Foreign direct investment reviews 2021: Germany

The Federal Ministry for Economic Affairs and Energy continues to tighten FDI control, but the investment climate remains liberal in principle

16 min read

In Germany, the investment climate remains liberal in principle. Nevertheless, since around 2016, German foreign investment control has continuously toughened, and the German Federal Government has become more sensitive about protecting key technologies, industries and know-how.

“Since 2016, the number of deals reviewed by the BMWi has continuously increased”

Several transactions involving critical infrastructure, telecommunication networks or the like have been cleared only after lengthy investigations, and are subject to strict compliance remedies. The other focus areas for review are the potential use of key technologies, as in the semiconductor space or in military applications, and in healthcare.
Following earlier revisions triggered by the EU Screening Regulation and the COVID-19 pandemic, the German regulatory framework has—once again—undergone substantial, expansive revisions throughout the past year, further adding to the complexity and scope of the review process.



The German rules on foreign direct investment (FDI) are set out in the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz; AWG) and the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung; AWV). The regulatory framework is broadly structured as follows:

  • The competent authority is the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie; BMWi), which involves other ministries and government agencies depending on the target activities
  • The German foreign direct investment regime is partly mandatory, and partly voluntary. In essence, the activities of the target and the "nationality" of the direct or indirect investor determine the process and whether there is a filing obligation
  • For all foreign direct investments that are subject to the mandatory regime, the investment threshold is 10 percent (shares or assets) if the target is active in defense-related fields or in "classical" critical infrastructure, and 20 percent for all other critical activities listed in the AWV, and the transaction is subject to a standstill obligation (subject to criminal sanctions) until clearance
  • For all other foreign direct investments, the investment threshold allowing the BMWi to review an investment on its own account is 25 percent, and there is generally no equivalent standstill obligation
  • The AWV includes clearly defined thresholds for additional mandatory filings at 20 percent (in case the initial threshold was 10 percent), 25, 40, 50 and 75 percent. Whenever the next threshold is reached, an additional filing is required (including standstill and criminal sanctions)
  • The review timeline includes an initial review period of two months and, to the extent the BMWi decides to initiate a full review, a subsequent in-depth review of four months from the full documentation (subject to suspensions and extensions)
  • The material review criterion to be applied by the BMWi is whether the foreign direct investment results in a probable impediment to the public order or security (öffentliche Ordnung oder Sicherheit) of the Federal Republic of Germany, of another EU Member State, or in relation to so-called projects or programs of Union interest (in defense-related deals, the review criterion is a probable impediment to essential security interests of the Federal Republic of Germany)



In summary, the activities of the target and the nationality or origin of the investor determine the review process.

“Recent geopolitical tensions and the vulnerability of supply chains demonstrated during the COVID-19 pandemic will very likely lead to increased FDI scrutiny”

Regarding certain highly sensitive industries such as arms and military equipment, encryption technologies and other key defense technologies such as reconnaissance, sensor and protection technologies, investments of at least 10 percent (voting rights in an entity or assets constituting a business) by any foreign investor are subject to a mandatory review, a "sector-specific review."

Such reviews now include all products in Part I Section A of the Export List (instead of the limited number of products under the previous rules) and now also include: the modification or handling of such products (in addition to development and manufacturing); military goods and technologies that are based on restricted patents or utility models (including the modification and handling of such products); and so-called "defense-critical" facilities, such as entities active in the production of military equipment if they are necessary to safeguard the defense-readiness and cannot readily be replaced.

Any other type of investment may only be scrutinized if the investor is based outside the EU/EFTA (a so-called "cross-sectoral review"). The BMWi takes a broad view and looks at all entities in the entire acquisition chain from the direct acquirer to the ultimate parent, and also at shareholders such as limited partners.

