European Commission Publishes Fifth Annual Report on FDI Screening In The EU

On 14 October 2025, the European Commission (the Commission) published its fifth annual report on the screening of foreign direct investments (FDI) in the European Union, providing comprehensive insights into FDI screening activities across Member States during 2024.

Below we summarise the key trends and their significance for investors and businesses operating in the EU.

1. Deal flow in Europe Slowed Down in 2024

In 2024, FDI transactions in Europe - covering both greenfield projects and M&A - fell by 8.4% compared to 2023. This was largely due to the overall decline in greenfield investments into the EU, down 19% year-on-year. The sustained decline in FDI activity reflects broader macroeconomic headwinds, including elevated interest rates, geopolitical tensions, and ongoing uncertainty in global supply chains. The particularly pronounced drop in greenfield investments suggests that investors are adopting a more cautious approach to long-term capital commitments in the EU, preferring instead to pursue strategic acquisitions of existing assets where risks may be more readily assessed and managed.

The United States was the largest foreign investor in EU M&As, accounting for about 30% of all deals, followed by the UK with 23%.

Interestingly, China and Hong Kong demonstrated a strong rebound, with M&A transactions increasing by 23% compared to 2023, reversing the previous year’s decline of nearly 20% from 2022. This resurgence in Chinese investment activity is particularly noteworthy given the increasingly stringent scrutiny applied to Chinese investors across multiple EU jurisdictions.

As for Member States receiving FDI, Germany was the preferred destination for M&As (21%), followed by France (13%), whilst Spain received the most greenfield investments (24%)

2. More Member States with FDI regimes

In 2024, 24 out of the 27 EU Member States had FDI regimes in force. However, at that time, three more Member States (Croatia, Cyprus and Greece) were in the process of establishing their own FDI screening mechanisms. Greece has since completed this process, bringing the current total number of Member States with operational FDI regimes to 25. Cyprus has also enacted its FDI law on 14 November 2025, which is due to enter into force on 2 April 2026. Croatia has also published a draft FDI legislation in September 2025, which is expected to come into force at the end of 2025.

The proliferation of investment screening regimes across Europe in the last five years reflects a broader geopolitical reality: the EU's recognition that economic security and traditional national security are increasingly intertwined. The acceleration of regime adoption since 2019 has been driven by concerns over critical infrastructure, supply chain resilience, technological sovereignty, and the strategic implications of foreign ownership in sensitive sectors. What was once a patchwork of national regimes concentrated in larger economies has evolved into a near-comprehensive system covering virtually the single market.

Businesses should therefore expect increased scrutiny and more up-front due diligence to assess whether transactions give rise to FDI filing requirements throughout Europe.

3. EU remains open to investment

In 2024, Member States reviewed 3,136 transactions. Of these, 41% underwent formal screening, while approximately 59% were either exempt from screening or deemed ineligible under the applicable regimes. These figures, however, were significantly influenced by developments in Sweden. The broad Swedish FDI Act came into force in 2024 and led to a substantial number of transactions being reported that were ultimately considered irrelevant. Excluding the Swedish data, the proportions shift markedly: 67% of reviewed cases required formal screening, whereas only 33% were excluded.

The Swedish experience highlights a common challenge in the early implementation of new FDI regimes: calibrating the scope of mandatory notifications to capture genuinely sensitive transactions whilst avoiding unnecessary administrative burden.

Out of the FDIs formally screened in 2024:

• 86% were authorised without conditions, which is slightly higher than in 2023;
• Only 9% were subject to conditions, which is slightly lower than in 2023. By contrast, in France, more than 50% of transactions subject to foreign investment screening were authorized with conditions in 2024;
• 4% were withdrawn; and
• 1% were subject to prohibition, which corresponds to the average in recent years

Overall, the statistics indicate that the EU remains open to investment. Among the transactions that underwent official screening, only a small proportion faced restrictions or prohibitions, underscoring the overall accessibility of the EU market to international investors.

The five sectors with the highest number of notifications in 2024 were manufacturing (27% of all transactions), ICT (24%), wholesale and retail (14%), financial activities (10%) and professional activities (9%).

In Phase 2, manufacturing was the main sector in scope, accounting for 50% of all notifications, whilst ICT accounted for almost a fifth of Phase 2 cases (19%).

4. EU Cooperation Mechanism remains stable

Although the Commission does not operate its own standalone screening system, it plays an active role through the EU Cooperation Mechanism which enables the Commission and Member States to exchange information on notified transactions. This mechanism also allows the Commission to issue non-binding opinions to Member States that are responsible for the filing.

Of the 477 notifications to the Commission in 2024:

• 84% originated from seven Member States: Spain, Austria, Italy, France, Germany, the Netherlands and Lithuania;
• 92% closed in Phase 1 (i.e., within 15 calendar days following notification by the screening Member States); with only 8% undergoing a detailed security risk assessment by the Commission in Phase 2.
• 40% of all investments notified to the EU Cooperation Mechanism were from the US, followed by the UK (11%). Chinese investors represented 9% of all investment notified to the EU Cooperation Mechanism, which is an increase of 50% from 2023.

In 2024, as with 2023, the Commission issued opinions in less than 2% of the cases. The Commission's minimal use of its opinion-issuing power reinforces the conclusion that EU-level intervention remains exceptional. However, investors should not interpret this statistic as indicating that the EU Cooperation Mechanism is inconsequential. The mere existence of the mechanism, and the knowledge that transactions will be visible to the Commission and other Member States, likely influences how national authorities approach their own assessments and may prompt them to impose conditions or prohibitions they might not otherwise have considered.

Looking Ahead – Regulatory Change

The regulatory landscape for foreign investment in the EU is undergoing further change. On 24 January 2024, as part of the Commission's European Economic Security Strategy, the Commission presented its proposal for a revised EU FDI Screening Regulation, which is currently subject to discussion between the EU institutions. Once a final form is agreed, there will be an implementation period of 15 months before the revised version comes into force.

Additionally, in January 2025, the Commission issued a recommendation on reviewing EU outbound investments in three strategically significant technology sectors: semiconductors, artificial intelligence, and quantum technologies. Member States are expected to provide a comprehensive report on the implementation of the recommendation and any risks identified by 30 June 2026.

These developments signal a more comprehensive approach to investment security, covering both inbound and outbound transactions. Investors should monitor these regulatory changes closely and engage proactively with FDI screening requirements. As the framework continues to evolve, early planning and expert guidance will be essential to navigate this increasingly sophisticated landscape successfully.

For further guidance on navigating EU FDI screening requirements, please contact us.

We would like to thank trainee solicitor Ella Hume for her contribution to this article.