More than halfway through 2023, there is no easing in sight on the FDI front.

  • The game-changing EU Foreign Subsidies Regulation took effect. The first legislation of its kind ever entered into by a trading bloc.
  • FDI regimes in two key EU jurisdiction, The Netherlands and Belgium, have come into force, introducing far reaching screening mechanisms.
  • At the same time, the ECJ renders a decision that has the potential to counteract overly extensive FDI review practices of EU Member States.
  • Current practice trends and policy developments in the EU and on national level foreshadow tighter scrutiny of foreign direct investments in Europe.

EU Foreign Subsidies Regulation Enters Into Effect, Implementing Regulation is adopted

Since July 12, 2023, the EU Foreign Subsidies Regulation is in effect. Only two days earlier, on July 10, 2023, the European Commission adopted the Implementing Regulation, setting out the notification and review procedure under the Foreign Subsidies Regulation. The following summary provides valuable guidance for companies how to prepare for filings and how to tackle the challenges of these new tools:

EU Foreign Subsidies: Filing Forms Adopted and Regulation Takes Effect

Dutch and Belgian FDI Regimes Enter Into Effect, Luxembourg to follow in September

The Netherlands

On June 1, 2023, the Dutch FDI regime entered into force, introducing a mandatory and suspensory screening regime. The regime has a very broad scope in that it is applicable to non-European and European (even including Dutch) investors. Please see our summary of the Dutch FDI screening mechanism here:

Dutch Foreign Direct Investment Screening Regime Enters Into Force


On July 1, 2023, the Belgian FDI regime entered into force. Transactions signed on or after this date, involving Belgian entities active in certain sensitive sectors may now trigger notification under Belgium’s foreign direct investment screening mechanism. The Belgian FDI rules provide for a mandatory and suspensory screening regime and applies to investments by non-EU investors. Similar to many other FDI rules, the Belgian regulatory framework is not free from ambiguities. Therefore, an unexpectedly large number of deals could become subject to FDI review, the length and outcome of which may be somewhat uncertain. Please see our analysis of the Belgian FDI screening mechanism:

FDI Screening Mechanism Now Active in Belgium


On September 1, 2023, the Luxembourg FDI regime will enter into force, establishing a mandatory screening system for foreign investments in Luxembourg-law governed companies carrying out critical activities in Luxembourg. While the Luxembourg FDI rules do not apply to smaller portfolio investments, they oblige foreign non-EU investors to notify direct or indirect acquisitions of control over Luxembourg entities carrying out critical activities in a range of sectors including energy, transport, health, finance, data processing, and media.

“Landmark” ECJ Judgment

Following a request for a preliminary ruling from the Budapest High Court, Hungary, the ECJ answered that, absent evidence of circumvention, the EU Screening Regulation is not applicable to transactions when the acquirer is a company established in the EU, even if it is ultimately controlled by a company established outside the EU. Therefore, such directly acquiring company cannot be considered to be a “foreign investor” on the basis that it is part of a group of companies whose ultimate parent company is established in a non-EU country.

In those circumstances, the prohibition of (or the imposition of conditions to) an acquisition under a national foreign direct investment regime would be a restriction of the freedom of establishment within the meaning of Art. 49 TFEU. Pursuant to Art. 52 (1) TFEU, such restriction may only be justified to ensure the security and the continuity of supply of basic social needs, in other words on grounds of public order, public security or public health. The ECJ held that this would not be the case in the transaction referred by the Hungarian court, which concerned an acquisition of a Hungarian company active in the supply of raw materials to the construction sector.

The judgment is particularly impactful because many EU Member States’ FDI regimes comprise a broad definition of sectors that are deemed “sensitive” and purport to apply to indirect investments, i.e., where the direct acquirer is established in the EU but the ultimate owner is non-EU. Following the judgment, however, national FDI authorities may no longer restrict investments by EU companies solely on the basis that they are ultimately owned by non-EU shareholders and will face increased scrutiny when attempting to restrict investments by EU companies which do not clearly pose a genuine and serious threat to the fundamental interests of society. [Case C-106/2022 Xella, judgment of July 13, 2022]

EU Commission announces upcoming FDI initiatives as part of its European economic security strategy

With its communication to the EU Parliament and Council published on June 20, 2023, the European Commission (the “Commission”) set out its proposed comprehensive strategy on the EU economic security (the “Strategy”).

The Strategy is founded on three priorities, i.e., (i) promoting competitiveness, including by diversifying sources of supply and export markets, (ii) partnering with like-mind third countries, and (iii) protecting from specific economic risks, both deploying and enhancing existing tools (e.g., foreign investment review, foreign subsidies) and introducing new instruments (e.g., outbound investment screening).