Whether a review is mandatory or voluntary further depends on the target's activities. In particular, the review is mandatory if a non-EU/EFTA investor acquires 10 percent or more of a domestic target that:

  • Operates "critical infrastructure" (as legally defined in great detail) or develops and modifies software specifically for such "critical infrastructure"
  • Has been authorized to carry out organizational measures pursuant to the Telecommunications Act, or produces or has produced the technical equipment used for implementing statutory measures to monitor telecommunications and has knowledge about this technology
  • Provides large-scale cloud computing services
  • Holds a license for providing telematics infrastructure components or services
  • Is a company of the media industry that contributes to the formation of public opinion via broadcasting, telemedia or printed products, and is characterized by particular topicality and breadth of impact
  • Provides services that are needed to ensure the trouble-free operation and functioning of state communication infrastructures

The ownership threshold is 20 percent if the German target:

  • Develops or manufactures personal protective equipment
  • Develops, manufactures or markets essential medicines, including their precursors and active ingredients
  • Develops or manufactures medicinal products within the meaning of medicinal product law that are intended for diagnosis, prevention, monitoring, predicting, forecasting, treating or alleviating life-threatening and highly infectious diseases
  • Develops or manufacturers in vitro diagnostics, within the meaning of medicinal product law, that serve to supply information about physiological or pathological processes or conditions, or to stipulate or monitor therapeutic measures relating to life-threatening and highly infectious diseases
  • Operates high-quality remote earth sensing equipment (as defined in the German Satellite Data Security law)
  • Develops or manufactures AI systems, including for automatic cyber-attacks; impersonating others; generating targeted false information; analyzing verbal communication or biometric identification for surveillance or retaliation measures; analyzing movement, positioning or traffic data for similar purposes
  • Develops or manufactures automated driving and aviation (vehicles or unmanned aircraft with highly automated steering or navigation including components and software)
  • Is a developer or manufacturer of industrial robotics. (Last-minute revisions significantly reduced the scope of the new business to only include certain robotics, including for handling explosives, radiation and other adverse conditions)
  • Is a developer, manufacturer or processor of semiconductor products (micro- or nano-electronic circuits (optical and non-optical, integrated and discrete), including all relevant production and processing equipment (including crystal pulling, lithography, epitaxy, grinding, cutting, etching, doping, testing and so on, but not input material more broadly).
  • Develops or manufactures cybersecurity products: IT products or major components with the primary function of securing the availability, integrity, authenticity and confidentiality of IT systems/components/processes; defending against attacks on IT systems (including damage analysis and recovery); or detecting and investigating criminal offences/securing evidence by law enforcement
  • Undertakes certain aviation and aerospace activities (including systems and components)
  • Is active in the field of nuclear technology
  • Is a developer or manufacturer of quantum technology, including quantum computers, sensors, metrics crypto-technology, communication and simulation
  • Is a developer or manufacturer of additive manufacturing technology (such as 3D printing, including major components and input material), following last-minute revisions limited to additive manufacturing based on metal or ceramic materials (and in particular not plastic)
  • Develops or manufactures products specifically for operating cable or wireless data networks (including cable or optical fiber transmission, network connection, signal amplification, control and management)
  • Manufactures smart-metering products
  • Employs personnel with detailed information regarding vital parts of the federal IT infrastructure
  • Extracts, processes or refines critical raw materials, including lithium, gallium, silicon metal and rare earth minerals
  • Develops or manufactures products based on restricted patents or utility models, as for nuclear or crypto technology or the production of banknotes
  • Is relevant for the security of food supply, cultivated area of 10,000 hectares or more

For all of the target activities outlined above, an additional filing is required (including standstill and criminal sanctions) when reaching the 20 percent threshold (in case the initial threshold was 10 percent), 25, 40, 50 and 75 percent.

For any other type of target, a filing is voluntary. Even then, the BMWi may initiate proceedings on its own account where a non-EU/EFTA investor acquires 25 percent or more of a domestic target.

The BMWi is entitled to review all types of acquisitions, including share deals and asset deals. The BMWi now also has additional review possibilities (but no standalone filing obligation) in cases of "atypical" control: influence beyond the shareholding, in particular additional board seats, veto rights, and access to certain information. The previous draft covered any other kind of agreement in favor of the investor; the final rules are limited to the atypical means of control expressly listed. The calculation of voting rights held in the target company will take into account certain undertakings that may be attributed to the ultimate owner, such as an agreement on the joint exercise of voting rights.

In order to prevent circumvention transactions, the AWV provides more details on how to calculate and attribute acquired voting rights. Asset deals require a comparable test for the respective asset values, whereby 25 percent, 20 percent or 10 percent of the total assets of the acquired business are deemed relevant—in essence, deals that substitute the acquisition of a shareholding above the relevant thresholds, defined in the AWV as the acquisition of a definable part of an enterprise, or all relevant resources needed for the enterprise, or a definable part thereof.



