Adding value through tighter control of foreign investments
On 4 March, the European Commission adopted its highly anticipated proposal for a regulation establishing a framework of measures for accelerating industrial capacity and decarbonisation (IAA or Industrial Accelerator Act), see the press release here.
The IAA aims to maximise the quality and benefits of foreign investment in the EU and support lead markets for ‘made in the EU’ and low-carbon products. According to the Commission, the proposal will also reduce the administrative burden for companies, resulting in a one-off net reduction of around EUR 240 million in terms of administrative burden for businesses.
Despite these good intentions, the IAA proposal contains provisions that will make foreign investments and public procurement harder for businesses. One of its core objectives is to reduce supply‑chain vulnerabilities stemming from global (and sometimes unfair) competition, excessive economic dependencies, and the risk of leakage of technological know‑how and manufacturing expertise in emerging strategic sectors.
Tighter control of foreign direct investment is therefore an important part of the IAA proposal, which is the focus of this post. For the takeaways for public procurement, see our previous post here.
Scope: high value investments in emerging strategic sectors
The IAA proposal is being adopted in parallel with a new FDI Regulation, which has recently been approved by the EU Parliament (see our previous article on this). Whereas the new FDI Regulation will have a general scope, the IAA proposal focuses on “emerging strategic sectors” such as:
- battery technologies,
- electric vehicles,
- solar panel technologies
- and critical raw materials.
Importantly, the proposal empowers the Commission to extend this list to sectors deemed critical to the EU’s economic security. These may include net-zero, nuclear fuel, and electric propulsion for transport technologies in the Net Zero Industry Act, while excluding digital technologies, artificial intelligence, quantum technologies and semiconductors.
The Commission’s concerns focus on large‑scale investments capable of disrupting the internal market in these sectors. As a result, the IAA proposal targets only high‑value foreign investments that meet both of the following criteria:
- the investment exceeds EUR 100 million; and
- the investor (or its subsidiaries) originates from a country holding more than 40% of global manufacturing capacity in the relevant sector, a threshold that clearly targets Chinese investors.
For the purposes of determining value threshold, only previous investments of a foreign investor made in the same EU target or asset by the foreign investor after the IAA has entered into force are aggregated.
The IAA proposal excludes:
- investments from countries with a trade agreement or economic partnership with the EU;
- investments aimed at providing services; and
- portfolio investments, defined as purely financial acquisitions with no intention to influence management or control
However, and in line with the upcoming FDI regulatory framework, greenfield investments are in-scope of the IAA proposal. This includes not only investments in existing companies, via asset or share deals, but also directly in an EU asset, such as physical infrastructure or intellectual property rights.
Notification thresholds and approval conditions
In‑scope foreign investments are subject to a standstill obligation and may not be implemented before approval by the competent national screening authority or the Commission.
Foreign investors should notify any investments which result in control over an EU target or asset, which is defined as 30% or more of voting rights or ownership over the target or asset. This definition of control therefore deviates from the common definition under the EU Merger Control Regulation.
The most notable novelty is that screening authorities can only approve foreign investments which meet 4 out of 6 conditions listed in the IAA proposal:
- The foreign investor holds maximum 49% of ownership interests or control in the target or asset.
- The foreign investor holds maximum 49% of ownership interests or control over a joint venture involving EU entities.
- Foreign investors must share their intellectual property and knowhow to ensure that the EU target or assets can carry out their activities. The EU target should also retain ownership over IP developed prior to the investment and co-own IP developed as a result of the collaboration with the foreign investor.
- The foreign investor should commit annually at least 1% of the gross annual revenue of the EU target to research and development spending within the EU.
- EU workers should make up at least 50% of the workforce employed in the context of the investment, both at the time of investment and continuously throughout its operation. Moreover, if the EU target or asset, or the foreign investor receives public funding, the investor cannot decrease its EU workforce for five years after receiving the funding. Notably, the workforce conditions apply in any case to all investments, regardless of whether the other conditions are also met. The focus of the commission seems to be squarely on social stability and retaining and developing know-how within the EU.
- The foreign investor should prepare and publish a strategy to enhance EU value chains and to prioritise the sourcing of inputs for EU manufacturing activity. Additionally, the investor should try to source minimum 30% of its inputs from the EU for its products placed on the EU market.
These conditions were a significant point of contention within the Commission before it formally adapted the IAA proposal. Earlier drafts of the proposal included the requirement that all six conditions must be met, which would have effectively blocked foreign control over in-scope investments. Nevertheless, it remains to be seen how much even meeting four of these strict conditions will indeed ensure that investments add value to the EU or will deter foreign investors from investing at all.
Failure to comply with the notification obligation triggers severe minimum penalties:
- for corporate investors: at least 5% of the average daily aggregate turnover of the investor group (as defined under EU merger control).
- for private individuals: at least 5% of the investment value.
These fines are minimum penalties, but heavier penalties imposed by member states should be effective and proportionate. Considering that the Belgian FDI framework also refers to the ultimate beneficial owners in case of foreign (indirect) investors who are private persons, the IAA proposal implies that the sanction is imposed on the UBOs.
Screening procedure and compliance monitoring
The IAA proposal introduces fixed review timelines for national screening authorities and the Commission. Taken together, however, these deadlines are longer than those currently applicable under the Belgian FDI regime, likely resulting in extended transaction timelines before closing.
If targets or assets are located in multiple member states, the foreign investor must submit the notification to the screening authorities of all member states and the Commission and on the same day. Member states should then coordinate their review of the investment and agree on the imposed measures, which relieves some of the administrative burden for investors.
After an investment has been approved and implemented, national screening authorities must monitor whether the foreign investment continues to fulfil the investment conditions. The foreign investor is therefore required to report regularly to the screening authorities on its compliance, but the IAA proposal does not lay down what form these reports should take, leaving significant discretion to member states and uncertainty for investors.
Added value or added paperwork?
If turned into law, the proposal for an Industrial Accelerator Act marks a shift in how the EU intends to safeguard industrial competitiveness, secure supply chains, and channel foreign investment toward its strategic priorities. By coupling stringent low‑carbon and EU‑origin requirements in public procurement with a far more demanding screening regime for high‑value foreign investments, the IAA proposal creates both new opportunities and notable compliance challenges for businesses operating in energy‑intensive and emerging strategic sectors.
While the Commission aims to stimulate innovation, resilience, and social stability within the EU, the practical impact of these measures – particularly the strict approval conditions and expanded monitoring obligations – may deter certain investors and increase administrative burdens for companies and contracting authorities.
Before the IAA proposal becomes law, however, it must be approved by the Council and the European Parliament. After that, member states must implement the adopted regulation to make sure that their legislation is compliant. As the legislative process evolves, companies should closely monitor how member states implement the IAA, assess their exposure to the new requirements, and prepare for a more interventionist and security‑focused industrial policy landscape within the EU.
If you have any questions about how the Industrial Accelerator Act may affect your organisation, please reach out to one of our lawyers below.
