The European Parliament on 19 May approved the final political agreement reached with the Council in December 2025 on the revision of the EU’s foreign direct investment screening regime. The new regulation replaces the relatively light-touch framework of 2019 with a mandatory and far more harmonised system.
The reform is part of the EU’s broader shift towards economic security policy. Until now, Member States were only encouraged to maintain national screening mechanisms. Several did not. That created obvious gaps: investors could structure transactions through jurisdictions with weak or non-existent screening systems. The new regime closes that loophole. All 27 Member States will now be required to operate a national screening mechanism meeting minimum EU standards.
The scope of the system is also substantially expanded. The regulation captures not only direct investments by third-country investors, but also transactions between Member States where the ultimate beneficial owner is located outside the Union. The shell-company loophole, using EU-incorporated vehicles to disguise foreign control, is therefore largely closed.
The regulation introduces mandatory prior authorisation requirements for investments in a harmonised list of sensitive sectors. Semiconductors are explicitly included, alongside artificial intelligence, quantum technologies, defence and dual-use items, critical infrastructure, strategic raw materials, financial market infrastructure, and sensitive digital systems. Transactions in these areas cannot close before clearance.
For the semiconductor industry, the implications are significant. The entire value chain – including chip design, fabrication, equipment, materials, and certain advanced manufacturing processes – falls within mandatory screening scope. National competent authorities will review transactions beforehand. The European Commission and other Member States will then be informed through the EU cooperation mechanism and may issue comments or opinions.
The regulation also formalises mitigating measures as a core enforcement tool. Authorities may authorise transactions subject to conditions, including governance restrictions, ring-fencing of sensitive activities, data localisation obligations, supply continuity commitments, or limitations on access to strategic technologies. In practice, this means conditional approvals are likely to become common in sensitive technology sectors rather than outright prohibitions.
Who has control?
The most contentious negotiations during the trilogues concerned the level of power delegated to Brussels. Parliament had pushed for a much stronger centralised EU role, broadly inspired by EU merger control. Several parliamentarians and the Commission argued that fragmented national decision-making undermined the effectiveness of the system, particularly for cross-border transactions affecting multiple Member States or Union-funded projects.
The Council resisted. Member States insisted that national security remains a core national competence under the Treaties and rejected any binding Commission veto or override power. The compromise strengthens the Commission’s coordinating role – including broader powers to issue opinions and scrutinise non-notified transactions – but ultimate authority remains with national governments.
Other difficult points included the treatment of intra-EU investments, the breadth of mandatory sector coverage, proportionality safeguards, and the definition of “foreign control”. Several Member States were concerned about administrative burdens and over-screening, particularly for greenfield investments and venture-capital financing in emerging technologies.
The regulation now awaits formal Council approval before publication in the Official Journal. It will enter into force shortly thereafter, with substantive obligations applying after an 18-month implementation period. That should make the system fully operational by late 2027.
