Malta M&A Watch: Update on Foreign Direct Investment in the EU

On 19 October 2023, the European Commission (the ‘‘Commission’’) published its third annual report (the ‘‘Report’’) on Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (the ‘‘FDI Regulation’’). The Report highlights the trend of foreign direct investment (‘‘FDI’’) in the EU for the year 2022 and serves to provide a state of play on legislative updates on Member States’ own FDI frameworks. It also provides insight on screening activities by Member States of FDI.

2022 saw FDI filings decrease by 14.3% compared to 2021 which, amongst other things, was due to a decrease in global M&A activity which itself was a result of various factors including high interest rates as well as inflationary trends. You can read more about this here.

The Report also notes that in line with previous years, the US remains the top source for FDI in the EU, followed closely by the UK.

The Report further provides a summary of the current legislative developments of the Member States which are in the process of setting up their own FDI screening mechanisms[1]. By the end of 2022, two thirds of the Member States had an FDI screening mechanism in place. Several other Member States also got the ball rolling in creating their own FDI frameworks with Estonia’s FDI framework coming into law in May 2022 and Ireland having published its draft bill in 2022. The Irish FDI framework is expected to come into force in late 2023 or by early 2024.

The Report includes  a statistical glimpse into the workings of the existing FDI frameworks. Throughout the course of 2022, 420 FDIs across the EU were screened, with 86% of them being authorised without conditions, 9% of them being approved subject to approval with conditions or mitigating measures and a lowly 1% of them being ultimately blocked. The Report holds that this serves testament to the fact that the EU remains open for FDI, and transactions are only blocked in exceptional circumstances, and where they pose very serious threats to security and public order. The main industries subject to screening were manufacturing, ICT, professional activities and wholesale and retail. It should be kept in mind that different EU member states maintain sovereignty in terms of their determination as to what constitutes a threat to its security and public order notwithstanding the fact that the FDI Regulation provides certain non-exhaustive activities which should be considered.

The Commission is expected to further publish a report on the functioning and the effectiveness of the FDI Regulation by the end of 2023[2] which will inter alia consider the findings of the public consultation that it held between June and July of 2023.

It is expected that M&A activity will increase in 2024; and hence it is equally expected that FDI filings will also increase in tandem. This coupled with the new Foreign Subsidies Regulation which came into force in 2023 will mean that foreign investors and parties in receipt of foreign subsidies will need to ensure that their preparatory work is done in advance to avoid unnecessary delays in closing the deals.


[1] The FDI Regulation does not impose an obligation on Member States to screen FDI. Rather it has a light touch harmonisation approach where it only lays down a framework which must be followed by Member States should they decide to set up an FDI screening mechanism.