JIPYONG LLC

Jipyong News|GLOBAL LEGAL INSIGHT

EU Foreign Investment Screening Reform: What It Means for Korean Investors in CEE

2026.10.15

<div>1. From Attracting Investment to Protecting Economic Security 
 
Central and Eastern Europe (CEE) has long been an attractive destination for foreign investment, particularly in manufacturing industries such as automotive, batteries, electronics and defence. Korean companies have played an important role in this development, establishing production facilities and joint ventures in countries such as Hungary, Poland, the Czech Republic and Slovakia. 
 
In recent years, however, economic security has become an increasingly important policy priority for the European Union (EU). While the EU remains committed to attracting foreign investment, it is also seeking to strengthen its oversight of investments that may affect security or public order, particularly in strategic sectors such as critical infrastructure, advanced technologies, energy, raw materials and defence. 
 
The EU introduced its first EU-wide framework for foreign direct investment (FDI) screening under Regulation (EU) 2019/452, which became fully applicable in October 2020. However, the existing framework left considerable discretion to individual Member States, resulting in significant differences in national screening regimes. 
 
To address these differences, the EU adopted Regulation (EU) 2026/1386 on the screening of foreign investments in the Union on 17 June 2026. The Regulation was published in the Official Journal on 26 June 2026 and entered into force on 16 July 2026. Most of its substantive provisions will apply from 17 January 2028, giving Member States time to adapt their national legislation. 
 
Under the new Regulation, all EU Member States will be required to maintain foreign investment screening mechanisms that meet common minimum standards. However, the final decision on whether to approve or prohibit an investment will remain with the relevant Member State. 
 
The reform represents an important shift in the EU's approach to foreign investment. Rather than focusing solely on attracting foreign capital, the EU is placing greater emphasis on understanding who ultimately controls strategic businesses and how foreign investments may affect economic security. 
 
 
2. What Will Change Under the New Regulation? 
 
The new Regulation introduces several important changes that Korean investors should be aware of. 
 
First, FDI screening mechanisms will become mandatory across all EU Member States. Under the previous framework, Member States were not required to establish national screening systems. The new Regulation changes this by requiring every Member State to maintain a screening mechanism that meets certain minimum standards. This does not mean that every foreign investment will require approval. The filing obligation will still depend on factors such as the investor's ownership structure, the target company's business activities and the nature of the transaction. Nevertheless, investors will increasingly need to consider FDI screening requirements from the early stages of transactions involving EU businesses. 
 
Second, the Regulation introduces a stronger common framework for reviewing investments in strategic sectors. The new framework requires Member States to screen certain investments involving strategically important activities, including dual-use items, defence-related products, semiconductor and quantum technologies, certain artificial intelligence technologies, critical infrastructure and strategic raw materials. These developments are particularly relevant to Korean companies operating in the semiconductor, battery, automotive, energy and defence industries. Although not every investment in these industries will automatically require approval, companies will need to examine whether their proposed investments fall within the applicable screening requirements. 
 
Third, ultimate ownership and control will become increasingly important. FDI screening will not necessarily depend on where the immediate investor is incorporated. For example, a Korean company may invest in another EU business through an existing European subsidiary. Even though the immediate investor is incorporated in the EU, the transaction may still be subject to screening if that subsidiary is ultimately controlled by a non-EU investor. This approach is designed to prevent investors from avoiding screening requirements simply by using an EU-incorporated holding company. 
 
Fourth, the new framework strengthens the review of transactions that were not subject to prior authorisation. Under the new Regulation, national authorities must have the power to review certain completed investments on their own initiative where there are concerns about security or public order. As a result, investors should not assume that completing a transaction without an FDI filing necessarily eliminates future regulatory risks. FDI screening is therefore becoming more than a regulatory formality to be checked shortly before closing. It is an issue that may affect the structure, timetable and contractual terms of a transaction from the outset. 
 
 
3. What Does This Mean for Korean Companies? 
 
For Korean companies, the most important implication of the reform is that FDI screening is becoming a standard part of the regulatory assessment for investments in Europe. This is particularly relevant to Korean businesses expanding their manufacturing and industrial presence in CEE. 
 
