Short answer
A Member State may review a foreign investment and, where the evidence warrants it, impose proportionate conditions or prohibit it to protect public security or public order. But labelling a target “strategic” is not enough. The authority must identify a genuine and sufficiently serious threat to a fundamental interest of society, apply transparent and legally certain rules, respect EU cooperation procedures, and show that its response is suitable and no more restrictive than necessary. Pure economic protectionism does not qualify.
The transaction must first be classified correctly. A direct investment by a third-country investor currently falls within . An acquisition by an EU company may instead engage freedom of establishment, even if a third-country parent controls it. Free movement of capital can also apply to movements involving third countries.
Timing now matters. Regulation (EU) 2026/1386 entered into force in July 2026, but its main screening rules generally apply from 17 January 2028. Until then, the 2019 framework remains central; transitional rules preserve it for specified investments after that date.
Start by classifying the investor and the transaction
Under the current regulation, “foreign direct investment” means an investment by a third-country natural person or undertaking intended to create lasting and direct links, including effective participation in management or control. A portfolio holding without such influence may instead be assessed principally under the Treaty rules on capital.
The applicable freedom also depends on control. An acquisition giving an EU undertaking definite influence over another company engages on establishment. prohibits restrictions on capital movements both between Member States and between Member States and third countries, subject to the limited derogations in Article 65.
That classification can decide whether the current screening regulation applies. In , an EU-incorporated acquirer belonged to a group under decisive third-country influence. The Court of Justice held that Regulation 2019/452 did not cover the acquisition merely for that reason: the regulation's definition covered undertakings organised under third-country law. An artificial intra-EU arrangement designed to circumvent screening can be treated differently under Article 3(6) and recital 10.
From 17 January 2028, Regulation (EU) 2026/1386 will generally broaden the Union framework to relevant intra-EU investments made through an EU subsidiary ultimately controlled by a third-country investor. An authority should therefore identify both the transaction date and the applicable transitional rule before choosing its legal basis.
What the current screening framework permits
Regulation 2019/452 does not transfer the final screening decision to the Commission. It permits national mechanisms, establishes procedural minimums, and creates cooperation between Member States and the Commission.
“Member States may maintain, amend or adopt mechanisms to screen foreign direct investments in their territory on the grounds of security or public order. Rules and procedures related to screening mechanisms, including relevant timeframes, shall be transparent and not discriminate between third countries.”
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Article 3 also requires the national rules to specify the circumstances triggering review, the grounds and detailed procedure. Authorities must apply stated timeframes, protect confidential information, permit recourse against decisions and address circumvention. Those safeguards matter independently of whether the security concern is plausible.
Article 4 supplies a non-exhaustive risk map. It includes effects on critical infrastructure; critical and dual-use technologies; critical inputs such as energy, raw materials and food; sensitive information; and media freedom and pluralism. Investor-side factors include third-country government control or significant funding, earlier conduct affecting security or public order, and a serious risk of illegal or criminal activity. These are assessment factors, not automatic grounds for prohibition.
The threat must justify the particular restriction
Prior notification is itself a restriction, but it is not automatically unlawful. In , the Court accepted that the difficulty of recovering capital after entry might sometimes make advance control necessary. It nevertheless rejected a vague scheme that did not tell investors when authorisation was required.
“Measures which restrict the free movement of capital may be justified on public-policy and public-security grounds only if they are necessary for the protection of the interests which they are intended to guarantee and only in so far as those objectives cannot be attained by less restrictive measures.”
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This produces a practical ladder. The authority should establish the protected interest and evidence the threat; ask whether notification, information controls, governance commitments, supply obligations or another condition resolves it; and prohibit or unwind only if a narrower response is inadequate. Conditions must themselves be connected to the identified risk, capable of addressing it and enforceable.
The grounds are interpreted strictly. A Member State cannot turn “security” into a general industrial policy exception.
