Foreign Direct Investment Screening: now more than ever?


Posted on Tuesday 31 March 2020 -5pm

The Covid-19 outbreak is having a profound impact on the global economy. The European Commission has issued guidance for Member States to protect strategic industries, such as healthcare capacities, production of medical or protective equipment and related industries including research establishments (for instance for developing vaccines) from foreign investor control. The Commission is urging Member States to be particularly vigilant to avoid that the current health crisis does not result in a selling-off of Europe’s business and industrial actors.

The EU and Belgium have one of the world’s most open investment regimes, which poses the risk that foreign (non-EU) investors will seek to acquire control of European businesses whose activities affect critical technologies, infrastructure, input or sensitive information. The goal of foreign direct investment screening is to prevent this action happening.

Currently, only a limited screening mechanism for foreign direct investments exists in Flanders. More specifically, the Flemish Governance Decree[1] foresees the power for the Flemish government to a posteriori annul decisions allowing for foreign investors to control public authorities (or related bodies) that would threaten Flanders’ strategic interests. A more encompassing mechanism is in preparation in Flanders. There are no formal screening mechanisms in place in Brussels and Wallonia.

The European Union has established a framework for the screening of foreign direct investments[2] into the Union, through Regulation (EU) 2019/452 of 19 March 2019 (the FDI Screening Regulation). Member States ultimately remain competent for their own foreign direct investment screening on their territory. However, foreign direct investment into one Member State can after all have a direct impact on the Union’s or another Member State’s strategic interests. That is why the FDI Screening Regulation offers other Member States and the Commission the opportunity to give comments, to provide information or, for the Commission, to issue an opinion relating to foreign direct investments that are likely to affect its (or the Union’s) security or public order. The FDI Screening Regulation also provides for factors that may be taken into consideration by Member States or the Commission in determining whether a foreign direct investment is likely to affect security or public order. Critical health infrastructure is listed as such a factor (Article 4.1, a) of the Regulation).

Even though the Regulation only applies from 11 October 2020, in its communication[3] the Commission is urging Member States to make full use of the existing screening mechanisms, and for Member States that do not have a screening mechanism, or whose screening mechanisms do not cover all relevant transactions, to set up fully-fledged screening mechanisms. Up until 28 February 2020, 15 Member States have already notified screening mechanisms to the European Commission.[4] In its guidance, the Commission has examined possible measures to restrict capital movements. The Commission has also stressed that restrictions on the movement of capital to and from third countries take place in a different legal context compared to restrictions to intra-EU capital movements, and that justifications to restrict capital movement may be interpreted more broadly concerning third-countries.

It is clear that the Covid-19 outbreak is posing a severe threat to the Union’s and, in general, the global economy. The medical emergency is also exposing the risk of dependency on third countries. The Commission’s communication gives some guidance to Member States wishing to protect their public health sectors. General formal screening mechanisms may be considered in Belgium.

Do not hesitate to contact Vera Van Thuyne or William Timmermans for further information.

The above information is merely intended as comment on relevant issues of Belgian law and is not intended as legal advice. Before taking action or relying on the comments and the information given, please seek specific advice on the matters that are of concern to you.


[1] Articles III.59-III.60 of the Flemish Governance Decree (Bestuursdecreet)

[2] Article 1 of the Regulation defines direct investment as an investment of any kind by a foreign (non-EU) investor, aiming to establish or to maintain lasting and direct links between the foreign investor and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity in a Member State, including investments that enable effective participation in the management or control of a company carrying out an economic activity. So-called portfolio investments, which do not confer upon the investor effective influence over management and control of a company, are not affected by the FDI Screening Regulation, but they may be screened by Member States in compliance with the provisions of the TFEU on the free movement of capital.

[3] Communication from the Commission C(2020) 1981 final of 25 March 2020, Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation).

[4] For the full list of notified screening mechanisms: click here.

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