Proposed EU Industrial Accelerator Act Would Introduce New Conditions for Foreign Direct Investments in Strategic Sectors

On March 4, 2026, the European Commission proposed the Industrial Accelerator Act (IAA), a draft regulation that aims to reverse the decline of the EU’s manufacturing sector while supporting the adoption of cleaner technologies. This client alert is the second in a three-part series dedicated to the IAA. In our first alert we provided an overview of the draft regulation. In this second alert, we take a closer look at the new foreign direct investment (FDI) review framework that the IAA would establish for certain strategic sectors.

Under the new FDI review framework, national Investment Authorities and the European Commission would have the power to make large investments originating from non-EU countries subject to certain conditions, with the aim of ensuring that the investments contribute genuine added value to the EU economy and do not increase the Union's dependency on third countries for technologies where it lags behind.

1. Scope of the new FDI framework

The IAA’s new FDI framework would only apply to large investments in certain “emerging strategic sectors”. Investments in these sectors exceeding EUR 100 million would require approval from national Investment Authorities where a third country controls more than 40% of the global manufacturing capacity in question and the investor is either a national or an undertaking of that country. The goal is to restrict FDI from countries that already have significant manufacturing capacity in these sectors and that could pose a threat to the Union’s strategic autonomy.

The emerging strategic sectors are the following:

• Battery technologies and the value chain for battery energy storage systems;
• Pure electric vehicles, off-vehicle charging hybrid electric vehicles and fuel-cell electric vehicles, including components related to electrification and digitalization;
• Solar photovoltaic technologies;
• Extraction, processing and recycling of critical raw materials.

The draft IAA empowers the Commission to adopt delegated acts to add additional sectors to this list.

The following are excluded from the scope of the FDI framework:

• investors and investments covered by economic partnerships and free trade agreements to the extent that relevant commitments have been made under those agreements;
• investments targeted at providing services; and
• portfolio investments.

2. Review procedure

a. Competent authorities

The IAA would require each Member State to designate an Investment Authority within one month of its entry into force. The national Investment Authorities would be tasked with reviewing and approving notified investments, enforcing the notification requirements and monitoring compliance with the conditions imposed on investors.

However, the IAA would enable the European Commission to take over from the national authorities in the following circumstances:

• The FDI has the potential to significantly impact added value creation in the Union market, which is deemed to be the case in any of the following cases:
  • the investment is of particular strategic importance for the internal market,
  • it has considerable economic impact on the territory of more than one Member State,
  • it is highly likely to disrupt the security of supply of that emerging strategic sector or related value chains in the Union, or security in more than one Member State,
  • it is highly likely to have a detrimental environmental effect in more than one Member State, or
  • it is of a particularly high value compared to other investments in the emerging strategic sector concerned.
• The FDI has a value exceeding EUR 1 billion; or
• At the request of a national Investment Authority handling a notification, or in whose territory the investment would have a significant impact.

b. Prior notification of planned FDI

The draft IAA provides that, prior to making an investment meeting the above-mentioned thresholds in one of the emerging strategic sectors, the investor must notify the relevant Investment Authority. This notification is required if the investment would result in control of an EU target or asset.

The relevant Investment Authority is the competent authority in the Member State where the target or asset is located. If the investment project involves targets or assets located in more than one Member State, the foreign investor must notify the authorities of all the relevant Member States and simultaneously also the Commission.

Foreign investors are considered to have “control”, where the investment reaches either of the following thresholds:

• ≥ 30% share capital or voting rights in a Union target; or
• ≥ 30% of ownership of a Union asset, and leasehold or other rights conferring control over a Union asset.

For the purposes of calculating either of these thresholds, aggregated interests held both directly and indirectly are taken into consideration. A notification is also required if the investment would result in a number of foreign investors collectively holding more than the above-mentioned control thresholds.

c. Timeline for review and approval

An investment that is caught by the notification requirement may not be implemented until it has been explicitly approved by the competent Investment Authority or the Commission (standstill obligation).

