Key takeaways
- The European Commission (EC) has issued Recommendation (EU) 2025/63 on 15 January 2025 urging the EU Member States to introduce mechanisms for the screening of outbound investments in specific sectors (semiconductors, artificial intelligence (AI), and quantum technologies).
- The EC's Recommendation follows the issuance of its White Paper on Outbound Investments from January 2024 and forms part of the EU's broader approach to enhance EU's economic security.
- The EU calls for the introduction of screening mechanisms that apply retroactively to transactions made since 1 January 2021, regarding which EU Member States are required to submit risk assessments to the EC by 30 June 2026.
- Outbound investment screenings will complement the existing merger control and foreign direct investment (FDI) oversight and would provide for additional clearance requirements for the third country investments of European investors.
Background
On 15 January 2025, the European Commission (EC) issued its legally non-binding Recommendation (EU) 2025/63 urging Member States to introduce screening mechanisms for investments of European investors in third countries (outbound investments).
This recommendation aligns with similar initiatives in other countries, such as the US Department of the Treasury's Outbound Investment Security Program established in August 2023, and is part of the EU's broader strategy aimed at enhancing the EU's economic security by preventing the transfer of critical technologies and expertise to potentially risky countries. It specifically targets investments that grant control in sensitive sectors, including semiconductors, artificial intelligence (AI), and quantum technologies.
The recommendation builds on the EC's White Paper on Outbound Investments released in January 2024, which initiated a public consultation regarding the assessment of risks associated with sensitive technologies and investments departing from the EU.
Legal implications and covered sectors
While the recommendation is not legally binding, it strongly encourages EU Member States to conduct systematic reviews of outbound investments, thus recognizing that they would be legally competent under EU law to introduce this type of measures.
Historically, such recommendations have been adopted to varying degrees across Member States, influenced by political and economic contexts. However, there are significant arguments suggesting that EU Member States will introduce outbound investment screening mechanisms, possible on the basis or the back of an EU coordination mechanism similarly to the one established for inbound investment screenings on the basis of Regulation (EU) 2019/452. Such type of underlying EU legal framework with some institutional role for the EU Commission to assume would be preferable with a view to counter a risk of fragmentation and in the interest of a coherent approach to European security. Alignment is also likely to be seen with the EU's export control framework, which addresses overlapping types of issues in restricting the outflow of items, technology and know-how from the EU. The Recommendation underscores the significance of economic security and preventing technology leakage, particularly relevant amid escalating geopolitical tensions.
The Recommendation focuses on three critical sectors:
- Semiconductors
- Artificial intelligence
- Quantum technologies
These areas are deemed high-risk for technology leakage that could enhance military and intelligence capabilities of entities that might use these technologies to disrupt international peace and security. The Recommendation identifies the aforementioned sectors as the most critical ones, warranting EU Member State action. The list will likely be expanded over time and EU Member states retain discretion to add further sensitive sectors to the list.
Types of investments under scrutiny include mergers and acquisitions, greenfield investments, joint ventures, and venture capital investments, but also asset transfers (including intellectual property rights).
Temporal scope
Interestingly, the Recommendation not only encourages an introduction of outbound investment mechanisms for outbound investments, but also a retroactive application of such screening mechanisms for investments made by European investors since 2021. This retroactive application may present challenges, particularly in data collection and risk assessment for past transactions. EU Member States are encouraged to create review systems that facilitate either voluntary or mandatory information sharing regarding transactions and to modify existing mechanisms as necessary.
By 15 July 2025, Member States are expected to update the Commission on their progress and submit a comprehensive report on the implementation of the Recommendation by 30 June 2026.
Potential for future regulation and challenges for European investors
The Recommendation may serve as a foundation for new regulations designed to protect the economic security interests of the EU. Although the Recommendation is non-binding, it is strongly indicative of the introduction of outbound investment screenings in the EU going forward. These will add an additional regulatory clearance regime to M&A transactions, which European investors will have to abide by in addition to FDI, merger control and Foreign Subsidies Regulation (FSR) clearance requirements. European investors should carefully follow these developments even before the introduction of binding outbound investment screening mechanisms in light of the envisaged retroactive applicability.
