Regulation (EU) 2026/1386 of 17 June 2026 on the screening of foreign investments in the Union (the “Regulation”) restructures the Member States’ framework for the assessment of foreign investments, notably making screening mechanisms mandatory across all Member States, introducing a common minimum scope of screening and strengthening notification and cooperation mechanisms at EU level.
Why was reform considered necessary?
The reform, repealing its predecessor Regulation (EU) 2019/452, builds on the experience gained since the entry into application of 2019 regulation, implemented in Luxembourg by the law of 14 July 2023, which revealed significant divergences between Member States in terms of the scope, thresholds and criteria of screening mechanisms, as well as the applicable procedures. Against a backdrop of increasing geopolitical tensions, the new framework seeks to enhance harmonisation through common substantive and procedural rules and ensure greater consistency across the Union while fostering legal certainty for foreign investors.
Key changes at a glance
Recalibration of the regulatory scope of foreign investment screening
One of the most significant changes introduced by the Regulation is the recalibration of the scope of the regulation around the concept of foreign investment rather than foreign direct investment, which allowed to encompass certain investments made through EU-based entities controlled by foreign investors. The reform may also be viewed in the context of the Xella judgment and the questions it raised regarding the interaction between screening of foreign investments and the freedom of establishment. The renewed policy approach reflects the lawmaker's view that investments made through such entities may present the same risks to security or public order as investments made directly by foreign investors. Essential in this is the acknowledgment that controlling foreign investors may affect Union targets even where such influence is exercised through an EU-established subsidiary. As a result, such investments should not escape scrutiny solely because of the structure through which they are made.
In a similar fashion, the Regulation introduces a wide definition of the beneficial owner, allowing screening authorities to look beyond formal ownership structures and identify the persons who ultimately exercise influence over, or benefit from, a foreign investment, including beneficiaries of trusts.
Introduction of a common minimum scope of screening
Each Member State shall ensure that its screening mechanism imposes a prior authorisation requirement for foreign investments where the Union target established in its territory carries out activities in certain strategically sensitive sectors, including but not limited to:
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 retain broad discretion as to which transactions are subject to screening. At the same time, the Regulation follows a minimum harmonisation approach, allowing Member States to extend their screening mechanisms beyond this common baseline through additional sectors or more stringent national requirements, including prior authorisation for investments outside the common minimum scope.
Greenfield investments, occurring where foreign investors set up new facilities or undertakings in the Union, fall within the Regulation’s scope but are not subject to a mandatory prior authorisation requirement, leaving Member States free to determine whether such investments should be subject to screening.
Strengthened cooperation and notification obligations
The new Regulation strengthens the cooperation framework by introducing specific mandatory notification obligations. Notification is mandatory 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 a cross-border presence or Union interest project involvement, or exceptionally where measures are imposed without such investigation.
Beyond these mandatory notification triggers, the Regulation preserves Member States' discretion to notify, on a duly justified basis, any foreign investment considered likely to negatively affect security or public order of at least one other Member State, even where none of the mandatory notification conditions are met. During the procedures, Member State shall interact through comments, and the Commission retains the power to issue opinions.
Screening decisions and mitigating measures
Where a foreign investment is considered likely to negatively affect the security or public order of a Member State, the latter shall adopt a screening decision either authorising the transaction subject to appropriate mitigating measures or, where necessary, prohibiting the investment or requiring its unwinding. The list of mitigating measures provided in the Regulation is wide and conceived to adapt to the specificities of each case reflecting a preference for addressing identified risks through targeted safeguards. In line with the principle of proportionality and the objective of preserving an open investment environment in the Union, prohibition or unwinding should remain a measure of last resort, reserved for situations where the identified risks cannot be adequately addressed through mitigation measures or other available safeguards.
What remains outside the scope?
As explicitly recognised by the Regulation, internal restructurings fall outside its scope, unless they involve the introduction into the ownership chain of a new legal entity established in a third country that was not previously represented upstream of the Union target. This exclusion preserves flexibility for genuine intra-group reorganisations and avoids unnecessary regulatory burden for purely internal restructuring operations.
Portfolio investments are excluded insofar as they are made purely for financial investment purposes and without any intention to influence management or control. Foreign investments made in the context of recovery or resolution tools 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 of the Regulation, during which transition period Luxembourg and the other Member States, including Luxembourg, will revisit their respective screening regimes in light of the new framework.
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