, Associate in the Corporate, M&A, and Private Equity department. (Photo: BSP)

Regulation (EU) 2026/1386 of 17 June 2026 establishes the new framework for the screening of foreign investments and makes screening mechanisms mandatory across all Member States, introduces a common minimum scope, and strengthens notification and cooperation mechanisms at EU level.

Why was reform considered necessary?

The reform repeals Regulation (EU) 2019/452 and builds on experience gained since its application, implemented in Luxembourg by the law of 14 July 2023. That experience revealed significant divergences between Member States in terms of scope, thresholds, criteria, and procedures. Against a backdrop of increasing geopolitical tensions, the new framework seeks greater harmonisation and legal certainty for foreign investors.

Key changes at a glance

Recalibration of the regulatory scope of foreign investment screening

A key change is the shift from foreign direct investment to foreign investment, encompassing investments made through EU-based entities controlled or influenced by foreign investors. This reflects the view, reinforced by the Xella judgment, that such investments may pose the same risks to security or public order as direct investments and should not escape scrutiny solely on account of their structure.

The Regulation also introduces a broad definition of beneficial owner, enabling screening authorities to look beyond formal ownership structures and identify those who ultimately exercise influence or benefit from a foreign investment, including trust beneficiaries.

Introduction of a common minimum scope of screening

Member States must impose a prior authorisation requirement for foreign investments where the Union target operates in strategically sensitive sectors, including:

– the development, production, or commercialisation of dual-use and military goods and technologies;

– semiconductor, quantum, and certain artificial intelligence technologies;

– activities relating to strategic raw materials, including exploration, extraction, processing, and recycling;

– transport, energy, or digital infrastructure assessed as critical.

This marks a significant departure from the current framework, under which Member States retained broad discretion over the screened transactions. The Regulation follows a minimum harmonisation approach, allowing Member States to extend screening beyond the common baseline through additional sectors or more stringent requirements.

Greenfield investments fall within the Regulation’s scope without being subject to a mandatory prior authorisation requirement, leaving Member States free to determine whether such investments should be screened.

Strengthened cooperation and notification obligations

The Regulation introduces mandatory notification obligations. Notification is required for foreign investments subject to prior authorisation under the common minimum scope where the foreign investor is controlled by a third-country government, subject to Union restrictive measures, or previously involved in a prohibited or non-compliant investment. Notification also applies upon initiation of an in-depth investigation where the Union target has cross-border presence or Union interest project involvement.

Member States retain discretion to notify, on a duly justified basis, any foreign investment likely to negatively affect the security or public order of at least one other Member State. The Commission retains the power to issue opinions.

Screening decisions and mitigating measures

Where a foreign investment is likely to negatively affect security or public order, Member States shall authorise the transaction subject to mitigating measures or, where necessary, prohibit or unwind it. In line with the principle of proportionality, prohibition or unwinding should remain a measure of last resort, reserved for situations where risks cannot be adequately addressed.

What remains outside the scope?

Purely internal restructuring operations fall outside the Regulation’s scope, preserving flexibility for genuine intra-group reorganisations, unless they introduce into the ownership chain a new third-country entity not previously represented upstream of the Union target.

Portfolio investments made purely for financial purposes, without any intention to influence management or control, are also excluded.

Looking ahead

The Regulation was published in the Official Journal of the European Union on 26 June 2026. The new rules will apply 18 months after entry into force, during which transition period, Luxembourg and other Member States will revisit their screening regimes in light of the new framework.

For more information, you can navigate BSP website.