First, Korean investors may face broader screening requirements in countries where they have previously benefited from exemptions. Poland provides a clear example. Under its current special screening regime, OECD investors generally benefit from an exemption. However, the new EU framework may require changes to this approach. Korean companies should therefore avoid assuming that their status as OECD investors will continue to exclude them from FDI screening requirements in the future. 
 
Second, FDI screening is not limited to conventional mergers and acquisitions. Depending on the relevant national regime, FDI requirements may arise in connection with the establishment of joint ventures, changes in shareholding structures, capital increases, intra-group reorganisations, acquisitions of convertible securities and transfers of strategically important business assets. Even where the ultimate shareholder remains unchanged, an internal restructuring may require legal review if it results in a change to the direct ownership or control structure of an EU subsidiary. 
 
Third, indirect investments through European subsidiaries will require closer attention. Korean companies often operate through regional holding companies or existing EU subsidiaries when making additional investments in Europe. Under the new EU framework, incorporating an investment vehicle in the EU will not necessarily remove the transaction from the scope of FDI screening if the ultimate investor is based outside the EU. Accordingly, Korean investors should review the entire ownership and control chain, rather than focusing only on the immediate investing entity. 
 
Fourth, the expansion of Korean defence investment in CEE will make FDI screening increasingly relevant. Korean defence companies have developed strong business relationships with several CEE countries, particularly through the export of defence equipment and related products. As their activities expand beyond exports to include local manufacturing, joint ventures, maintenance, repair and overhaul (MRO) services, technology cooperation and investments in local companies, FDI screening will become an increasingly important consideration. Transactions involving defence-related technology, sensitive facilities or strategic suppliers may require closer regulatory scrutiny. 
 
For Korean companies, the key message is that FDI screening should be considered whenever an investment involves a strategically important business or activity, even if the transaction does not take the form of a traditional acquisition. 
 
 
4. Practical Considerations for Investment Transactions 
 
In light of these developments, Korean companies planning investments in CEE should assess FDI requirements at the deal structuring stage, rather than waiting until closing. 
 
At the beginning of a transaction, investors should examine the ultimate ownership and control structure, the business activities of the target company, the proposed shareholding percentage, voting rights and any other rights that may give the investor control or influence over the target. Early assessment is particularly important because FDI clearance requirements can affect both transaction timing and deal certainty. 
 
Where approval is required, the parties should consider including FDI clearance as a condition precedent to closing in the relevant transaction documents, such as share purchase agreements (SPAs) or joint venture agreements (JVAs). The documents should also clearly allocate responsibility for preparing and submitting the FDI notification, address cooperation between the parties during the review process, and provide an appropriate long-stop date in case regulatory approval takes longer than expected. In addition, the parties should consider how to deal with conditional approvals, mitigation measures or a decision prohibiting the investment. 
 
Another important consideration is that FDI screening is separate from merger control under competition law. Depending on the size and structure of a transaction, Korean investors may need to assess three different regulatory regimes in parallel: FDI screening, merger control and the EU Foreign Subsidies Regulation (FSR). Each regime serves a different purpose and has its own filing requirements, review process and timetable. Coordinating these regulatory procedures early in the transaction process can help avoid unnecessary delays and reduce execution risks. 
 
 
5. FDI Screening as a Key Part of European Investment Planning 
 
The new EU Foreign Investment Screening Regulation aims to create a more consistent framework for assessing foreign investments that may affect security or public order. While common minimum standards will apply across the EU, national screening requirements and procedures will continue to differ. 
 
For Korean companies investing in CEE, early assessment of FDI requirements, careful transaction structuring, and appropriate contractual safeguards will therefore be essential to managing regulatory risks and avoiding unnecessary delays.</div>

News Jipyong Names Dong Ho YOO Vietnam Head, Joo Yeon SHIN HCMC Head 2026.02.13

KOREA LEGAL INSIGHT Rerouting Risk: What to Know About Maritime Disruption 2026.10.06

Back to List

JIPYONG LLC

Related Practices

Professionals

Related Practices

Professionals

SHARE

Disclaimer

Limited Liabilities