The new EU FDI Regulation: Steps towards harmonization across the EU and what it means for Sweden
The Council publishes a near-final draft…
Europe has grown increasingly cautious about foreign investment. For now, the task of screening such investments remains with each EU member state, which applies its own national foreign direct investment (FDI) screening regime.
Concerned that diverging national rules could leave gaps and leave harmful investments unchecked, the European Commission introduced the EU FDI regulation and has since sought to strengthen it. That effort has triggered intense debate in Brussels.
While the European Parliament has supported a stronger role for the Commission in overseeing foreign investments into the Union, the Council of the European Union has insisted that national governments retain their say over what investments should be allowed in their countries. A political agreement was finally reached in December 2025.
The Council has now published what appears to be a near-final draft of the revised EU FDI regulation. On the central question of who decides, the Council appears to have had its way, with decision-making power remaining firmly in European capitals rather than shifting to Brussels.
For Sweden, which reviewed around two thousand filings last year and operates what is arguably one of Europe’s broadest FDI screening regimes, the key question is what, if anything, will need to change if the Council’s proposal is adopted in its current form.
Spoiler alert: Not much, but do read on for the fineprint.
… whereby everyone must have an FDI regime…
Under the new regulation, all EU member states will be required to operate a national FDI regime aligned with the framework set out in the proposed regulation. With Cyprus as the last member state introducing an FDI screening regime in April 2026, this requirement should be uncontroversial.
The framework operates as a minimum standard. Member States may adopt provisions that are complementary or more specific, provided they remain consistent with the regulation’s objectives. By way of example, member states remain free to set their own voting rights thresholds for when an investment triggers a filing obligation.
For Sweden, this means that while some provisions may require fine tuning, it can continue to operate a regime that in most respects remains broader than the EU baseline.
… but member states retain the final say.
The proposed regulation makes clear that safeguarding national security remains the prerogative of the member states. National authorities will continue to decide when to open an in-depth review and whether to approve an investment, with or without conditions, or to block it outright.
Still, the regulation identifies a set of factors that member states are always expected to consider when reviewing investments. These include the effects on specified critical technologies, public health, the supply of certain medicines, food security, media freedom, and the proximity of the target to military facilities. The regulation also points to risk factors linked to the investor, such as opaque ownership structures or a likelihood that the investor may pursue a third country’s policy objectives to exert pressure on a member state.
The list of factors is not exhaustive, and member states remain free to consider other relevant circumstances.
The Swedish FDI Act takes a more open-ended approach. It provides that the authority should consider the nature and scope of the target’s activities, as well as circumstances relating to the investor, such as its government interests and any previous infringements. While it could be argued that the factors highlighted in the proposed regulation already fit within this broad mandate, some adjustment to the Swedish framework may nevertheless follow. This could take the form of amendments to the legislation itself, setting out the relevant factors more explicitly, or of authority guidelines referencing the regulation (which will apply as such and requires no transposition).
With a developed definition of “foreign investment”…
The regulation clarifies that a foreign investment includes both direct investments by a foreign investor and indirect investments carried out through a foreign investor’s subsidiary registered in the EU.
For context, the existing EU FDI framework captures only direct investments by foreign investors, a point clarified by the Xella judgment (C-106/22). As a result, investments made through EU based subsidiaries fall outside its scope. The proposed regulation would close that gap.
This is unlikely to require any material changes to the Swedish regime. Sweden’s definition of a foreign investment already mirrors the approach taken in the proposal and captures indirect investments carried out through a foreign investor’s subsidiary registered in the EU.
It is also worth noting that the origin of the investor is irrelevant for the notification obligation in Sweden. Even Swedish investors must file when acquiring interests in protected activities. However, the origin does matter at the stage of the substantive assessment, since only foreign investments can be made subject to conditions or prohibitions under the Swedish regime.
… and of “lasting and direct links”.
The proposed regulation covers investments that create “lasting and direct links” between the foreign investor and an EU target, where the foreign investor acquires control or effective participation in the management.
This will most commonly arise through share acquisitions that confer control over the EU target. But effective participation does not require majority ownership. It can also exist where a foreign investor is able to materially shape the target’s commercial policy or behaviour, for example through shareholdings, voting rights, contractual arrangements, leverage arising from supplier relationships, or significant board representation.
Here too, no major overhaul of the Swedish regime appears necessary. As noted above, member states remain free to set their own thresholds for when a filing obligation is triggered, and Sweden has chosen a low one. A filing is required once an investor acquires 10 per cent of the voting rights. In addition, a filing may be triggered where an investor, “in any other way”, directly or indirectly acquires influence over the target’s management, for example through veto rights or board representation. In practice, it seems the Swedish rules already sit comfortably within the framework set out in the Council’s proposal.
There is a minimum sectoral scope…
Member states must ensure that their FDI regimes impose a filing obligation where an EU target is active in any of the following areas, (a list that will look very familiar to anyone who has spent time with an FDI filing form):
• dual use items subject to export control, as listed in Annex I to Regulation EU 2021/821
• military goods and technology, as listed in the Annex to Directive 2009/43 EC
• production and research and development related to semiconductors, quantum technologies and artificial intelligence
• exploration, extraction, processing, recycling, recovery or stockpiling of strategic raw materials, as listed in Regulation EU 2024/1252
• financial market infrastructure services
• voting registration databases, voting systems and related infrastructure
• transport, energy and digital infrastructure deemed critical following a risk-based assessment by the Member State
The sectors listed are essentially reflected in the Swedish FDI regime. As a result, there will be no need for any major expansion of its scope. Some fine tuning may be required to reflect certain items and details set out in the regulation, for example in relation to semiconductors or artificial intelligence. But again, more tinkering than a rebuild.
