A Chinese group buying a European business now negotiates two agreements at once. One is with the seller, and it looks like any other purchase agreement. The other is with a set of authorities that were not in the room, cannot be negotiated with, and whose timetable does not accommodate a signing date agreed in Shanghai.
The regulatory picture has also stopped being stable. The European framework applicable since 2020 is being replaced by a considerably wider one, national mechanisms have hardened, and a separate regime on foreign subsidies now asks a question that has nothing to do with security and everything to do with how the buyer was funded. A group that plans a transaction against the rules as it understood them three years ago is planning against rules that are already scheduled to disappear.
The screen is not one screen
There is no single European authorization. Screening of foreign investment remains a national competence, exercised by national authorities under national law, with a European layer that coordinates rather than decides. That means a transaction touching three member states can face three filings, three timetables and three sets of conditions, and the Union mechanism will not consolidate them. The new Regulation discussed below goes further on coordination, asking whoever makes the filing to endeavour to file in all the member states concerned on the same day and those states to endeavour to align the timing of their procedures, but under its Articles 7 and 12(3) the filings and the screening decisions remain national.
What the European layer does is force information to circulate. Under Article 6 of the current Regulation, a member state screening an investment notifies the others and the Commission; they may comment; the Commission may issue an opinion; the screening state must give due consideration to the comments and the opinion, and the final screening decision is its own. In practice the coordination changes outcomes less by overruling than by making a national authority aware of a concern raised elsewhere about the same buyer.
For a Chinese acquirer the practical consequence is that the group’s profile travels. A structure examined once is a structure other authorities can be told about, and a set of answers given in one member state has to be the same set of answers given in the next.
What the current framework does, and until when
Regulation (EU) 2019/452 established the framework and, under its Article 17, has applied since 11 October 2020. Its Article 2(1) defines foreign direct investment as investment by a foreign investor aiming to establish or to maintain lasting and direct links with the undertaking to which the capital is made available in order to carry on an economic activity in a member state, including investment which enables effective participation in the management or control of a company carrying out an economic activity.
Its cooperation mechanism runs on short periods. For an investment undergoing screening, a member state or the Commission wishing to comment signals that intention within 15 calendar days of receiving the information under Article 6(6), and comments or an opinion follow no later than 35 calendar days after that receipt under Article 6(7), which sets separate periods where additional information has been requested or where the Commission issues an opinion following comments from other member states. Where an investment is not undergoing screening in the host state, Article 7(8) allows comments and opinions to be provided for up to 15 months after the investment has been completed. That retrospective window is easily overlooked by buyers who conclude that no filing was required.
This regime has a defined end. Regulation (EU) 2026/1386 of 17 June 2026 repeals it with effect from 17 January 2028. Under Article 30 of the new Regulation, the current rules continue to govern investments completed by 17 January 2028 and investments still undergoing screening on that date, and the new rules do not apply to either. A transaction signed before that date that is neither completed nor under screening when the date arrives will be planned under one regime and screened under the other.
What replaces it, and what changes
The new Regulation applies from 17 January 2028, with a limited group of provisions listed in its Article 31 applying from 16 July 2026, and under Article 18(6) the Commission is to set up, by 17 July 2027, a secure database available to all member states with information on notified investments and the outcome of their assessment. Three features change the position materially.
First, screening ceases to be optional. Under Article 3 each member state must establish a screening mechanism, and Article 4(15) sets a common minimum scope: each mechanism must impose a prior authorisation requirement for foreign investments in targets established in its territory that fall within the categories that paragraph lists, each defined by the activities it specifies. The categories are dual use items; military goods and technologies; the semiconductor, quantum and artificial intelligence technologies referred to in Annex I to the Regulation; transport, energy and digital infrastructure that the member state considers critical after its own risk based assessment; listed strategic raw materials; the financial market infrastructure and financial entities listed in point (f); and voter registration databases, voting systems and other information systems designed to manage electoral operations. Article 4(16) leaves member states free to screen beyond that minimum.