The procedural steps are as follows:

• The Investment Authority must decide on the admissibility of the notification within 30 days of receiving it. This period can be extended by 15 days in duly justified circumstances.
• If the Investment Authority decides that the notification is admissible, it must immediately transmit it to the Commission. The Commission may issue a written opinion on whether the Investment Authority is to approve the investment or not within 30 days from receipt of the notification.
• No sooner than having received the Commission’s opinion and no later than 60 days after receipt of the notification (or 75 days if the deadline for the admissibility assessment was extended), the Investment Authority must decide whether to approve or decline the investment. In duly justified circumstances, the decision deadline may be extended by a further 30 days.
• The decision must be communicated to the investor within 3 days of adoption.
• If the Investment Authority’s decision diverges from the Commission’s opinion as to the compliance of the investment with the conditions (see below), the decision will only enter into force after an additional period of two months, during which time the Authority must assess the notification in greater detail.

Taking these procedural steps into account, it is clear that the procedure could take anywhere between two months and five and a half months to complete.

In its decision, the Investment Authority must impose reporting obligations on the investor to enable it to assess the continuous fulfilment of the conditions.

d. Penalties in case of non-compliance

The national authorities must impose effective and proportionate penalties in case of non-compliance, in particular, if a foreign investor fails to comply with (i) the notification requirement, (ii) the conditions attached to the approval of an investment, or (iii) its obligation to regularly report to the authority on compliance with those conditions.

In case of a violation of the prior notification obligation, the Investment Authority would impose penalties amounting to:

• At least 5% of the average daily aggregate turnover of a foreign investor undertaking, or
• At least 5% of the investment value, if the investor is a private person.

3. FDI conditions

To gain approval, foreign direct investments must fulfill at least four out of the six following conditions:

• At least 50% of the workforce across all categories are Union workers (mandatory condition);
• The foreign investors do not acquire more than 49% of the share capital or voting rights;
• The investment is undertaken through a joint venture with EU entities;
• The foreign investors enter into agreements providing for the licensing of their intellectual property rights or know-how for the benefit of the Union target or Union asset;
• They direct at least 1% of the gross annual revenue of the Union target, or generated by the Union asset, to R&D spending in the Union;
• The foreign investor prepares and publishes a strategy for enhancing Union value chains and prioritizing sourcing inputs from the Union and endeavors to source from the Union at least 30% of inputs used for the products placed on the Union market.

Some or all of these conditions may also be applied to direct investments made by a foreign investor’s subsidiary in the EU, if that is deemed necessary to prevent circumvention, or where no less restrictive alternative measures are reasonably available to meet the objectives of the IAA.

4. Implications for foreign investors

Considering the sectors covered and the thresholds set for global manufacturing capacity, it appears that the IAA’s proposed new FDI framework is designed primarily to target Chinese investors. China is a global leader in manufacturing batteries, electric vehicles (EVs), and solar photovoltaic technologies. It also controls much of the world’s supply of critical raw materials, such as rare earths.

In this respect, the IAA complements the EU's trade defense policy. A combination of U.S. tariffs redirecting trade flows and overcapacity in China’s EV and green tech manufacturing industries could make the EU vulnerable to below-cost Chinese imports. The European Commission has previously tried to counter this by imposing anti-dumping duties on new battery electric vehicles and key components for solar panels.

The IAA would require Chinese companies that invest in manufacturing capacity in the EU to comply with conditions that aim to ensure those investments bring genuine added value to the EU economy without deepening dependencies on third countries. Some of these conditions resemble those that Western companies had to accept in order to access the Chinese market decades ago, such as requirements to form joint ventures with EU companies, share intellectual property and know-how, and invest in R&D.

The new FDI conditions should not be viewed separately from the “Union origin” requirements that the IAA would also introduce (see our previous alert). These requirements are designed to encourage non-EU companies, particularly those active in key sectors such as batteries, electric vehicles, and net-zero technologies, to establish factories in the EU, for example car assembly plants. These investments would then be subject to the FDI framework described above if they meet the applicable thresholds.

Although the IAA’s FDI framework seems primarily to target Chinese investors, it is formally country-neutral and may apply to investments from other third countries (although investors from countries with a free trade agreement with the EU would be exempt). The IAA would add another notification and standstill obligation to those already existing under the EU Merger Regulation, the Foreign Subsidies Regulation, and the various national FDI screening regimes of the Member States (an ongoing revision of the EU FDI Screening Regulation aims to unify these regimes). This creates a regulatory landscape that is increasingly complex for foreign investors to navigate.