… where internal restructurings are excluded.
Purely internal reorganisations fall outside the scope of the regulation where there is no change in beneficial ownership. In other words, moving boxes around the structure chart inside the same corporate group does not, in itself, trigger EU scrutiny.
However, “impure” internal reorganisations will still be caught. This includes cases where an internal restructuring results in an increase in the shares held, directly or indirectly, by a foreign investor in an EU target. It also covers restructurings that introduce a new legal entity established in a third country that was not previously present in the upstream ownership chain of the EU target.
By contrast, pure internal reorganisations do fall within the scope of the Swedish FDI regime. As noted above, Sweden is free to maintain such rules. The reform offers an opportunity as good as any to remove the notification requirement for purely internal reorganisations and align Sweden more closely with its fellow Member States, sparing both the authority and businesses a significant number of unproblematic filings.
Introduction of a somewhat harmonised procedure…
The regulation requires all member states to operate a two-stage review process:
· Phase I: an initial assessment within 45 calendar days of filing to decide whether to open an in-depth review;
· Phase II: an in-depth investigation to determine whether the foreign investment is likely to negatively affect security or public order.
Again, no big news here. The Swedish FDI regime operates a two-phase procedure, with 25 working days for the phase I review. During phase II, the authority has three months to complete its assessment, with the possibility of a further three-month extension in cases involving special circumstances.
The regulation requires the initial assessment to be completed “within” 45 days, suggesting that shorter phase I reviews remain permissible. Sweden’s 25 working days should therefore continue to work in principle. However, the timeline must leave room for comments and opinions from other member states and the Commission. Where other member states indicate that they intend to comment on an ongoing review, the 25-day timeline will almost certainly cause the case to move into phase II, simply to avoid the clock running out.
A hard obligation on investors to submit multijurisdictional filings on the same day, which was suggested in earlier drafts, has been taken out. Instead, where a transaction must be notified in several member states, investors are encouraged, though not required, to submit filings on the same day.
In those cases, the Member States concerned must coordinate and are expected to align their review timelines as far as possible.
… where everybody has a call-in right…
The regulation requires every member state to introduce powers to call in a transaction for review for at least 15 months after completion, where concerns relating to security or public order arise.
Sweden already ticks this box. Its authority has the power to call in an investment where it believes the transaction may harm national security or public order.
… and the cooperation mechanism is updated.
The cooperation mechanism will continue to play a central role and, in Sweden’s case, is likely to be used more than earlier.
Under the proposal, member states must notify the Commission and other member states of investments in their territory that fall within the mandatory scope sectors, provided that one of the following conditions is met:
· the foreign investor is directly or indirectly controlled by the government of a third country, whether through ownership structure, significant funding, special rights, or state appointed directors or managers
· the foreign investor is subject to sanctions
· the foreign investor has previously been subject to an FDI prohibition in the EU or has breached commitments imposed by a member state
Member states must also use the cooperation mechanism when they open an in-depth investigation into an investment whose target forms part of a group with subsidiaries in other member states, or where the target is active in a project of Union interest.
In addition, member states must notify any foreign investment that could negatively affect security or public order in at least one other member state. This is, in effect, an open invitation to use the cooperation mechanism whenever cross-border sensitivities arise.
Compared with the current EU FDI regulation, this is a more targeted notification obligation. Nevertheless, it may lead to an increased use of the cooperation mechanism in Sweden. Under the existing regime, Sweden has generally interpreted “undergoing screening” as referring to phase II cases, meaning that notifications are typically made only if an in-depth review is opened. Under the proposed rules, Sweden would need to notify all cases where the conditions above are met, regardless of whether the case is cleared in phase I.
However, as noted above, once a notification is made through the cooperation mechanism, the timelines involved are unlikely to fit within Sweden’s 25 working day phase I review. In most such cases, a phase II review will therefore result from time constraints rather than substantive concerns. As a consequence, we will most likely see more phase II reviews in Sweden.
Member states and the Commission may issue comments or opinions on transactions under review in another member state. In turn, the reviewing member state must give these “due consideration”, but is not bound by them.
Finally, the question of judicial recourse.
The regulation specifies that investors must have access to effective judicial remedies against screening decisions.
In EU law, effective judicial recourse is guaranteed by Article 47 of the Charter of Fundamental Rights of the EU, which enshrines the right to an effective remedy before an independent and impartial tribunal. Article 19 of the Treaty on the European Union reinforces this obligation, requiring member states to provide remedies sufficient to ensure effective legal protection in fields covered by EU law.
In Sweden, decisions to prohibit an investment or to approve it subject to conditions can currently only be appealed to the Government. While a government decision may, in certain circumstances, be reviewed by the Supreme Administrative Court, there is a real question as to whether a system that relies primarily on governmental review meets the EU standard. If not, this may prove to be one of the areas where reform to the Swedish regime is required.
What’s next?
The proposal brings greater substantive and procedural alignment across the EU. But the central principle is left intact: foreign investment screening remains, at its core, a national competence.
The proposal now needs to be formally approved by the Parliament and the Council, which is expected during the first half of 2026. Member States will then have ample time to adjust to the new Regulation: it will not apply fully until 18 moths after its publication. We may expect the new rules to come online by the end of 2027 / beginning of 2028. In other words, no need to lose sleep over these changes just yet.
For Sweden, the changes will be evolutionary rather than revolutionary. The framework will tighten, but Stockholm, not Brussels, will continue to hold the pen. Once formally adopted, we will likely see the appointment of a government inquiry to analyze the need for measures and supplementary statutory provisions aimed at harmonizing Swedish law with the new EU FDI regulation.
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