Brussels,

Capital movements​

Article 63 of the Treaty on the Functioning of the European Union requires that all restrictions on the movement of capital between EU countries and between EU countries and non-EU countries be prohibited unless they are necessary to pursue legitimate public interests.

The purpose of free movement of capital is to enable an efficient cross-border deployment of physical and financial capital for investment and financing purposes.

For individuals, this means being able to carry out many transactions, including:

• opening bank accounts abroad
• buying shares in non-domestic companies
• investing where the best return is
• purchasing real estate in another country

For businesses, it means being able to:

• invest in, and own, other European businesses
• raise finance where it is cheapest

Legal framework

The Treaty on the Functioning of the EU does not provide a specific definition for the term 'movements of capital.' In the absence of such a definition, the Court of Justice of the European Union has determined that the definitions found in the nomenclature annexed to Directive 88/361/EEC can be utilized to clarify this term.

According to these definitions, cross-border capital movements encompass:

1. Foreign Direct Investments (FDI)
2. Investments or purchases in real estate
3. Investments in securities (e.g., shares, bonds, bills, unit trusts)
4. Granting of loans and credit
5. Other transactions involving financial institutions, including personal capital operations like dowries, legacies, endowments, etc.

The legal framework for the free movement of capital, one of the fundamental freedoms supporting the EU single market, includes:

1. Treaty provisions
2. Protocols and declarations
3. Transitional measures established through acts of accession for new member countries

Article 63 of the Treaty on the Functioning of the EU prohibits any restrictions on capital movements and payments not only within the EU but also between EU member states and non-EU countries. However, the treaty includes additional provisions outlining exceptions to the principle of free movement of capital. These exceptions are designed to address issues related to taxation, prudential supervision of financial institutions, public policy, and security.

The Court of Justice of the European Union (CJEU) holds the ultimate authority in interpreting treaty provisions, and there exists a substantial body of case law in this field.

For more information, you can refer to:

1. Legal framework of the free movement of capital
2. Guide to the case law of the CJEU
3. Interpretative communication on the acquisition of farmland and European Union law

Barriers to the free movement of capital

The European Commission upholds the unfettered flow of capital by overseeing financial movements and verifying that EU member states adhere to the Treaty's regulations.

In July 2018, the Commission issued a communication in which it reiterated the essential principles of EU law governing the safeguarding of investments within the Single Market. This communication was prompted by a judgment from the European Court of Justice, which deemed investor-to-State arbitration clauses in existing international investment agreements among EU Member States as inconsistent with the Treaty.

​The EU Capital Markets Union (CMU) is designed to establish a genuine single market for capital within the EU by 2019. As part of the CMU action plan, the European Commission has initiated collaborative efforts with EU member states to investigate any remaining domestic obstacles hindering the free movement of capital.

To facilitate discussions in this area, an expert group consisting of representatives from EU member states has been established to exchange perspectives.

In March 2017, the Commission adopted a report that explores methods for addressing national barriers, with the goal of facilitating the seamless flow of cross-border investments across the EU.

Additionally, in May 2017, the Commission and the Member States reached a consensus on a Joint Roadmap outlining actions to mitigate national impediments to capital flows.

For more information, you can refer to the following resources:

1. Report from the Commission - Accelerating the capital markets union: addressing national barriers to capital flows
2. Joint Roadmap of actions to address national barriers to capital flows

International relations

The free movement of capital is the most expansive among treaty freedoms, encompassing capital flows not only within the EU internal market but also between EU member states and the global community.

However, this freedom necessitates prudent safeguards and protections. EU countries possess the legal authority to take measures to safeguard against potential threats to public security posed by foreign investments. Additionally, the EU has the capacity to impose restrictions on this freedom in both emergency situations and ordinary economic circumstances.

The EU has been a leading advocate for promoting the unrestricted movement of capital on a global scale, advocating for reduced trade barriers and a fair playing field for investments.

The EU advances these principles through:

1. Engagement in international forums and multilateral agreements.
2. Conducting bilateral investment dialogues and negotiating trade agreements.
3. Engaging in negotiations with EU candidate countries.

This approach underscores the EU's commitment to facilitating the free flow of capital while safeguarding essential interests.