Second Annual Report on FDI Screening highlights importance of FDI in M&A transactions

In its Second Annual Report on the screening of foreign direct investment (FDI) into the Union, the EU Commission takes stock of the FDI screening rules at both EU and Member State level. Today, 25 out of 27 Member States either have a screening mechanism in place or are in the process of setting one up. Most of the existing FDI regimes have undergone changes in light of COVID-19 and recent disruptions in global supply chains, often upgrading screening procedures and expanding covered sectors. Statistics show that FDI screening is becoming more and more a crucial regulatory puzzle piece in M&A transactions. More than one quarter of the transactions screened by Member States were either blocked, withdrawn or authorized only with conditions. Most cases notified under the EU cooperation mechanism were assessed rapidly, but timelines can vary widely. As a result of the war in Ukraine, particular attention is now focused on investments from Russia or Belarus.


The EU FDI Screening Regulation creates a framework for greater coordination and cooperation in screening FDI in the EU on security and public order grounds, without establishing a mandatory screening mechanism at EU level. Member States remain solely responsible for protecting their essential security interests and adopting their own FDI screening procedures. Unlike in merger control, the Regulation does not give the EU powers to intervene in M&A transactions and leaves the last word to the Member States. As we previously reported, the Regulation sets out common requirements that national mechanisms must comply with and establishes a cooperation mechanism between Member States and the EU Commission.

Key insights from the Report

The Second Annual Report on FDI screening builds on its predecessor from last year (see our previous coverage here) and draws from information provided by the Member States for 2021. It has been released along the Annual Report on Dual Use Export Controls on 1 September 2022, indicating that the EU Commission sees both matters as closely related.

Among a host of interesting statistics on FDI in the EU, the Report presents the following key insights:

  • 18 Member States reviewed numerous filings at national level; Member States have reported 1,563 requests for authorisation and ex officio cases, out of which 29 % underwent formal screening compared to 20 % in 2020, suggesting a more sensitive approach. Further, out of these screened transactions, 1 % were blocked, 3 % withdrawn and 23 % authorized with conditions – the latter marks a substantial increase compared to 12% in 2020 and mirrors our own experience if investors from certain geographies are involved, in particular China or Russia.

  • 414 notifications where submitted by 13 Member States under the EU cooperation mechanism. More than 85 % transactions were notified by five Member States alone: Austria, France, Germany, Italy and Spain – note that Germany only notifies transactions to the EU that enter Phase II under the national FDI regime.

    • 86 % of the notified transactions did not justify further investigation and were thus assessed by the EU Commission in just 15 days (the so-called Phase I), while 11 % proceeded to Phase II, which requires a more detailed assessment and the provision of additional information (the remaining 3 % were still ongoing).

    • Most of the notified transactions concerned information and communications technology (36 %), the manufacturing sector (25 %) and financial activities (9.5 %). These transactions often involved one or more of the factors for consideration listed in Article 4 of the Regulation: notably critical infrastructure, critical technology, dual use items and access to sensitive information, as well as possible government ownership or control of, or influence over, the foreign investor.

    • For the notified transactions, the top 5 countries of origin of investors were the United States (40 %), the United Kingdom (10 %), China (7 %), Canada (4 %) and the Cayman Islands (4 %).

    • The EU Commission issued an opinion in less than 3 % of the notified transactions. For background, the EU Commission only issues opinions where the investor’s risk profile and the criticality of the investment warrant it.

  • The EU Commission counts 18 FDI screening mechanisms among the 27 Member States. Out of the other 9 Member States, 7 are expected to have a national FDI screening in the near future, e.g. Belgium and Ireland. Thus, leaving only Cyprus and Bulgaria without any publicly reported initiative underway. The EU Commission emphasises the necessity of screening mechanisms in all Member States in order “to safeguard the Union against potentially risky foreign investments from third countries” since a patchwork of national regimes can easily be bypassed within the Single Market.

  • The EU Commission expresses the view that “overall, the [Regulation] has worked quickly and efficiently, providing a range of useful information and preventing investments posing security risks, all while not restricting the flow of foreign investment”. Notwithstanding, Member States tend to stop the clock on their FDI procedures during the cooperation mechanism with the EU Commission. This means, in turn, that in all cases the EU Commission closed in Phase I (86 %), the parties may have faced delays until clearance, despite there being no issues. Additionally and despite the cooperation mechanism being supposed to add a maximum delay of 15 days, according to the EU Commission “the average duration for Member States to provide the requested information [in Phase II] has been 22 calendar days […], with a range from 3 to 101 days. A study was launched to assess the efficiency of the Regulation and the potential need for a revision in 2023.

  • Finally, regardless of imposed sanctions against Russia and Belarus due to the Ukraine war, the EU Commission deems that “there is a heightened risk that any investment – directly or indirectly related to a person or entity associated with, controlled by or subject to influence by the Russian or Belarusian government – into critical assets in the EU may pose a threat to security or public order in Member States”. FDI screening and sanctions are distinct legal instruments. For this reason the EU Commission adopted Guidance on FDI from Russia and Belarus in April 2022.

Source: European Commission

Source: European Commission


The developments are in line with advances on tightening FDI rules and their enforcement in the rest of Europe as well as globally. The UK has set up its own mandatory FDI regime, which came into force on 4 January 2022. Especially since the pandemic, regulators have become more and more active in imposing conditions on M&A transactions or prohibiting them altogether under FDI rules – with several prohibitions happening in the EU’s largest economies Germany, France and Italy as well as deals falling through due to FDI scrutiny. This trend continues!




Nicolas Riemann, a trainee in our Brussels office, and Laura Kathrin Schröder, a research assistant in our Dusseldorf office, contributed to this article.


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