A general introduction to foreign investment regulation in Germany (2024)

All questions

Overview

German law provides for a comprehensive review of foreign direct investment (FDI). The investment control regime is primarily regulated by the Foreign Trade and Payments Act (AWG) and the Foreign Trade and Payments Ordinance (AWV). Both provide the German Ministry for Economic Affairs and Climate Action (BMWK) with broad powers to review FDI and to take remedial action on grounds of public order or public security (in relation to Germany, other EU Member States or projects of EU interest) or on grounds of essential security interests (in relation to Germany only). Under German law, FDI may trigger mandatory filings or be subject to ex officio screening.

Notifications are mandatory for investments in (1) companies engaged in defence activities or similarly sensitive security areas (the 'sector-specific' regime) and (2) companies engaged in activities in certain other business areas that the BMWK considers sensitive. Among other activities, this covers critical infrastructure and critical technology (the 'cross-sectoral' regime). Filings are triggered if certain voting right thresholds are met (10, 20, 25, 40, 50 and 75 per cent). Mandatory filings must be submitted to the BMWK without undue delay after signing. Failure to obtain clearance prior to closing may constitute a criminal offence with fines or imprisonment of up to five years.

In addition to the mandatory review, the BMWK may review any foreign investment in a German entity equal to or exceeding 25 per cent. Submitting a voluntary filing considerably shortens the period within which the BMWK can review the transaction (otherwise five years from signing).

Regulatory scrutiny of FDI in Germany has increased steadily over the past few years. Among the most recent developments have been the extension of the scope of application to more companies in the health sector; the lowering of the substantive standard for screening in response to the EU FDI Screening Regulation,² to include 'likely effects' on public order or security; and, most recently, in 2021, the inclusion of a large number of new sectors and technologies triggering mandatory reviews. While the various expansions have led to an increasing number of notifications, only a few transactions have been blocked, aborted or amended because clearance could not be obtained (most notably concerning wafers, semiconductors, ventilators and a container terminal). In addition, over the past four years, the number of cases in which potential concerns were mitigated has dropped and the vast majority do not require mitigation and are cleared relatively quickly.

Year in review

In terms of the BMWK's review practice during 2022, it examined 306 cases and imposed restricting measures in seven cases.³ Among those, the proposed acquisitions of a container terminal in Hamburg, Elmos, Heyer and Siltronic are considered landmark cases.

In October 2022, approximately one year after the notification, the BMWK issued a partial prohibition against the acquisition of a stake in one of Hamburg's container terminals by the Chinese state-owned shipping and logistics company Cosco. Instead of the originally intended 35 per cent participation, the BMWK approved only the acquisition of a minority interest of 24.99 per cent and also prohibited the acquisition of any other rights that would give Cosco greater influence. The partial prohibition received an unprecedented level of publicity due to the controversial views within the German government. Six ministries and at least two German intelligence agencies voiced their opposition to the deal. Also, the European Commission and other governments expressed reservations. However, German chancellor Olaf Scholz backed the transaction and stressed the importance of strong trade between China and Germany. A few months after the transaction was partially prohibited, the government realised that, at the time of the decision and in contrast to the government's original assessment, the container terminal constituted critical infrastructure under German law. Nonetheless, no further action was taken and the transaction was closed.

Shortly after this decision, the BMWK prohibited the indirect acquisition of a chip factory of semiconductor manufacturer Elmos by a Chinese (state-owned) company. The BMWK also considered prohibiting the acquisition of ERS Electronic, another German semiconductor company, by an unknown Chinese investor,⁴ but the application was withdrawn before the prohibition was authorised.

In relation to Elmos, the BMWK issued a press release in which the Federal Minister for Economic Affairs and Climate Action emphasised that Germany's technological and economic sovereignty was of great importance, especially in the semiconductor sector, and that mitigation measures were therefore not suitable to remedy the identified concerns.⁵

In early 2022, the BMWK retroactively prohibited the acquisition of medical device manufacturer Heyer by a Chinese acquirer. Respiratory equipment such as the ventilators manufactured by Heyer were of considerable importance during the covid-19 pandemic. In light of this, the BMWK argued that Germany's independence from non-European manufacturers of respiratory equipment was of utmost importance.⁶ While the goal of maintaining security of supply is understandable, public information suggests that Heyer neither was an important supplier (de minimis sales following insolvency proceedings) nor owned know-how on special or new technologies. There also appeared to be various alternative European suppliers.

Against this backdrop, investors from China must continue to carefully review FDI filing obligations and clearance prospects when investing in sensitive targets.

As regards the proposed acquisition of German wafer manufacturer Siltronic by a Taiwanese chip manufacturer, the BMWK did not issue a certificate of non-objection in time for the transaction to close within the long-stop date. Shortly before this date, the parties agreed on far-reaching remedies with the Chinese competition regulator, including a most favoured nation clause for Chinese customers. While its review had been ongoing for over a year at the time, the BMWK claimed that the Chinese remedies might have had a significant impact on German customers that it did not have time to assess properly. The purchaser unsuccessfully sought immediate relief from the Berlin Administrative Court. An appeal against this decision was subsequently rejected by the Higher Administrative Court of Berlin-Brandenburg.⁷

In terms of legislation, the past year (since June 2022) has brought no changes to Germany's FDI rules, but there has been one change in a different legal instrument that has an impact on foreign investment. An amendment of the legislative order broadening the definition of critical infrastructures (BSI-KritisV)⁸ entered into force on 2 March 2023. More specifically, liquefied natural gas terminals as well as cable landing points for submarine telecommunications cables are now also considered critical infrastructure in the energy and information technology (IT) and telecommunications sectors. This amendment is a reaction to the attacks on the Nord Stream gas pipelines and, among other things, leads to an obligation on operators to report attempted attacks or operation disruptions.⁹ However, as mentioned above, the acquisition of critical infrastructure as defined in the BSI-KritisV can trigger mandatory filing obligations. Thus, the amendment also has an indirect impact on whether investments are notifiable.

