The German FDI regime has undergone numerous revisions over the past years, significantly tightening the review of foreign direct investments into Germany. Since 2023, the government has taken a break from incremental piece-meal updates to evaluate the status quo more holistically. It found the current rules provided effective protection of German and European security interests without calling into question Germany's general openness toward foreign investors.

While the German Federal Ministry for Economic Affairs and Climate Action (BMWK) was planning significant updates of German FDI rules to meet evolving geo-political concerns and reflect its practical experience by reviewing hundreds of cases per year, the anticipated timing has slipped, and the revisions have not been implemented under the outgoing government. While a revision is still anticipated, the exact scope and direction under the new German government are yet to be determined.

The number of cases that the BMWK reviewed has remained stable at 257 cases in 2023 and 261 in 2024, with 19 proceedings initiated in 2024 still pending at the end of January 2025. The vast majority of cases continue to be cleared swiftly, with an average review time of fewer than 40 days, with less than 10 percent of cases undergoing an in-depth review in phase II, and less than 5 percent being subject to mitigation measures by the BMWK.

At the same time, the BMWK continues to take a strong stance on investments from Russia and China, and has increased its scrutiny of investments by state-owned entities, particularly from the Middle East.

Summary of major changes in 2024

• There have been no major changes regarding the German FDI framework since 2023. The most important revisions relate to information to be provided in a filing, as well as switching to a digital filing system. Following initial technical difficulties, the system is now well established and operational.
• The BMWK continues to evaluate the current German FDI regime, with significant updates expected later in 2025 and 2026. The exact scope and direction under the new German government are yet to be determined.
• The BMWK has started charging a fee for FDI filings. For simple cases cleared in phase I, the fee is €800, and can be up to €36,000 for complex and time-consuming matters. The fees are payable within 30 days of receiving the order closing the matter (typically the clearance decision).
• As part of its China Strategy published in 2023, the German government highlighted the specific issues faced when assessing Chinese investments due to China's civil-military integration. This approach is also reflected in the BMWK's 2024 decision-making practice, where the only known prohibition relates to a Chinese investment regarding products with a potential military use. Specifically, the BMWK intervened against the proposed sale of MAN Energy Solutions' gas turbine division to Chinese CSIC Lingjiang GH Gas Turbine Co, a subsidiary of the China State Shipbuilding Corporation (CSSC). Based on limited intelligence available on the matter, the sale was blocked due to the CSSC's involvement in building warships for the Chinese navy. Remarkably, the deal was prohibited even though an expert report confirmed that the gas turbines in question could not be used to power warships.
• The BMWK has identified increased investment activity from the Middle East, in particular by state-owned investors. While the general posture remains positive, deals are subject to increased scrutiny, especially with a new focus on the security of German citizens' personal data, which can lead to longer review duration.
• The BMWK has started to switch away from mutually agreed mitigation agreements to unilaterally imposing orders to safeguard public order and security (this can speed up the process as the review timeline is not suspended and can be imposed without the approval of the full cabinet).
• Following the first major court losses for the BMWK in 2023, the BMWK has started addressing the shortcomings identified by the courts in its administrative practice (including by granting an express right to be heard ahead of any decisions being taken). More substantive corrections of the shortcomings, for example, regarding the possibility of closing proceedings without a final decision or the (re-)start of review deadlines, are yet to be addressed.

Who files?

The direct acquirer is obliged to submit the filing, even if it is a mere special purpose vehicle (SPV) or located in Germany. The BMWK accepts filings by legal counsel on behalf of the direct acquirer with proper power of attorney. If the direct acquirer has not yet been determined or established (for example, in cases of a shelf company or a new SPV), the BMWK normally accepts the filing by the indirect acquirer.

Types of deals reviewed

The activities of the target and the "nationality" of the investor determine the review process. German FDI review covers both direct and indirect acquisitions by foreign investors. The BMWK is also entitled to review all types of acquisitions, including share deals and asset deals.

Acquisitions of at least 10 percent of the voting rights by any foreign (non-German) investor in certain highly sensitive industries such as arms and military equipment, encryption technologies and other key defense technologies, are subject to a mandatory "sector-specific review" and trigger a filing and a standstill obligation.

Any other type of investment may only be scrutinized if the investor is based outside the EU or EFTA (a "cross-sectoral review") and acquires a share of at least 10, 20 or 25 percent of the voting rights depending on the industry in question. Whether a filing is required, and a standstill applies, depends on the target's activities.

