COVID-19: The European Commission issues guidance on foreign direct investment screening


As a result of the COVID-19 outbreak, the European Commission has issued guidelines on the use of the FDI Screening Regulation. The guidance springs from the risk in which many European enterprises find themselves as a result of the COVID-19 pandemic. In it, the Commission urges all Member States to increase co-operation and the exchange of information on third country investors. The Commission also encourages the use of any national screening mechanisms that may already have been implemented, or to use alternative methods to monitor and assess foreign investments, particularly in health and research industries.


In light of, first and foremost, the healthcare emergency brought about by the COVID-19 virus and the resulting economic crisis currently sweeping Europe and the rest of the world, the European Commission issued on 25 March 2020 a guidance on the measures and tools that are available to Member States in connection to foreign direct investments (FDI) under EU’s FDI Screening Regulation. 

The FDI Screening Regulation establishes an EU-wide mechanism enabling a coordinated screening of foreign direct investments that could potentially prejudice the public order and safety of the European Union and its constituent Member States. It obliges all Member States to exchange information between themselves and with the Commission. Although the FDI Screening Regulation will not be fully operational until 11 October 2020, the European Commission and the Member States are already cooperating to adjust national screening mechanisms to ensure full and swift implementation of the Regulation both at EU and Member States level. So far, the FDI Screening Regulation has mostly been mentioned in relation to the threat of foreign entities acquiring European industries in the utilities sector and in the area of technology, e.g. robotics, cyber security and artificial intelligence, but now the onslaught of the COVID-19 pandemic has directed attention also to critical healthcare infrastructure and supply of critical commodities. 

Member States urged: Implement national screening mechanisms

While the COVID-19 outbreak will presumably lead to a decline in foreign direct investments, it has also severely destabilised markets, leaving a number of enterprises potentially at risk of being taken over at an artificially low price (predatory buying). It has also meant that particularly health and healthcare-related sectors and research relating to the coronavirus are now considered critical industries.

On that background, the European Commission has found it necessary to guide Member States about the tools each of them has at its disposal in relation to implementing national screening mechanisms to assess and possibly block foreign direct investments in strategic industries. The FDI Screening Regulation was introduced to urge Member States without national screening mechanisms to introduce one, but now the health crisis and the accompanying economic weakness throughout Europe have elevated that issue to the point where it is now politically much more at the forefront. In the guidance, therefore, the Commission also stresses that Member States should apply all available legal measures to keep assets and technologies critical to public health from being taken over. 

What FDI screening mechanisms are in effect today? 

Currently, 14 Member States have FDI screening mechanisms in place, aimed at responding effectively to foreign direct investments. The rest of the Member States, including Denmark, are either in the process of implementing or expanding their national screening programmes. Outside the EU, Australia recently strengthened its national screening rules so that now all foreign investments – no matter how small a part of the business is being acquired and no matter the purpose or type of transaction – must be screened. The measure is extremely restrictive and means that from now on all foreign investments in Australian companies are subject to clearance. In addition, Spain, effective from 18 March 2020, has introduced regulation requiring a screening of foreign investments whereby either 10 per cent or controlling interest would be acquired in a Spanish enterprise within specific sectors, including critical infrastructure, utilities, technologies and industry. The Spanish mechanism is very similar to the extent of the German screening mechanisms, since Germany – in 2019  lowered the threshold for screening of foreign direct investments from 25 per cent to 10 per cent. Spain has already, in addition to its new FDI regime, adopted supplementary FDI initiatives to counter the social and economic impacts of COVID-19. These supplementary measures, implemented by RDL 11/2020, took effect on 2 April 2020 and establish, for example, what it takes for an investment to qualify as a foreign investment.

The European Commission, with its new guidelines, urges all Member States which have screening mechanisms in place to make as much use of them as possible. The remaining Member States, which have not yet set up national FDI screening mechanisms are urged to do so, and until then, to use all available alternative means to carefully assess whether a foreign investor’s acquisition of or control over any given business, infrastructure or technology would pose a risk to safety or public order. 

Denmark’s position

At present, Denmark does not have a cross-sectoral screening system, which means the Danish Munitions Act is currently the only act directly addressing FDIs, but work to prepare and implement a Danish screening mechanism has begun. A cross-ministerial working group has been set up, consisting of a number of ministries, which are currently preparing recommendations for possible models for a future Danish screening mechanism. In light of this, and especially in light of the Commission’s request to Member States, we would expect to see a bill on the table later this year.  

Read the European Commission’s guidance

Read the FDI Screening Regulation