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Provisions of the Treaty on the Functioning of the European Union (TFEU)

Art. 26 (2) TFEU states that "the internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured…"

General principle of the free movement of capital

The general principle about free movement of capital is defined in Art. 63 TFEU. This Article stipulates that "…all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited." The wording of the Treaty provision defines the fundamental features of this principle:

  • "…all restrictions…"
  • "…between Member States…"/ "between Member States and third countries": capital movement concerned must contain a cross-border element
  • "third countries": this freedom also concerns third countries (read more)
  • "movement of capital": the wording of Article 63 TFEU contains no limitation as to who has the right to invoke this freedom
  • "…prohibited": Art. 63 TFEU has direct effect; it does not need any implementing legislation at Member States’ level and it directly confers rights on individuals which they can rely on before national courts (see e.g. case C-101/05, Skatteverket v A, §21).
  • "…all restrictions... shall be prohibited": Art. 63 TFEU prohibits all obstacles, not just discriminatory ones. It lays down a general prohibition, which goes beyond the mere elimination of unequal treatment on grounds of nationality (see case C-367/98, Commission / Portugal, §44).
  • On payments, Art. 63(2) TFEU stipulates that "Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited." (read more)

Exceptions to the free movement of capital

Exceptions stipulated in the Treaty

Graphic overview of exceptions stipulated in the Treaty

Source : 'Capital movements in the legal framework of the Community' - Annex to Chapter 5 on Determinants of international capital flows (European Economy  Nr. 6, 2003, p. 322 ) pdf Choose translations of the previous link English

Third-country restrictions (grandfathered provisions)

Art. 64 TFEU allows Member States to apply restrictions that existed before a certain date to third countries and certain categories of capital movements and it provides a basis for the introduction of such restrictions – but under very specific circumstances.

 Tax differentiation

Art. 65(1) TFEU allows for different tax treatment of non-residents and foreign investment, but with the reservation that this must not represent a means of arbitrary discrimination or a distinguished restriction in the sense of Art. 65(3) TFEU.

Prudential measures

Art. 65 (1b) TFEU allows Member States "to take all requisite measures to prevent infringements of national law and regulations", in particular in the field of taxation and the prudential supervision of financial institutionspdf, or to lay down declaration procedures for purposes of administrative or statistical information (e.g. cash controls at the border), or to take measures which are justified on grounds of public policy or public security. However, these measures must not represent a means of arbitrary discrimination or a distinguished restriction in the sense of Art. 65(3) TFEU.

Public security

Art. 65(1b) TFEU stipulates that "The provisions of Article 63 shall be without prejudice to the right of Member States…to take measures which are justified on grounds of public policy or public security." The CJEU has decided that the difficulty in identifying and blocking capital once it has entered a Member State may in principle justify differential treatment of transactions involving foreign direct investment (see case C-54/99, Église de Scientologie, §20).

With respect to a system of prior administrative approval, the CJEU has explicitly ruled (see cases C-463/00, Commission v Spain, §69 and C-367/98, Commission v Portugal, §50) that "such a system must be based on objective, non-discriminatory criteria which are known in advance to the undertakings concerned…" Art. 65(3) TFEU additionally stipulates that "measures and procedures" under Article 65(1b) and (2) TFEU shall not constitute a means of arbitrary discrimination (e.g. measures targeting specific individual investors) or a disguised restriction. In addition, assuming such difficulty in identifying and blocking capital once it has entered a Member State for every case of indirect control by third country entities (e.g. blanket reference to the requirement of prior authorisation for third country entities) would seem to contradict Art. 54(1) TFEU.

The CJEU has established (see e.g. case C-423/98, Albore, §19) that the requirements of public security cannot justify derogations from the Treaty rules such as the freedom of capital movements unless the principle of proportionality is observed, which means that any derogation must remain within the limits of what is suitable for securing the objective which it pursues and must not go beyond what is necessary in order to attain the pursued objective.

