The new EU system for screening foreign investments: what should Hungarian investors prepare for?
The European Union introduces a new framework for the screening of foreign investment. We present how Regulation (EU) 2026/1386 may affect acquisitions, joint ventures, restructurings and strategic investments in Hungary.
A new era of European investment control begins
The European Union is one of the world’s most important investment destinations. Foreign capital plays a significant role in financing European businesses, creating jobs, technological progress and expanding international trade. At the same time, the openness of the EU economy also raises increasingly complex security issues.
Geopolitical tensions, vulnerabilities in supply chains, the growing role of state-backed investors, and the importance of artificial intelligence, semiconductors and other strategic technologies have made it necessary for EU policymakers to strengthen the rules on the screening of foreign investment.
As a result, the European Union has adopted Regulation (EU) 2026/1386 on the screening of foreign investments in the Union. The legislation was published on 26 June 2026 and entered into force on 16 July 2026. Member States will have until 17 January 2028 to adapt their national systems to the new requirements. The regulation replaces and further develops the previous EU FDI framework that has been in place since 2020.
The new regulation does not mean that the European Union wants to close its markets to foreign investors. Rather, the aim is to enable Member States to identify and manage transactions that could threaten security, public order, critical infrastructure or the strategic capabilities of the EU economy more consistently.
What does it mean to audit foreign investments?
The screening of foreign investments, also known as FDI screening, is an official procedure in which a member state examines whether a foreign-backed investment may pose a risk to the security and public order of the country or the European Union.
Control typically arises in the course of company acquisitions, acquisitions of significant shareholdings and acquisition of management rights. However, it is not only the percentage of shares or shares that matters. It may also be important whether the investor acquires veto power, the right to appoint a board of directors, access to strategic information or other authority through which he can actually influence the operation of the target company.
Foreign direct investment is different from purely financial portfolio investment. In the case of direct investment, the investor usually develops a lasting economic relationship with the business and acquires some level of control or effective participation in its operations. In the case of portfolio investing, on the other hand, the goal is primarily to achieve a financial return without influencing the management of the company.
It is important to distinguish between FDI control and competition authority licensing. A competition law investigation assesses whether a transaction is capable of restricting competition in the market. Foreign investment control, on the other hand, focuses on security and public order risks. Therefore, in the case of a larger transaction, competition authority approval, FDI authorisation and sector-specific regulatory authorisations may be required at the same time.
Why was it necessary to reform the EU system?
Previous EU legislation already allowed for the exchange of information between Member States and the European Commission, but national control systems differed significantly.
Some countries had extensive and strict FDI regimes, while in other Member States controls were limited to narrow sectors or there was no full mechanism in place. The notification thresholds, procedural deadlines and types of transactions checked also varied from country to country.
This has caused difficulties in particular in transactions involving several Member States. During the acquisition of an international group of companies, the same transaction may have been considered to be subject to authorisation in one country and completely out of control in another.
The new regulation therefore aims to ensure that at least one control system with common minimum standards is in place in all Member States. In preparing the reform, the EU examined the experience of around 1,200 FDI cases handled between 2021 and 2024. Based on the analysis, the EU institutions considered that closer coordination and more uniform basic standards were needed.
The verification mechanism will be mandatory in all member states
One of the most important changes in the new regulation is that all EU Member States will have to operate a foreign investment screening mechanism.
However, this does not mean the creation of a completely unified, central EU licensing system. Member States will continue to be able to determine many details of the national procedure, such as notification thresholds, competent authorities, the precise deadline for the procedure and any additional sectors to be monitored beyond the EU minimum.
The European Commission will not become a central authority that makes the final decision on all transactions. The authorization, conditionality or prohibition of a transaction remains the responsibility of the national authorities. At the same time, cooperation at EU level will be stronger, especially when an investment may affect the interests, critical infrastructure or security of several countries.
In practice, this means that it will still not be enough for international investors to look at the EU regulation alone. The specific transaction will also have to be assessed against the national rules of each country concerned.
Which sectors will be subject to increased scrutiny?
The new regulation sets out a minimum strategic sectoral scope that should be covered by all national schemes.
Dual-use goods and military technologies are a priority area. Dual-use items are goods, software or technology that can be used for civilian purposes, but can also be used for military or security purposes.