The BMWi must be notified of any transaction subject to a mandatory review.

“Breaches of the standstill obligation or against orders by the BMWi are subject to criminal sanctions, including imprisonment of up to five years or criminal fines”

All transactions that require flings are subject to a "standstill obligation." In particular, it is prohibited to allow the acquirer to directly or indirectly exercise voting rights or grant the acquirer access to certain sensitive data before clearance has been or is deemed to be granted.

In addition, the purchasing agreement (also under the voluntary regime) is subject to the condition subsequent (auflösend bedingt) to a prohibition. Under the mandatory regime only, any closing steps are provisionally void (schwebend unwirksam) until clearance.

Public takeovers must be notified to MOE directly after the publication of the intention to launch a takeover offer, and the shares can then be acquired prior to clearance. However, the standstill obligations otherwise still apply, and the acquisition is subject to unwinding through a sale to the market or transfer to a trustee in case the transaction is not subsequently cleared.

The review timeline is two months for the initial review that determines whether to open a formal review, which then lasts another four months, starting upon receipt of all necessary documentation.

The BMWi has broad discretion in formal review cases regarding the point at which flings are complete so that the statutory deadlines are triggered.

The BMWi can extend the formal review period by another three months in exceptionally complex cases (four months in defense deals). In addition, the period available to conduct the formal review measures is suspended in case of additional information requests, and for as long as negotiations on mitigation measures are conducted between the BMWi and the parties involved. Such considerations outside the official review timeline can therefore have a significant impact on the transaction timetables.

Even if the transaction does not trigger a notification obligation, foreign investors often decide to initiate the review process by voluntarily submitting an application to the BMWi for a non-objection certificate (Unbedenklichkeitsbescheinigung) in order to obtain legal certainty. After complete submission of the application, the BMWi has two months to decide whether to issue the certificate or open the formal review procedure. Upon expiration of this period, the non-objection certificate is deemed to have been issued if no review procedure has been opened.



In order to safeguard public order or security, the BMWi may—in accordance with a number of other Federal Ministries—prohibit transactions or issue "instructions" taking the form of mitigation measures or "remedies."

Clearances subject to remedies (such as compliance commitments in the form of a trilateral agreement between the ultimate acquirer parent, target and the German Federal Government) have become a common form of resolving issues. For acquisitions included in the cross-sectoral review procedure, the imposition of mitigating measures requires approval by the German Federal Government.

To enforce a prohibition, the BMWi can prohibit or restrict the exercise of voting rights in the acquired company, or appoint a trustee to bring about the unwinding of a completed acquisition at the expense of the acquirer.

Breaches of the standstill obligation or against orders by the BMWi are subject to criminal sanctions, including imprisonment of up to five years or criminal fines. Negligent violations are considered an administrative offense, punishable by an administrative fine of up to €500,000.

Any BMWi decision can be challenged before a German court. However, court action often is not a practical option for the parties (sometimes in light of timing or publicity concerns), and the Government enjoys broad discretion as to what constitutes a probable impediment to public order or security.



Since 2016, the number of deals reviewed by the BMWi has continuously increased.

From January 2016 to December 2018, 185 transactions have been subject to BMWi investment reviews, of which 75 acquisitions were attributed directly or indirectly to a Chinese acquirer. In 2018, 78 transactions were reviewed by the BMWi, almost double the 41 reviews of 2016. From 2018 to 2019, the numbers continued to rise to 106 cases, with the complexity of the review cases also increasing. In 2020, the number of cases increased significantly again to a total of 159 cases—excluding acquisitions reported to the BMWi exclusively through the EU cooperation mechanism (which far exceed the initially expected numbers).

The BMWi expects that the new case groups introduced in 2021 alone will add at least another approximately 165 cases per year. In addition, the UK's exit from the EU is expected to result in still more cases.

According to the BMWi, almost all of the cases in which security concerns were identified in 2019 and 2020 were resolved through contractual arrangements (which is becoming the tool of choice, especially in deals involving German targets that have activities viewed as critical for the German healthcare system).

