In 2020, the European Union introduced the Foreign Direct Investment (FDI) Screening Regulation with the aim of enabling cooperation between EU Member States and the European Commission in the screening of foreign direct investments that may affect security or public order. The introduction of this framework proved effective and led to a significant increase in the number of national screening mechanisms across the Union. However, as these mechanisms developed, notable divergences in scope, procedures, and thresholds became apparent among Member States.
A significant milestone was reached on 11 December 2025, when the European Parliament and the Council reached a provisional agreement on strengthening the EU’s tools for protecting sectors from potentially risky foreign investments. Once formally adopted by both institutions, this agreement will result in a revised regulation that builds on the existing FDI screening framework. Its objective is to enhance the EU’s capacity to identify, assess, and mitigate risks arising from certain foreign investments, while at the same time preserving the Union’s openness to global trade and investment.
A key element of the legislative update is the introduction of mandatory screening mechanisms across all Member States, based on common minimum requirements. These mechanisms will be required to cover a targeted and clearly defined set of sensitive areas, including dual-use items and military equipment, hyper-critical technologies such as AI, quantum technologies and semi-conductors, critical raw materials, critical entities in the energy, transport, and digital infrastructure sectors, electoral infrastructure.
It will also impact a limited number of entities within the financial sector, namely central counterparties, central securities depositories, operators of regulated markets or payment systems and systemically important financial institutions. This represents a departure from the current voluntary approach, which is based on a non-binding list of suggested sectors. Importantly, while this list will constitute a mandatory minimum, Member States will retain the discretion to extend their screening regimes to additional sectors deemed sensitive at national level.
Furthermore, decision-making powers will remain exclusively with the respective Member State in which the foreign investment is taking place. Each Member State will continue to have the authority to authorise, impose conditions on, or prohibit an investment. Nonetheless, the new text would improve transparency and coordination among national authorities.
One of the most notable changes concerns the weight to be given to comments issued by the European Commission or other Member States during the screening process. Under the current regime, the screening Member State is required to give due consideration to such comments. Under the new rules, the screening authority will be obliged to explain how these comments were taken into account and to provide reasons for any divergence, without prejudice to sensitive national security considerations. In addition, the agreement provides that the Commission may assist the host Member State in gathering relevant information for the purposes of the screening.
Moreover, the agreement also introduces several operational enhancements to the framework. These include the creation of a shared database, the possible establishment of a single electronic portal for the filing of foreign investment notifications, should at least nine Member States request it, and further clarification of the risk factors to be considered when assessing foreign investments.
Once the provisional agreement is endorsed by the Council and the European Parliament and formally adopted, the revised rules will apply from 18 months after the regulation’s entry into force. Overall, this reform is widely welcomed as a step towards a more efficient and consistent system for the screening of foreign direct investments, reducing administrative burdens for investors and providing greater legal certainty and predictability across the EU single market.
Malta already has a national FDI screening framework in place, established underthe National Foreign Direct Investment Screening Office Act (Chapter 620), and aligned with the existing EU FDI Screening Regulation. As a result, Malta will only be required to update its current law in conformity with the new updates.
In particular, Malta will be required to update the activities section found under the Act’s Schedule, in order to fully cover the mandatory minimum list of sensitive sectors introduced by the revised regulation.
From a procedural perspective, Malta’s competent authority will also need to adapt to the strengthened transparency and coordination requirements. This includes the obligation to provide reasoned explanations when diverging from comments issued by the Commission or other Member States, as well as increased engagement in information-sharing mechanisms at EU level. While these changes may result in additional administrative steps, they are also expected to enhance the robustness and credibility of Malta’s screening decisions.
Consequently, operational changes, such as participation in the shared EU database and the potential use of a single electronic filing portal, may require technical and organisational adjustments.
Overall, for Malta, the revised EU FDI framework represents an evolution rather than a disruption. For investors, this should translate into clearer expectations and greater consistency, while for the Maltese authorities it offers enhanced support and cooperation at EU level in addressing risks linked to foreign direct investment.
For any further information or assistance, please contact us at info@gtg.com.mt
Authors: Dr Cherise Abela Grech & Ms Alesea Azzopardi Spiteri