There is also increased attention to critical technologies such as artificial intelligence, semiconductors and quantum technologies. These are no longer exclusively economic or research and development issues. They play a crucial role in digital infrastructure, defence capabilities, industrial competitiveness and data security.
Other areas audited include energy, transport and digital infrastructure, strategic raw materials, certain financial market infrastructures, and systems and databases related to the conduct of elections.
The list does not mean that only these sectors may be subject to a reporting obligation. Member States may maintain a wider range of controls in their national systems. Therefore, a transaction in Hungary cannot be classified as irrelevant from an FDI point of view solely on the basis that the target company does not operate in an area related to artificial intelligence, energy or defence technology.
An investment made through an EU company is not necessarily an EU investment either
One of the most important elements of the reform is that in some cases the control may also extend to investors that are directly registered in an EU Member State.
If an EU company is ultimately controlled by a person or company outside the EU, the authorities can investigate not only the direct purchaser’s registered office, but the entire chain of ownership and control.
This rule is intended to prevent a foreign investor from evading FDI control simply by intermediary with a European holding company, subsidiary or special purpose vehicle.
The investigation may therefore also cover indirect owners, beneficial owners, group management, financing relationships and contractual entitlements that may provide control regardless of formal ownership.
The use of a acquiring company registered in Luxembourg, the Netherlands or another EU country does not in itself mean that the transaction can be treated exclusively as an EU investment.
Internal restructuring, minority interests and portfolio investments
The new system does not intend to automatically bring all changes of ownership under full control.
A genuine intra-group restructuring may remain outside the scope of control if there is no change in the beneficial ownership of the target company, no new non-EU player in the ownership chain, and no additional shareholding or management rights are acquired by the foreign investor.
However, when applying the exception, the name given to the transaction is not decisive. A transaction presented as an ‘internal reorganisation’ may also be subject to authorisation if it actually changes the control structure, grants a new veto or strengthens the position of a non-EU owner.
Portfolio investments for purely financial purposes may also be outside the scope of control if the investor does not wish to participate in the management of the company. However, a minority stake is not necessarily passive in itself. If it is associated with board appointments, access to strategic information, veto rights or other special powers, the transaction may also be relevant from an FDI perspective.
What will happen to greenfield investments?
In the case of a greenfield investment, the investor does not buy an existing company, but establishes a new company, factory, infrastructure or other operating unit.
The new EU regulation does not require all greenfield investments to be mandatorily monitored in all member states. At the same time, it allows Member States to extend the notification obligation to these transactions in their national rules.
This can be particularly significant for projects that involve critical infrastructure, energy generation, data storage, strategic real estate, defence activities or advanced technology.
An investor establishing a new plant or service centre in Hungary must therefore examine not only whether he is buying an existing company, but also whether the new project may in itself give rise to a notification or permit obligation under Hungarian rules.
Authorities can investigate the entire investor background
The FDI test is not limited to the activities of the target company. The authorities can also evaluate the investor himself, his ownership background and his previous operation.
It may be relevant whether the investor or its indirect owner is under state control, whether it is linked to military activity, whether it has been involved in a previously prohibited investment, or whether there is a risk of circumvention of EU sanctions.
During the investigation, the investor may also be asked to present a detailed ownership diagram, beneficial ownership statement, financing documentation, business plan and the management system after closing.
Complex structures developed through several countries and a number of holding companies are not illegal in themselves. However, they may increase the time required for the investigation, in particular where the actual audit or the source of funding cannot be clearly identified. The new framework explicitly provides for a more detailed examination of the ownership chain and the relationships leading to the beneficial owner.
Transactions involving several Member States
Major acquisitions are often not limited to a single country. An international group of companies may have subsidiaries, sites, infrastructure or strategic assets in several member states.
In such cases, separate FDI notifications may be required for the same transaction in several countries. The new regulation will strengthen cooperation between member states and the European Commission and encourage investors to make parallel notifications in a coordinated manner.
This is significant from a transactional point of view, because the deadlines and information requirements of individual procedures may differ. If the parties take into account only the obligations of one country, the authorisation requirement subsequently identified in the other Member State may delay the closure of the entire transaction.
