This summer, the European Union adopted a new FDI Screening Regulation, which is set to significantly change the rules governing foreign investment in Europe. In practice, the new rules may affect who will be able to acquire strategic European companies and even whether certain transactions will proceed at all. The change reflects Europe's determination to protect its market more strongly at a time when security and geopolitics are increasingly shaping investment decisions.
Although all 27 European Union Member States have recently introduced rules on the screening of foreign investment, their criteria and screening systems remain fragmented and uneven. Regulation 2026/1386 of 17 June 2026 on the screening of foreign investments in the Union and repealing Regulation 2019/452 is intended to change this. The new rules are transformative, but they will apply to transactions that are not completed before 17 January 2028. There is therefore time to prepare.
The key change is that all Member States will be required to screen investments in specified strategic sectors, and the minimum list of those sectors, which Member States may expand but not reduce, is quite extensive. It includes, among other things, the development, production or commercialization of dual-use or defense-related products; the manufacture, research or development of semiconductors, quantum technologies or artificial intelligence technologies; and activities in the transport, energy, digital infrastructure and strategic raw materials sectors. Protection will also extend to certain entities operating in regulated and financial markets, as well as entities that own databases used for voter registration, voting systems or information systems.
The broad range of sectors subject to protection, together with the detailed parameters for assessing when a foreign investment is likely to have a negative impact on security or public order, shows how seriously the EU regulator approaches Europe's security and how highly it assesses the threat. It should be remembered that the new rules were introduced at the request of the European Commission, which systematically monitored the implementation of Regulation 2019/452 and identified gaps in the law or in practice that required a response.
A broader scope for FDI screening
Screening will cover not only traditional direct investments from outside the EU, but also 'intra-EU' transactions where the investor is ultimately controlled by an entity from a third country. The new Regulation introduces an autonomous definition of beneficial owner. Although the concept derives from anti-money laundering legislation, the criteria and approach used to examine ownership and control structures differ significantly between the two regimes. In foreign investment screening, the main objective is to identify an entity that may exert influence on the EU economy or act in the interests of a third country. Any degree of actual control or benefit that may create a security risk is relevant. Unlike AML rules, which typically specify the percentage threshold of shares, interests, or voting rights that
determine legal conclusions, Regulation 2026/1386 does not provide for such presumptions in its general definition. What matters is any degree of actual control or benefit that may create a risk to security or public order. Member State screening authorities will have considerable interpretative, and consequently decision-making, discretion in this area.
What the new FDI regime means for M&A
According to the Commission's report on foreign direct investment, which is issued annually pursuant to Regulation 2019/452, the cumulative stock of foreign direct investment in the EU continued to increase over the past decade. The long-term cumulative increase applies to both foreign M&A transactions and greenfield investments, although their annual performance diverged in 2025. The previous Commission report noted a decline in the overall value of FDI inflows, but the latest report focuses primarily on transaction numbers because value data is unavailable for a significant proportion of deals and projects. The cumulative data nevertheless confirms that the EU Single Market remains attractive to international investors and that FDI screening has not resulted in a more restrictive investment climate. Although the number of transactions notified under the EU cooperation mechanism increased substantially in 2025, 88% were closed in Phase 1 and 12% proceeded to the more detailed Phase 2 assessment. Separately, among formally screened investments for which Member States reported a decision, 87% were authorized without conditions and 9% were authorized subject to conditions or mitigating measures. National authorities prohibited approximately 1% of cases in which a decision was reported, consistent with the average in recent years.
It is assumed that, under the new rules, the aggregate percentage data for transactions that are subject to screening and properly notified will not differ significantly. However, investments in strategic sectors will certainly require careful analysis, preparation and structuring. For Poland, which on the one hand is a jurisdiction where direct investments are reviewed at several levels and on the other has introduced a number of exemptions relieving most investors of the obligation to obtain clearance, these will be major changes.