The Strategy lays down a groundwork for discussion with EU Member States and Parliament, with a view to adopting a set of new initiatives, some of which would have a direct relevance on – generally speaking – the EU and domestic foreign direct investment frameworks.

Key risks identified by the Commission include technology security and technology leakage, which in turn can go as far as affecting national security, as in the case of dual use technology leakages, foreign direct investments threatening security and public order, and outbound investments in certain sectors.

In the Strategy, among other initiatives, the Commission proposes to address these risks as follows:

  • Revision of current EU FDI framework: revising and possibly enhancing the existing FDI cooperation mechanism set forth in Regulation (EU) 2019/452, in respect of which in June 2023 the EU Commission already launched a public consultation; Cleary Gottlieb has submitted its contribution to the consultation focusing on ways that the FDI review could be made more transparent and predictable, and more simplified in cases with no prima facie national security impact.
  • New dual-use export control framework: introducing a common framework on export control of such dual-use technologies as will be specifically identified by the Commission, building upon the existing framework;
  • Outbound investment screening: recognizing that threats (such as technology and know-how leaking) may come from not just exports but also outbound investments (particularly towards “destinations of concern that operate civil-military fusion strategies”), the Commission, with the assistance of a group of Member States’ experts, will identify the key risks related to these investments and propose an initiative (in the Strategy, there never is an express reference to “investment screening”, though).

In any event, any proposed measure on this front would appear to have a limited scope of application and, in particular, concentrate on a “narrow set of key enabling technologies with military applications (e.g. in the areas of Quantum, Advanced Semiconductors, Artificial Intelligence)”.

In each case, the Commission indicated that it will table its proposal by the end of 2023.

Interestingly, based on the Strategy, the Commission’s proposed initiatives should be coupled with independent and parallel efforts on the part of private economic players, as the Commission encourages EU businesses to “conduct due diligence and risk management” in light of the mentioned security concerns.

Developments in other national Jurisdictions

UK National Security Annual Report

On July 11, 2023, the UK government published its second Annual Report on the National Security and Investment Act 2021. Here are our observations on this report and the recent practice of the Investment Security Unit:

UK National Security Regime: Annual Report 2023 and Observations on Recent Practice

Recent Trends in Italy

The new Italian government, in office since October 2022, has left its mark on Italian FDI decision making. In the following article we analyze the government’s approach to FDI review in certain landmark cases:

Italian FDI, When the Government May Rewrite Corporate Governance

Germany Issues China Strategy

In July, the German government issued its China strategy. After the much debated investment by Chinese COSCO in a freight terminal of the port of Hamburg, which was (partially) cleared, and other Chinese investments in the semi-conductor and healthcare sectors, that had been prohibited in 2022, it was anxiously anticipated whether the government’s stance towards China would make the case for taking steps to de-couple the German economy from China. Eventually, the government’s China strategy now clearly states that no de-coupling is envisaged, but rather a de-risking strategy shall be adopted by reducing dependencies from China.

The strategy paper dedicates an entire section on the review of foreign direct investments from China, which basically is a roadmap for Germany’s future FDI policy and review framework in relation to Chinese foreign direct investments:

  • The strategy acknowledges that Chinese direct investments pose challenges, in particular due to the Chinese government’s fuse of the military sector with civil industry sectors. Not surprisingly, this indicates that Chinese investors will continue to experience significant scrutiny when making acquisitions in Germany.
  • Further, the protection of critical infrastructures and of Germany’s technological sovereignty are underscored. This clearly is a reference to the recent case of COSCO and prohibited investments in the semi-conductor sector and can be understood as a reflection of the controversial political debates in this regard, in particular in relation to the government’s decision to partially clear COSCO’s investment in the Hamburg port freight terminal.
  • The strategy also states the German government’s will to intensify its exchange with other EU Member States, the USA and within the G7 group in relation to Chinese investment strategies. In this regard, it will be particularly interesting to see the results of the currently ongoing evaluation of the EU Screening Regulation and to what extent its coordination mechanism will be adjusted and whether Germany may even consider to review Chinese greenfield investments in the future.
  • Finally, the strategy anticipates further changes of the German FDI regime including its consolidation into one standalone investment screening act. The strategy also mentions the ongoing considerations of an outbound investment screening mechanism as an effective tool to protect key technologies and the German government’s intention to contribute to this discussion on the EU level.

The full text (English version) of the German government’s China Strategy can be found here.