Second, the procedure is harmonized. For investments within the scope of a national mechanism and subject to a filing requirement, Article 4(2) requires the screening authority to be able to carry out an initial review within 45 calendar days of the filing. Under Article 6, notification through the cooperation mechanism follows within 15 calendar days of the filing for investments meeting the criteria of Article 5(1), within 45 calendar days where the notification follows the opening of an in-depth investigation under Article 5(2), and without undue delay in the remaining cases. Under Article 9 a member state signals an intention to comment within 15 calendar days of receiving the notification and the Commission an intention to issue an opinion within 20. Under Article 11(3) comments then follow within 20 calendar days and a Commission opinion within 30 of receiving the notification, or within 15 and 25 calendar days respectively of receiving additional information where it was requested. Article 11(4) allows the notifying member state to extend those deadlines once, by up to 20 calendar days, where it communicates substantial new information before the deadline expires and another member state or the Commission makes a reasoned request.
Third, the first of the notification triggers in Article 5(1) turns on state control. A member state must notify an investment within the minimum scope where the foreign investor, or its subsidiary in the Union, is directly or indirectly controlled by the government of a third country, including state bodies, regional or local authorities or armed forces, and that control may take the form, among others, of ownership structure, significant funding, special rights or state appointed board directors or managers. The same paragraph adds two further triggers, one tied to Union restrictive measures and one to the investor’s record in earlier screenings.
Two changes a Chinese group should read closely
The first is that the European subsidiary route closes. Recital 18 of the new Regulation states that Regulation (EU) 2019/452 only covers foreign direct investments made directly by foreign investors in the Union. Article 2(1) of the new one extends to investments carried out through a foreign investor’s subsidiary in the Union, which Article 2(7) defines as an undertaking established under the laws of a member state and directly or indirectly controlled by a foreign investor. The reasoning is stated plainly in the same recital: the risk is the same because the controlling investor has power and influence over the target even when it acts through the European subsidiary. Once the new Regulation applies, buying through an established Dutch or German subsidiary will not by itself place a transaction outside the framework.
The second concerns group reorganizations. Article 1(5)(b) excludes internal restructuring, which Article 2(3) defines as a reorganisation of the group that does not change the beneficial owner of the target, and recital 17 describes the excluded case as one that brings no new foreign investor into ownership or control, no increase in the shares held by foreign investors and no additional rights that could change their effective participation in management or control. That carve out is narrower than it sounds. Where the restructuring introduces into the upstream ownership chain a new legal entity established in a third country that is not already represented in that chain, it comes back within scope, and the recital gives as an example that such an entity could be subject to a law requiring it to share information for intelligence purposes without due process or oversight mechanisms.
Greenfield investment is also defined, in Article 2(2), as a foreign investment carried out through the establishment of new facilities or of an undertaking for the performance of an economic activity in the Union, and recital 28 places it within the scope of the Regulation. Article 4(17) excludes it from the mandatory prior authorisation of Article 4(15), so whether a greenfield project is screened depends on the national mechanism. A group that assumed the framework applied only to acquisitions has assumed too much.
The Dutch mechanism as it stands today
The Netherlands screens under the Wet veiligheidstoets investeringen, fusies en overnames, in force since 1 June 2023. Under its Articles 2 and 3 it applies to acquisition activities involving vital providers, managers of business campuses and undertakings active in the field of sensitive technology. Article 11(1) requires the intention to carry out an acquisition activity to be notified in advance, and Article 10(1) provides that the activity may not take place until the Minister has communicated that no review decision is required or has taken one. The exceptions are acquisitions under universal title other than by merger or division, which Article 11(6) requires to be notified within two weeks after they occur, and the exemption from the standstill that the Minister may grant under Article 13 once the intention has been notified, only where the general interest is at stake and refusing it would risk economic, physical or social harm to society or adverse consequences for financial stability.
