Background
On 15 January 2025, the European Commission (EC) issued a non-binding recommendation calling on Member States to review outbound investments in three technology areas critical to the EU’s economic security: semiconductors, AI and quantum technologies. The EC’s recommendation follows a public consultation that highlighted the need for a systematic review of outbound investments and emphasises the importance of assessing risks associated with such investments to prevent technology leakage that could undermine the EU’s security.
This recommendation is part of the broader EU Economic Security Package, launched in January 2024, which is aimed at safeguarding the EU’s technological leadership and economic security amidst rising geopolitical tensions and profound technological shifts. This strategy also includes revisions to the EU’s Foreign Direct Investment Screening Regulation and recommendations on improving export control rules. Outbound investment review rules have been in effect in the U.S. since the start of January 2025, while the UK is currently exploring whether to implement a system for the active screening of outbound investments.
This client alert provides an overview of the EC’s recommendation and its implications for businesses and individuals engaged in the relevant technology areas.
Scope of review
The EC’s recommendation encourages EU Member States to establish information-gathering systems to enable the review of outbound investments by EU residents and businesses established in the EU (EU investors) related to three critical technology areas, namely:
- Semiconductor technologies: This includes technologies related to the design, fabrication, assembly, testing and packaging of integrated circuits and other semiconductors, as well as semiconductor manufacturing equipment and materials.
- AI technologies: This encompasses machine-based systems designed to operate with varying levels of autonomy, particularly generative AI systems exceeding a specific processing speed, or those trained on biological/genomic data or designed for biotechnological, space or defence applications.
- Quantum technologies: This covers quantum computing, quantum communications and quantum sensing technologies.
The scope of the proposed review encompasses a wide range of outbound investment transactions, including:
- Acquisitions: Acquiring a company or a stake that enables effective participation in management or control.
- Mergers: Absorbing or combining companies to form a new entity.
- Asset transfers: Transferring tangible or intangible assets, including intellectual property or specific know-how.
- Greenfield investments: Establishing a new business, subsidiary or branch.
- Joint ventures: Establishing or investing in an undertaking with a joint entrepreneurial goal.
- Venture capital: Providing capital linked to intangible benefits, such as managerial assistance, market access or access to investment and talent networks, where the relevant investor has expertise or has previously invested in firms active in the three critical technology areas identified above.
In addition to direct investments, the review should also cover indirect investments by EU investors, such as investments by existing subsidiaries established in non-EU countries. In contrast, non-controlling investments that are limited to seeking a return on invested capital should be excluded from the review.
The scope of the review should not be limited to new and ongoing transactions but also apply retroactively to any transactions completed since 1 January 2021. Member States are encouraged to also review transactions completed before 2021 if particular concerns regarding a transaction are identified. Therefore, it is advisable that any EU investors active in the semiconductor, AI and quantum technology areas keep adequate records of relevant investments in any non-EU country since at least 1 January 2021.
Review process and risk assessment
The review of outbound investments will be undertaken individually by each Member State, with the support of the EC. Accordingly, each Member State must designate a national authority responsible for reviewing outbound investments. National bodies responsible for the enforcement of export control rules are likely to be the most suitable authorities for this task, due to their experience in dealing with transactions involving third countries.
While the recommendation sets out the types of information that should be gathered from EU investors (i.e., information about the relevant parties, the type and value of the investment, the technologies concerned, and any EU or Member State public funding received by the investor), Member States have considerable discretion in setting up their information-gathering systems, particularly in determining whether these systems provide for the voluntary or mandatory submission of information on transactions. Member States are encouraged to also consult relevant stakeholders, including businesses, academia and civil society, as part of the review process.
The information gathered by the relevant national authorities will be used by Member States to assess the risks arising from outbound investments, in particular as regards the likelihood of technology leakage that could harm the economic security of the EU or its Member States, or undermine international peace and security. The risk assessment should take into account factors such as: (i) the context of the transaction, (ii) the current maturity level of the technology, (iii) the availability of the technology in the country targeted by the investment, (iv) the technology’s value and supply chains, (v) the evolution of risks and relevant technological developments and use cases, (vi) the global interconnectivity of the critical technology’s ecosystem, including R&D activities and (vii) the participation of the company in EU projects or programmes.
The recommendation does not currently set out any mitigating action that may be taken by Member States if a high-risk investment is identified. Member States may decide individually whether mitigating measures are required to address any identified risks, and, if possible, they can use existing instruments to do so, including dual-use export control rules.
Next steps and outlook
The EC’s recommendation will soon make past, ongoing and future outbound investments by EU investors in semiconductors, AI and quantum technologies subject to closer regulatory scrutiny across the EU.
Member States will have to report to the EC on the review and risk assessment of the transactions identified by 30 June 2026. These results will inform the EC’s next policy steps in this field.
In light of the geopolitical tensions, accelerated technological shifts and the new U.S. outbound investment security programme, which took effect on 2 January 2025, this could ultimately lead to an EU-wide proposal for mitigating actions to protect the EU’s economic security, along the lines of the EU’s review framework for FDI control. Any such future regime would further add to regulatory scrutiny (and the complexity) of international M&A deal-making under existing multi-jurisdictional merger control and FDI rules, highlighting the need for close monitoring of further developments.
Client Alert 2025-016