It is therefore advisable to develop the notification strategy at the beginning of the due diligence, taking into account all the subsidiaries and assets involved.
What does the new system mean for Hungary?
Hungary currently has a foreign investment control system in place. Two main legislative frameworks apply in parallel: the system under Act LVII of 2018 and the additional regulation specified in Act L of 2025.
The two systems operate with different sectoral scopes, procedural conditions and competent authorities. The Hungarian legislation already fulfils a significant part of the new EU minimum requirements, but further procedural and administrative changes are expected to be needed by 2028.
It is important to note that the adoption of the new EU regulation does not suspend the currently effective Hungarian notification obligations. Transactions in Hungary will continue to be subject to the current Hungarian regulations during the 2028 transition period.
Investors should therefore not wait for the adoption of the new national rules. An ex ante analysis of FDI risk is already warranted if the transaction involves a buyer with a foreign ownership background, a strategic sector or significant management rights.
FDI authorization must be managed at the time of transaction planning
Foreign investment screening is not merely an administrative notification to be carried out ex post. The authorization requirement can affect the structure and timing of the entire transaction.
In a sales or investment contract, closing is usually subject to obtaining the necessary regulatory approvals. The parties must specify who will prepare the notification, who will communicate with the authority, and how they will share the necessary ownership, financing, and business information with each other.
It is also advisable to specify an appropriate final performance deadline in the contract. This must take into account that the authority may request additional documents, extend the procedure or make the approval subject to conditions.
The parties must also settle in advance what happens if the authority imposes a condition that significantly affects the buyer’s business plan or the future operation of the target company. Late handling of these issues could lead to serious contractual disputes and a failure to close them.
Practical issues for investors
Before any acquisition or strategic investment in Hungary, it is advisable to examine who is the direct buyer, who exercises the ultimate control over it, and in what sector the target company operates.
It is also necessary to assess exactly what rights the investor acquires. Not only the percentage of ownership, but also the right to vote, the right of veto, board participation and access to sensitive data can be decisive.
In the case of a multi-country transaction, it is necessary to map separately all Member States where the target group carries out strategic activities or has significant assets.
FDI analysis should be an integral part of legal and financial due diligence. This allows the parties to develop a realistic closing schedule before signing and to properly settle the regulatory risks in the contract.
How can international investors prepare?
The 2028 date of application may seem far away, but the regulation already sets the future direction for EU control. The ownership and financing structures established today may have an impact on licensing procedures in the future.
Investors should therefore transparently document the effective ownership chain, the source of funding and the group’s governance system. It is also worth identifying in advance target companies in strategic sectors and EU subsidiaries that may give rise to a separate reporting obligation as part of an international transaction.
A timely FDI assessment does not guarantee regulatory approval. However, it can significantly reduce the risk that the parties will face a lengthy authorisation procedure or a problem affecting the structure of the transaction only after the contract has been signed.
How does FirmaX Hungary support investors?
Entering the Hungarian market usually requires the coordination of several interrelated tasks.
FirmaX Hungary supports international businesses and investors in Hungarian company formation, corporate administration, registered office services, accounting and tax coordination. In the case of more complex investment or acquisition cases, you may contribute to the systematization of corporate and ownership documentation and to the coordination of the work of the necessary Hungarian legal and compliance experts.
In each case, FDI verification requires an individual legal analysis. The reporting obligation shall be determined on the basis of the investor’s background, the activities of the target company, the structure of the transaction and the rights acquired.
The most important lesson
Regulation (EU) 2026/1386 is an important step towards the unification of European foreign investment control. The regulation makes it mandatory to maintain an appropriate control mechanism in all Member States, defines a minimum strategic sectoral scope and, in some cases, covers investments made through EU companies but controlled from outside the European Union.
However, the system will still not become fully centralized. Specific notifications and authorisation procedures are handled by national authorities, so investors will have to examine the Hungarian and other relevant national rules separately in addition to the EU regulation.
The most important conclusion for investors in Hungary is that the possibility of FDI control should be assessed at the beginning of the transaction planning. A properly prepared ownership documentation, a realistic authorization timeline and a contractual structure that manages the regulatory terms can reduce delays and the risk of transaction failure.
