Fifth Annual Report of the EU on Foreign Direct Investment

On 14 October 2025, the European Commission (the “Commission”) published its fifth annual report on the screening of foreign direct investment in the Union. This report describes the latest developments in the area of foreign direct investment (FDI) in the EU, as well as legislative developments at the Member State and European levels and other trends in FDI screening. Foreign Direct Investment in the EU: Investment Trends and Screening Activity. Compared to the previous year, FDI into the EU decreased by 8.4% in 2024. This downward trend is attributed to ongoing uncertainties such as escalating global trade tensions and geopolitical conflicts. In total, just under 1,300 applications for approval were formally screened across the EU in 2024. The vast majority (86%) of these were approved without conditions. Only 1% of decisions were rejected. Of the remaining decisions, 9% were subject to conditions or remedial measures. The remaining 4% of applications were withdrawn before a formal decision was reached. The report notes that, therefore, only FDIs posing a significant security risk continue to be blocked. By comparison, according to the report published on January 31, 2025, by the Federal Ministry for Economic Affairs and Energy, 261 review procedures under the Foreign Trade and Payments Ordinance (AWV) were conducted in Germany in 2024. Within the framework of the EU-wide cooperation mechanism, which allows national authorities to inform their foreign counterparts and the Commission about reportable transactions with cross-border effects and thus take coordinated action, 477 notifications were submitted in 2024. Particularly sensitive transactions mostly involving critical technologies, for example in connection with the defense sector. Legislative Developments Since the introduction of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for screening foreign direct investment in the Union (the “FDI Regulation”), 24 Member States have introduced their own FDI screening mechanisms, most recently Bulgaria and Ireland in 2024. The remaining Member States, Croatia, Cyprus, and Greece, are currently in consultation and legislative procedures. A majority of Member States with existing screening mechanisms have made various amendments, particularly to better protect infrastructure and economic sectors that are strategically important for national security. The increasing prioritization of national security by Member States is also having an impact at EU level. The report briefly addresses the legislative procedure for amending the FDI Regulation. The Commission presented its first proposal on 24 January 2024, followed by the European Parliament's amendment proposal in May 2025, and the Council of the European Union's own proposal in June 2025. The legislative process is currently in the trilogue negotiations, with a third trilogue scheduled for November 2025. The Commission's proposal aimed, among other things, to include indirect foreign investment (via EU subsidiaries) in the scope of the regulation, to improve the cooperation mechanism between Member States and the Commission through a uniform standstill obligation, and to further harmonize the definition of critical sectors in the EU. The proposals from Parliament and the Council go further, providing for binding investment screening mechanisms in all Member States, but differ in the depth and scope of the sectors covered and in the role of the Commission. Parliament wants to extend the review to additional areas such as transport, election infrastructure, and critical raw materials, while the Council is focusing more on military and dual-use goods. Parliament's proposal would also give the Commission the power to prohibit investments itself, whereas the Council wants to leave this decision to the Member States. Outlook: The amending regulation to Regulation (EU) 2019/452 is intended to reduce the regulatory burden for economic operators, in addition to introducing a minimum standard. Nevertheless, economic operators must expect that more stringent and, above all, divergent requirements will continue to be imposed at the national level, exceeding this minimum standard. A careful review based on national regulations will therefore remain necessary for company acquisitions, mergers, and restructurings. The legislative process is now expected to conclude in early 2026, rather than in 2025 as originally anticipated.