In addition, Regulation 2026/1386 encourages Member States to extend screening to greenfield investments and introduces retrospective review of completed investments that were not subject to a clearance requirement or were not notified despite such an obligation. Depending on how a particular Member State implements these guidelines, many analyses and preparations may result in a precautionary 'better to notify' approach, and that approach may not necessarily be the simplest one.
FDI screening matters to sellers, too
FDI screening is an issue for every participant in the transaction: the company, the investor and the seller.
For the company, the identity of its shareholder is not irrelevant. Closing a transaction with an investor from outside the European Union may result in the loss of the company's eligibility to participate in certain tenders, programs or funding schemes. It may sometimes lead to an obligation to repay grants already received or to the termination of existing agreements. Depending on the sector and the
company's circumstances, a detailed analysis of the risks associated with ownership changes may determine the very survival of the target. The investor will take a similar perspective, strategically assessing the company and its growth prospects after closing, while also considering how to structure its offer. In some cases, an investment in a minority stake or a joint venture with a European partner may prove to be an alternative worth considering.
The same applies to the seller, particularly where the transaction does not involve a 100% exit from the company. Assessing the investor's credibility from an FDI clearance perspective becomes an important element in evaluating the offer. The highest price will not always represent the best offer if the regulatory risk is so substantial that the transaction could be delayed for many months or fail to close altogether. Deal certainty is a value in itself, and contractual commitments to provide financial compensation if clearance is not obtained will not improve the position of a prospective buyer if that buyer presents a greater risk that foreign investment screening authorities will find that the investment is likely to have a negative impact on security or public order.
Assessing risks to security and public order
Under the new Regulation, Member States or the Commission will not have to determine conclusively that an investment will have a negative impact. To block a transaction or impose mitigating measures, it will be sufficient to establish its likely negative impact. The assessment must consider the potential impact of the investment on a project or program of Union interest, with Annex II to the Regulation currently listing more than twenty such programs and allowing the Commission to supplement the list through delegated acts; the availability, including outside the Union, of certain critical technologies; the security and integrity of critical infrastructure; the continuity of supplies of critical inputs; as well as media freedom and pluralism, the protection of electoral processes, health protection and food security, and the security of sensitive facilities located in close geographical proximity to the target Union undertaking.
Circumstances relating to the foreign investor will also be analyzed, and the proposed system for exchanging information and cooperation between Member States and the Commission is intended to ensure a comprehensive review that takes into account not only the interests of the host country, but also those of other Member States that may be affected by the investment.
A more protected, but still open, European market
These developments should not be seen in such categorical terms, although in the most strategic and sensitive sectors, defense and advanced technologies, certain programs do indeed contain nationality-related elements. However, legislative changes are moving toward protecting the EU market as a whole in relation to the rest of the world, and one element of that protection is increased scrutiny of foreign investment.
This does not, however, mark the end of international investment. On the contrary, in a world divided into regions and blocs, well-considered acquisitions are an important instrument for building a local competitive advantage, obtaining technology and securing supplies.
Poland remains an attractive investment market
Poland remains a highly attractive market for international investors. Recent months have brought several strong signals confirming the sound condition of the Polish economy. In the second quarter, Poland's GDP grew by 3.9% year on year, which outpaced most other large EU economies. In August, S&P Dow Jones Indices classified Poland as a developed market, which sends international investors a very clear signal about the maturity and accessibility of the Polish capital market. The invitation to participate in the work of the G20 and the steadily increasing value of GDP reinforce this positive message. There are also challenges, however, and a less optimistic view can be supported by objective measures. Moody's downgrade of Poland's credit rating may be a cause for concern.
For investors and businesses, the message is therefore not to retreat, but to prepare. FDI considerations should be addressed early in the transaction process, alongside the commercial, financing and competition-law analysis. In an increasingly complex geopolitical environment, careful planning and a clear understanding of the investor, the target and the relevant strategic interests will be essential to achieving deal certainty.
09 November 2026