On substance, only two vetoes by the BMWi have become public since 2018:

  • According to press sources, in July 2020 the German Federal Government vetoed Chinese Vital Material Co.'s proposed acquisition of PPM Pure Metals GmbH, part of the French Recylex group and a manufacturer of certain metals used in semiconductors and infrared detectors, including for military applications. The BMWi decided to veto the deal despite the fact that PPM had filed for bankruptcy two months earlier
  • In December 2020, a cabinet decision to authorize a prohibition of the planned acquisition of IMTS, a research-driven industrial engineering and design house specializing in radio technologies and microelectronics, by Chinese Casic, active in the field of military equipment, became public

Other noteworthy interventions include the following:

  • In July 2018, the German Federal Government had decided to prevent the acquisition of a 20 percent stake in the power grid operator 50Hertz by a Chinese investor by arranging for an investment by the state-owned Kreditanstalt für Wiederaufbau (KfW), because it did not have jurisdiction to block the deal under the then pertinent FDI regime. The Government officially confirmed that the acquisition by KfW was aimed at protecting critical infrastructure for the energy supply in Germany 
  • In August 2018, the BMWi—for the first time—had threatened to veto a Chinese inbound transaction. In the end, the Chinese investor dropped its attempt to acquire German toolmaker Leifeld ahead of the expected veto. This decision would have been the first prohibition of a transaction under the German investment control regime
  • In contrast, in February 2020, the BMWi cleared the acquisition of German locomotive manufacturer Vossloh by Chinese train manufacturer CRRC
  • Triggered by the COVID-19 pandemic, the BMWi announced in June 2020 that the KfW will acquire 23 percent of CureVac, a biopharmaceutical company that develops vaccines for infectious diseases like COVID-19 and drugs to treat cancer and rare diseases, in order to avoid its potential acquisition by any foreign investor



The current market climate is characterized by the BMWi's substantially increased awareness and persistent efforts toward enhanced scrutiny, including regarding a potential use of key technologies, in military applications.

But the overall number of approved transactions clearly shows that the investment climate in Germany remains liberal for the overall majority of transactions. The recent clearance of the CRRC/Vossloh transaction is a clear sign that Germany generally continues to welcome foreign direct investment.

There is also a clear trend toward the use of remedies to mitigate security concerns. In the same vein, the German investment in CureVac may be seen as a first step toward more scrutiny in the healthcare sector. In fact, the BMWi justified the decision by citing German security interests. At the same time, the review thresholds for many healthcare-related activities have been increased from 10 percent to 20 percent, indicating that the strict rules introduced at the height of the COVID-19 pandemic had likely overshot the mark.



Parties to M&A transactions—whether public or private—should carefully consider the risk of foreign investment control procedures typically starting at the front-end of the due diligence process. Given the potential for considerable FDI review risks, it may be appropriate for the parties to initiate discussions with the BMWi even before the signing and/or announcement of a binding agreement.

From an investor's perspective, regulatory conditions and covenants relating to the regulatory review process serve to protect the acquirer from having to consummate a transaction under circumstances in which the German Federal Government has imposed regulatory conditions or mitigation measures that would change the nature of or the business rationale behind the proposed transaction.

Contractual undertakings intended to protect the acquirer from these risks may take the form of regulatory material adverse change clauses and/or covenants that specify the level of effort that the investor must expend in order to obtain the necessary regulatory approval.



  • Recent legislative expansions and the implementation of the European screening mechanism in October 2020 have led to the numbers of cases reviewed by the BMWi skyrocketing, with the BMWi firing on all cylinders and beefing up staff but still somewhat overwhelmed by the sheer number of cases to deal with, which is leading to ever-longer reviews. The German Federal Government understands that review duration is a problem, but (apart from a reduction of the initial review period to two months) has not done anything substantial about review duration yet
  • The expansion of the list of target activities subject to FDI scrutiny means that the timing of more and more deals will hinge on FDI clearance, rather than merger clearance with its shorter review periods, as has often been the case previously
  • Recent geopolitical tensions and the vulnerability of supply chains demonstrated during the COVID-19 pandemic will very likely lead to increased FDI scrutiny
  • A positive development is the smooth and constructive coordination between the BMWi and its peers in other EU Member States as well as the European Commission



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