Regarding specifically third countries, the Court has furthermore established (see case C-101/05, Skatteverket v A, §37) that it may be "…that a Member State will be able to demonstrate that a restriction on the movement of capital to or from third countries is justified for a particular reason in circumstances where that reason would not constitute a valid justification for a restriction on capital movements between Member States…".

For more information on Sovereign Wealth Funds (SWFs), you can consult the dedicated section.

Third country restrictions (economic and monetary union)

Art. 66 TFEU a allows for restrictions regarding third countries to safeguard against serious difficulties for the operation of economic and monetary union. Financial sanctions


Art. 75 TFEU provides for the possibility of financial sanctions against individuals, groups or non-state entities to prevent and combat terrorism.more

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Pursuant to Art. 215 TFEU financial sanctions may be taken against third countries, or individuals, groups or non-state entities, based on decisions adopted within the framework of the common foreign and security policy.

Balance of payment

Art. 143 TFEU and Art. 144 TFEU allow for the taking of protective balance of payments measures, where difficulties jeopardise the functioning of the Internal Market or where a sudden crisis occurs.

Restrictions on property ownership


According to Art. 345 TFEU, "The Treaties shall in no way prejudice the rules in Member States governing the system of property ownership", a principle that is of particular importance in the context of privatisation measures. CJEU case law on Art. 345 TFEU is limited and mostly relates to expropriation. Communication of the Commission on intra-EU investment (1997), fn. 1). On privatisation see IP/01/872 Choose translations of the previous link .

  • The privatisation of a firm (from the public to the private sector) is an economic policy choice which, in itself, falls within the exclusive competence of Member States (see e.g.
  • However, the CJEU stated in its landmark decisions on special rights of public authorities that "Member States are not entitled to plead" Article 345 TFEU "by way of justification for obstacles, resulting from privileges attaching to their position as shareholder in a privatised undertaking, to the exercise of the freedoms provided for by the Treaty” (emphasis added). Member States thus need to operate within the limits of the Treaty freedoms in the post-privatisation phase of an enterprise.
  • In case C-174/04, , Commission/Italy, §32, the CJEU ruled that "The Treaty provisions on the free movement of capital do not draw a distinction between private undertakings and public undertakings…"

Exceptions established by the case law of the Court of Justice of the European Union based on exceptions stipulated in the Treaty

The CJEU has established that the free movement of capital, as a fundamental principle of the Treaty, may be restricted only by national rules which are justified by reasons referred to in Art. 65(1) TFEU or by overriding requirements of the general interest (see e.g. cases C-463/00, Commission v Spain, §68 and C-174/04, Commission v Italy, §35, where the Court further notes that "…in order to be so justified, the national legislation must be suitable for securing the objective which it pursues and must not go beyond what is necessary in order to attain it, so as to accord with the principle of proportionality").

Whilst these general interest considerations are not explicitly stated in the TFEU, some have been established by CJEU case law. Some examples:

  • On services of general interest the Court acknowledged with regard to safeguarding the solvency and continuity of the provider of the universal postal service, "that the guarantee of a service of general interest, such as universal postal service, may constitute an overriding reason in the general interest capable of justifying an obstacle to the free movement of capital" (see joined cases C-282/04 and C-283/04, Commission v the Netherlands, §38, §39).
  • Regarding the petroleum, telecommunications and electricity sectors, the CJEU has ruled, that "…it is undeniable that the objective of safeguarding supplies of such products or the provision of such services within the Member State concerned in the event of a crisis may constitute a public-security reason…and therefore may justify an obstacle to the free movement of capital." (case C-463/00, Commission v Spain, §71). In joined Cases C-388/00 and C-429/00, Radiosistemi, §44 (for the free movement of goods), the Court found that "It is true that the national type-approval for radio equipment is of such a nature as to be justified by considerations of public security and imperative requirements relating to the proper functioning of the public telecommunications network…"
  • Furthermore, Art. 21(4) of the Merger Regulation (Council Regulation (EC) No 139/2004) specifically qualifies the plurality of the media as a "legitimate interest" next to considerations qualifying as notions covered by Art. 65(1b) TFEU (public security, prudential rules).