The timetable is defined and long. Under Article 12, the Minister communicates within eight weeks of receiving a notification whether a review decision will be required, and where further investigation is needed that period may be extended by a reasonable term of at most six months. Where a review decision is then applied for, it is taken within eight weeks of the application, extendable by a reasonable term of at most six months less the time already used for further investigation. Where the investment turns out to be a foreign direct investment within the scope of Regulation (EU) 2019/452, Article 12(8) allows either extension to run for up to three further months, and a request for additional information suspends the first period until the information is provided. A transaction that meets a sensitive technology definition should be planned on the assumption that the outside case, not the base case, may apply.
For sensitive technology targets the trigger is not confined to control. Under Article 4(1), significant influence is acquired or increased where a person can cast, or cause to be cast, at least one tenth, one fifth or one quarter of the votes at the general meeting, and also through the other routes that paragraph lists, including commitments on the appointment or dismissal of directors and agreements between shareholders; Article 4(3) and (4) allow a decree to specify, for designated categories of target, which of those routes applies. A minority position taken as a strategic investment rather than an acquisition can therefore require a filing. Article 58 also gave the Minister a transitional power, exercisable within eight months of the Act coming into force, to call in for review certain acquisition activities that took place after 8 September 2020 but before it came into force where there were reasonable grounds to suspect a national security risk, which is a useful reminder that these regimes are written to reach backwards where the legislature wants them to.
The other filing nobody plans for
Separate from security screening, Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market has applied since 12 July 2023, and under its Article 54(4) the notification obligations for concentrations and public procurement in Articles 21 and 29 have applied since 12 October 2023. It asks a different question: not whether the buyer is a risk, but whether it was funded in a way that distorts competition in the internal market.
Under Article 20(3), a concentration is notifiable where at least one of the merging undertakings, the acquired undertaking or the joint venture is established in the Union and generates an aggregate turnover in the Union of at least 500 million euro, and, in the case of an acquisition, the acquirer and the acquired undertaking were granted combined aggregate financial contributions of more than 50 million euro from third countries in the three years preceding the conclusion of the agreement, the announcement of the public bid or the acquisition of a controlling interest. In public procurement, Article 28(1) requires notification where the estimated value of the procurement is at least 250 million euro net of VAT and the economic operator, together with the related undertakings that paragraph lists, was granted aggregate financial contributions of at least 4 million euro per third country in the three years prior to notification, with a further condition on lot value where the procurement is divided into lots.
The difficulty for Chinese groups is definitional rather than numerical. Under Article 3(2), a financial contribution is not limited to what a European lawyer would call a subsidy. It includes, among other things, capital injections, loans, fiscal incentives, tax exemptions and the provision or purchase of goods or services, and a contribution provided by a third country includes one provided by a public entity or a private entity whose actions can be attributed to that country. Much of it is ordinary commercial history rather than anything the group regarded as aid. Assembling three years of it across a large group is slow work, and since Article 21 requires a notifiable concentration to be notified before it is implemented, a group that starts after signing delays its own closing.
Sequencing is the constraint
The technical answers to these regimes are usually available. What defeats transactions is order. A purchase agreement negotiated with a fixed long stop date, signed before anyone has mapped which member states screen the target’s activities, produces a period in which the buyer is contractually committed and regulatorily exposed at the same time.
The work that changes outcomes is done before signature. Establishing which entities in the group are controlled, directly or indirectly, by a state body and documenting it accurately rather than defensively. Identifying the beneficial owner as Article 2(6) of the new Regulation defines it, which recital 19 explains reaches the beneficiaries of trusts and, where no natural person can be identified, the entity at the highest identifiable level of the ownership chain or chain of control. Recording the funding history that the foreign subsidies regime will ask about. Deciding which member states will require a filing, and building the condition precedent and the long stop date around the slowest of them.
A Chinese group that arrives with that file is treated as a buyer with a complicated ownership structure, which is what it is. A group that assembles it under deadline pressure, in response to a request for information, is treated as a buyer that did not expect to be asked. The two are not the same transaction, even when the underlying facts are identical.
This article is informational and does not constitute tax or legal advice. Rules of this kind evolve and their application depends on the facts of each structure. Each engagement is subject to scope and applicable regulation.