Sectors that trigger a mandatory cross-sectoral filing include: critical infrastructure and software for critical infrastructure; telecommunications monitoring; cloud computing; telematics infrastructure; the media industry; services for state communication infrastructure; the medical and pharmaceutical industries; other critical industries (including AI, robotics, semiconductors, nuclear, aviation and aerospace, quantum, satellite, additive manufacturing and IT); critical raw materials; and security of food supply (greater than 1,000 hectares).

In all other cases, the government has a call-in right for any transactions involving the direct or indirect acquisition of at least 25 percent of a German company's voting rights by a non-EU/EFTA investor if the government is concerned the transaction may impede public security or order in Germany, another EU Member State, or certain EU programs.

Scope of the review

A transaction must be filed to the BMWK if the foreign investor acquires voting rights in a German entity active in a critical business sector and reaches certain investment thresholds (10 or 20 percent, depending on the industry); or a certain scope of assets of such an entity.

In assessing investment thresholds, the BMWK takes a broad approach and looks at all entities in the entire acquisition chain (without any dilution of the shareholding) from the direct acquirer to the ultimate parent, and arguably also at shareholders such as limited partners, to be assessed on a case-by-case basis.

Additional mandatory filings are triggered when reaching thresholds of 20 percent (if the initial threshold was 10 percent), 25, 40, 50 and 75 percent. All transactions triggering mandatory filings are subject to a standstill obligation: The transaction must not be completed before it is cleared by the BMWK. 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.

Outside the scope of mandatory review, the BMWK can call in acquisitions of at least 25 percent subject to cross-sector review, in cases of "atypical" control—a somewhat vague threshold that takes into account any influence beyond the shareholding acquired by the investor, in particular by means of additional board seats, veto rights or access to certain information. It can also call in acquisitions in certain settings that allow for an aggregation of shareholdings, such as shareholdings by several different investors controlled by the same foreign state.

The standard of German FDI review is to ensure public order and essential security interests. In its assessment, the BMWK will in particular consider the origin of the investor, the foreign government influence on the investor, and the track record of the involved parties with BMWK filings. General political considerations like securing supply chains or industrial policy play an increasing role.

In order to safeguard public order or security, the BMWK may—in accordance with other federal ministries—prohibit transactions or clear a transaction subject to mitigation measures or remedies. While these have in the past typically taken the form of a trilateral agreement between the ultimate acquirer parent, target and the German Federal Government, the BMWK is increasingly resorting to imposing mitigating measures unilaterally.

The contents of the measures will depend on the concerns to be resolved, and can include safeguarding pre-transaction volumes of supply, not relocating facilities or know-how, reporting obligations, and so on. To enforce a prohibition, the BMWK 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.

Review process timeline

The review process timeline is split into two phases.

Phase I begins with the BMWK obtaining knowledge of the transaction, either by notification or by other means, and lasts up to two months, during which the BMWK will determine whether to open a formal review (phase II) or clear the transaction.

Phase II begins with the BMWK opening a formal review and requesting further documentation regarding the transaction, the scope of which lies within the broad discretion of the BMWK. The formal review starts upon receipt of that documentation and lasts another four months; however, the BMWK can extend it by another three months in exceptionally complex cases, plus another additional month for defense deals. In addition, the timeline is suspended if there are additional information requests by the BMWK, and for as long as negotiations on mitigation measures are conducted between the BMWK and the parties involved. Such considerations outside the official review timeline can therefore have a significant impact on the transaction timetables.

If at the end of phase I or II the BMWK has not issued a decision, the transaction is legally deemed to be cleared (for phase II, only in cases subject to cross-sectoral review).

How foreign investors can protect themselves

Parties to transactions should carefully consider the risk of foreign investment control procedures early in the process, ideally 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 BMWK even before the signing or announcement of a binding agreement.

In any event, parties should factor in sufficient time for German, and potentially other, FDI reviews when negotiating long-stop dates. For example, in critical cases, the BMWK has a tendency to wait until Chinese merger clearance has been obtained to factor in any implications of Chinese remedies, which had previously been the long pole in many transaction timetables.

Clearance provides a safe harbor for any transaction. If no filing was submitted, the BMWK can take action ex officio for acquisitions within the scope of German FDI review within a maximum period of five years from signing—but no later than two months after receiving knowledge of the acquisition—and even prohibit them retrospectively.

In order to protect themselves from such retrospective review in cases without filing obligations and to obtain legal certainty (in particular where German FDI clearance is a closing condition), foreign investors can voluntarily apply for a certificate of non-objection (Unbedenklichkeitsbescheinigung) as a safe harbor. Outside the scope of German FDI review, the investor can request an informal notice of non-applicability by the BMWK. The BMWK typically issues such notices as an administrative practice without binding effect or legal basis.

Lastly, any BMWK 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 BMWK enjoys broad discretion as to the interpretation of the legal provisions.

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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