Ireland’s business community has rebuffed any concerns that the country’s incoming screening regime will curb capital flow into the foreign investment-dependent country, despite a large majority of its inbound deals coming from non-EU nations captured by the new rules.

The government will start screening foreign direct investment (FDI) for national security risks during the second quarter of 2024, after holding out for four years following the European Commission’s request in 2020 that member states scrutinise transactions that give non-EU investors ownership of critical assets. 

“Politically and commercially, Ireland has been trying to balance its commitments to the EU with how important FDI is to the Irish economy,” said Dennis Agnew, a Dublin-based partner at Squire Patton Boggs. The government estimates that 20% of all private sector employment is directly or indirectly attributable to FDI. Despite its population of just five million people, Ireland has accumulated the eighth-largest FDI stock in the world.

Sectors captured by the screening rules, which were approved in October 2023, do not go beyond those listed in the EU regulation — critical infrastructure, energy, raw materials and food security — and targets those with access to sensitive information. 

The mechanism is “designed to provide balance, incorporating Ireland’s longstanding openness to FDI while also acknowledging the challenge posed by potentially hostile investments”, a Department of Enterprise, Trade and Employment spokesperson told fDi.  

But despite best efforts to create a business-friendly approach, the rules will apply to a large proportion of inbound mergers and acquisitions (M&As), given Ireland’s popularity among firms in the US, UK and non-European countries.

Data from Refinitiv shows that countries captured by Ireland’s regime — those outside the EU and European Free Trade Association — account for 92% of its inbound M&A over the past decade. Meanwhile across the EU as a whole, cross-border M&A originating outside the bloc accounted for just 48% over the same time period. 

Ireland’s popularity beyond continental Europe is largely down to UK-based companies, which have looked across the Irish Sea to keep a foothold in the EU after Brexit, and US groups that use it as their European base for its low business taxes, business-friendly environment and English-speaking workforce. These two countries alone account for 46% of M&A into Ireland over the past decade. 

Mr Agnew said Ireland’s preparation of the screening mechanism was “always cognisant” of the amount of US and UK FDI the country attracts. “That’s probably why Ireland has been one of the later countries in the EU to commit to its obligations,” he added. Indeed, the only EU countries without a screening mechanism are now Croatia, Cyprus, Greece and Bulgaria, which is set to kickstart its regime by year-end. 

More on Ireland:

• Ryanair CEO charts flight path to continued growth
• Ireland's FDI success challenged by housing woes
• Ireland pushes FDI beyond its Dublin stronghold

Business as usual?

The introduction of investment screening comes at a pivotal time for Ireland’s standing as one of Europe’s most popular FDI destinations. In January, the EU started rolling out the OECD-led 15% global corporate minimum tax, which for multinationals ends Ireland’s competitive 12.5% tax rate which had lured European headquarter projects by the likes of Apple, Google and AirBnB.

Inbound M&A dropped to $6.97bn last year, the third-lowest annual figure in a decade according to Refinitiv. Meanwhile, the 226 greenfield FDI projects announced was a four-year low, fDi Markets data shows. 

However Diarmuid Ryan, a Squire Patton Boggs partner in Dublin, said the screening mechanism “shouldn’t ultimately stop investments from happening”. While some deals will become more complex, “this will be a workable regime” which is “there really to implement the EU regulation”, he added. 

fDi understands that Ireland’s investment promotion agency, IDA, has been engaging with the US business community, urging them not to hesitate on choosing Ireland as an investment destination. 

A first version of this story has been updated regarding government department references.

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