Update on Belgian and EU FDI national security screening mechanism

By Xiufang (Ava) Tu and Charlotte Goffaux

The lunar year of the Snake represents transformation and changes. We take this opportunity to give you an update on the foreign direct investment (FDI) national security screening mechanisms at the EU and Belgian levels.

Overview at the EU level

Since the adoption of the Regulation 2019/452 establishing a framework for the screening of foreign direct investments into the Union (the “FDI Regulation”), the European Commission (the “Commission”) requires (de facto) the Member States to adopt, at the national level, a FDI national security screening mechanism.

According to the Fourth Annual Report of the Commission, issued on 17 October 2024, the year 2023 saw the implementation of numerous national-level screening mechanisms, including in Belgium. Although foreign investor interest in the Union market remains strong, foreign M&A and minority investments were decreased by 13% compared to 2022[1].

Key takeaways from the Fourth Annual Report:

• As of October 2024, 24 Member States out of 27 have implemented FDI screening mechanisms. The three remaining members (Croatia, Cyprus and Greece) are taking steps to proceed to the adoption of their national mechanism[2];
• USA remained the top foreign investor into the EU accounting for 30% of all acquisitions of equity stakes and 36% of all greenfield investments, followed by UK (25% of M&A and 22% of greenfield investment), Offshore Financial Centres (7.9% of total acquisitions). China and Hong Kong accounted for 2.7% of acquisitions and 6% of greenfield projects;
• Top destinations of foreign investments were Germany, Spain, France and Italy;
• In 2023, 488 transactions were notified through the cooperation mechanism under the FDI Regulation, of which 92% were closed in Phase 1 (preliminary assessment), 8% proceeded to Phase 2 (detailed assessment). Amongst all the notified transactions, the Commission only issued opinions in less than 2% of the transactions[3];
• The main sectors are manufacturing (23%), ICT (21%), wholesale and retail (14%), financial activities (11%), professional activities (11%) and energy (6%).

Look Forward: proposed revision at the EU level

The Commission noted the positive impacts of applying the FDI regulation in protecting the security and public order of the Union. However, the Commission also aims to enhance the instrument to:

• ensure all Member States will have a national screening mechanism;
• unify and establish a minimum scope of sectors which shall be subject to review;
• extend the definition of foreign investors by including entities ultimately controlled by foreign individuals ;
• Harmonise national rules to make cooperations between Member States more effective and efficient.

Before its implementation, the proposed revision must go through the legislative process and be adopted by both the European Parliament and Council. According to recent update, the new resolution is anticipated to become applicable in 2027[4].

N.B: In line with its strategy to safeguard the Union from technology security risks and leaks, the Commission has recommended that Member States review outbound investments in critical technology areas like semiconductors, AI, and quantum technologies. Member States must report their findings to the Commission by 30 June 2026 for policy response decisions. For more information, please see our article on “EU starts to assess outbound investments in three sensitive sectors” published on January 17, 2025.

Overview at the Belgian level

Belgium started to implement DI screening mechanism after the entering into force of the Cooperation Agreement (the “Agreement”) on 1 July 2023. The screening of foreign investments is handled by the Inter-Federal Screening Commission (“ISC”) composed of members at both federal and local levels, in order to safeguard public order, national security and strategic interests.

The Public Federal Service of Economy (the “PFS Economy”) regularly issues guidelines to facilitate the understanding of the screening mechanism for the stakeholders (Latest to date: 4 April 2024).

In September 2024, the PFS Economy published its first annual Report.

Key takeaways from the Belgian report:

• As of 30 November 2024, the ISC handled 107 files following investors’ notifications. The ISC investigated into one file on its own initiative ;
• Out of these 107 files, the ISC decided to substantially review only 8 files in the screening phase, 3 files are still pending, no files have been rejected, one file was cleared with corrective measures [5];
• The total investment amount under notified files is EUR 063.295.544;
• The main investors are similar to those observed at the EU level, investors from the USA account for 42,34% notified transactions, followed by UK investors (66%). At Belgian level, China accounts for 5,41% of the transactions (i.e., 6 cases in total)[6];
• The main sectors under those transactions include data (15,1%), health (15,1%), digital infrastructure (11,6%), transport (10,5%) and electronic communications (8,1%).

Looking forward: any revision ahead?

So far there is no announcement of any revision to the Cooperation Agreement.

Our experiences

We have assist Chinese and Asian clients in filing with the ISC for several files over the past year. Based on our experiences, communications with the secretary of the ISC were very smooth, all submissions were promptly acknowledged, and we could address any queries to the secretary.

However, the screening mechanism and its implementation still present many challenges:

• The general description of the sectors listed in the Cooperation Agreement makes practitioners difficult to interpret whether some investments would fall within the scope of filing, and little guidance has been made available. In case of any doubt, the ISC always recommends the investor to reach out to the Commission in advance.

However, investors prefer to have clarities on the filing requirements at the beginning of their discussions with potential sellers, or during the process of forming a consortium. They are generally not inclined to seek pre-consultation with the ISC before making any investment decision.

• If a transaction is not cleared during the verification phase and proceeds to the screening phase, the entire file will be shared with the Commission and other Member States for comments and opinions. This process can be lengthy and uncertain, therefore difficult for investors and target company to predict the closing of the deal.
• The procedure may be suspended for causes including additional information request, or additional extension request raised by authorities. There is no maximum suspensions the ISC can demand. In addition, some questions or additional information requests raised by the ISC are not always clear, and can be repetitive.
• In some transactions, the target company urgently needs financing within a short period of time. this procedure is obviously very We have seen cases where the filing was abandoned due to such uncertainties.
• The target company must provide significant amount of information, this is certainly challenging for some SMEs. In addition, the parties need to pay special attention to the confidentiality of the filing information and clearly define responsibilities. For example, how to treat all the confidential information shared in this process, if the parties decide to terminate the transaction and part from each other.
• Authorities can request all kinds of market, company and group information from foreign investors. Incomplete or inaccurate filings can result in fines. State-owned enterprises and large multinational companies may face challenges in their internal approval processes for such disclosures.

Finally, terms related to the closing date, obligation of collaboration, long stop date, and liability undertakings in case of non-clearance of the filing are essential negotiation points between the parties.

Final words

If the FDI national security review process remains burdensome and lack of predictability, it will certain drive away foreign investors from the Belgian market. We hope more guidance can be made available, as the ISC and practitioners accumulate more experiences.

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For more information on FDI, national security review and investment review in Belgium and EU, please contact DALDEWOLF CHINA & ASEAN DESK (Xiufang Ava Tu, [email protected]).

[1] Register of Commission Documents – COM(2024)464

[2] Register of Commission Documents – COM(2024)464

[3] COM(2024)464.pdf

[4] Carriages preview | Legislative Train Schedule.

[5] La Chambre de Représentants – Written Question and Answer No. 56-74: Implementation of the November 30, 2022, cooperation agreement to establish a foreign direct investment screening mechanism.

[6] SPF Économie, Comité de filtrage interfédéral – Figures presented at the information session organized at the FEB on December 12, 2024.