“Public policy and public security may be relied on only if there is a genuine and sufficiently serious threat to a fundamental interest of society. Moreover, those derogations must not be misapplied so as, in fact, to serve purely economic ends.”
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In Xella, Hungary prohibited an EU company from acquiring a domestic quarry operator, relying on local security of supply for gravel, sand and clay. The Court treated the prohibition as a particularly serious establishment restriction. Ordinary construction inputs at local level were not comparable to crisis-sensitive petroleum, telecommunications or energy supply, and the evidence did not show the required serious threat. The judgment does not mean supply security can never justify screening; it shows that sector labels and abstract scarcity claims cannot replace a fact-specific proportionality assessment.
Cooperation is mandatory, but the host Member State decides
For an investment undergoing screening, Article 6 of Regulation 2019/452 requires notification to the Commission and other Member States. They may seek proportionate information, provide justified comments or issue an opinion within the regulation's timeframes. The host Member State must give due consideration to those inputs, but takes the final decision.
The mechanism can also address investments not undergoing screening. Comments or a Commission opinion may be issued for up to 15 months after completion under Article 7. Where an investment may affect a project or programme of Union interest, Article 8 requires the host State to take utmost account of the Commission's opinion and explain any departure. Screening does not displace merger control, the Foreign Subsidies Regulation, sanctions, prudential acquisition reviews or sector-specific authorisation rules; each instrument needs its own legal analysis.
The enacted 2026 framework tightens the test from 2028
entered into force in July 2026. Most of it applies from 17 January 2028, when Regulation 2019/452 is repealed subject to Article 30's transitional rules. The recast requires every Member State to maintain a screening mechanism and establishes a common minimum scope covering sensitive technologies, infrastructure, critical raw materials and specified financial and electoral assets.
Its Articles 19 and 20 make the decision sequence more explicit. The assessment must address the likely negative effect on security or public order, taking account of the target, investor, beneficial ownership, State influence, sanctions circumvention and other specified risk factors. If a risk is established, suitable mitigation comes before a ban.
“The host Member State shall only adopt a screening decision prohibiting or ordering the unwinding of the foreign investment where the likely negative effect on security or public order cannot be adequately addressed through other means.”
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Possible measures include governance or voting-right changes, restrictions on access to sensitive technology or information, continuity-of-supply commitments, secure sourcing, cybersecurity protocols and EU data-storage requirements. These examples do not make any condition lawful automatically: the measure must sufficiently resolve the proven risk and still comply with the Treaties.
A decision checklist
Before screening, conditioning or blocking an investment, the authority should be able to answer:
- Who is the legal investor, who ultimately controls it, and is any EU structure artificial?
- Does the investment confer definite influence, create lasting direct links, or remain a portfolio holding?
- Which current or transitional EU regulation applies on the relevant date?
- What specific security or public-order interest is threatened, and what evidence makes the threat genuine and sufficiently serious?
- Are the trigger, grounds, timetable and procedure transparent, non-discriminatory and legally certain?
- Could a narrower, enforceable condition adequately address the risk?
- Have affected parties had an opportunity to respond and obtain judicial review?
- Have required Member State and Commission cooperation steps been completed and considered?
- Do merger control, foreign-subsidy, sanctions, prudential or sector rules apply in parallel?
Conclusion
A Member State may screen foreign investment to protect real security or public-order interests and may condition, prohibit or unwind a transaction when the evidence and proportionality analysis support that response. Its national-security responsibility does not create an unreviewable discretion. The scheme must define its reach clearly, the decision must address a genuine and serious threat rather than an economic preference, and less restrictive measures must be considered. The current 2019 framework supplies those minimum safeguards; the enacted 2026 regulation makes mandatory screening and mitigation-first decision-making more explicit from 17 January 2028.
Sources
This article provides general legal information, not advice for a specific matter. Laws, facts and procedural deadlines may change the result. Follow the linked primary sources and obtain local advice before acting.