Foreign investment regime

i Policy

The German government has increased scrutiny against foreign investments in recent years, particularly regarding investments with a nexus to China (as is illustrated by the cases mentioned above, as well as by a leaked draft of the strategy paper 'Internal Guidelines on China' by the BMWK).

The BMWK employs two different legal tests for the cross-sectoral and the sector-specific regimes. Under the former, the BMWK tests whether an investment 'is likely to affect public order or security in Germany, another EU Member State or projects of EU interest'. Under the latter, the BMWK tests whether an investment is 'likely to affect Germany's essential security interests'.

The likely-to-affect standard is an example of the German legislature's heightened scrutiny of foreign investments. The relatively new standard, introduced in 2020 for the cross-sectoral review and extended to the sector-specific review in 2021, lowers the BMWK's threshold for intervention in foreign investments in Germany and replaces the previous standard, under which an investment had to pose an 'actual risk' for public order or security to risk prohibition. It is unclear whether this test is compliant with EU law, as national measures restricting FDI must address a genuine and sufficiently serious threat to an overriding public interest in order to be justified in view of the applicable fundamental freedoms, as has been recently reinforced by the Court of Justice of the European Union.¹⁰

To determine whether an investment raises substantive concerns under the likely-to-affect standard, two points are decisive: first, the identity of the investor (investor risk) and, second, the target's activities (target risk).

Regarding the investor's identity, under Sections 55a(3) and 60(1b) of the AWV, the BMWK may take into account (1) whether the investor is directly or indirectly controlled by the government of a third country, (2) whether the investor has previously been involved in activities detrimental to German public order or security and (3) whether there is a serious risk that the investor has been or is engaged in criminal activities. In addition, the investor's country of origin, its institutional set-up (e.g., strategic versus financial) and its intended future engagement with the target's activities are considered. Also, the likelihood of (potentially) sensitive technologies ending up in non-allied countries such as China or Russia may be taken into account. Separately, the BMWK is averse to German technology falling within the scope of third countries' export control rules as a result of a transaction and the possibility of subsequent relocation of production, in particular 'ITAR infections' (i.e., the extension of the US International Traffic in Arms Regulations to products previously not subject to these rules).

Several factors are to be considered in relation to the target's activities, such as whether the target has access to classified or confidential information or disposes of sensitive data, technologies, know-how or patents; whether customers include the government, public agencies or the armed forces; and whether the target is an indispensable supplier or is important in maintaining security of supply in Germany, or whether there are alternative suppliers.

ii Laws and regulations

As described above, the investment control regime is primarily regulated in the AWG and the AWV, but the list of sectors triggering review also refers to other statutes. Therefore, further regulations must be considered in the review. The BSI-KritisV¹¹ is important in this respect because it contains certain thresholds for a variety of sectors. If an entity's activity in a certain sector exceeds these thresholds, it is considered critical and its acquisition is subject to mandatory review. Similarly, the German Export List (relating to military items) or the EU Dual Use Regulation may have to be considered when reviewing foreign investments.

Formal requirements for information and documents to be included in (mandatory and voluntary) notifications are set out in the BMWK's directive of 27 May 2021 published in the German Federal Gazette.¹²

iii Scope

The BMWK's scope of review depends on (1) the investor's nationality and (2) the sector in which the German target business is active.

Generally, investments by a non-EU or non-European Free Trade Association (EFTA) investor equal to or exceeding 25 per cent or more of the voting rights (depending on the sector) in any German target are subject to review. Whether an investor qualifies as German, EU or EFTA depends on its place of incorporation and management,¹³ but the BMWK looks not only at the direct investor but also at the ultimate parent entity and every other entity along the corporate chain. Only investments in defined sensitive business sectors trigger a mandatory filing (under either the cross-sectoral or the sector-specific regime – see below for details).

Following recent expansions of the scope of both the cross-sectoral and the sector-specific review, both tests may apply in certain transactions. The BMWK can switch between both regimes even after commencing the in-depth review. This means that the substantive test used by the BMWK in its review changes. But, otherwise, the process simply continues (i.e., all information provided up to that point can be used in the amended review, and statutory timelines continue rather than beginning again).

Mandatory notifications under the cross-sectoral regime

Under the cross-sectoral review, a notification to the BMWK is mandatory only if the German target (including the German subsidiary of a foreign target) operates in certain sensitive sectors and the applicable 10 or 20 per cent threshold is met. Unless specifically mentioned, there are no de minimis exemptions. This means that even very limited activities in a sensitive sector may trigger filing obligations, and this also applies where a target's sensitive activities represent only a very small share of the target's overall activities.

The acquisition of 10 per cent or more of the voting rights in a German target (including the German activities of a foreign target) by a non-EU or non-EFTA investor triggers a mandatory filing if the German company is active in any of the sectors set out in Section 55a(1) No. 1-7 of the AWV, specifically where the target:

1. operates critical infrastructure under the Act on the Federal Office for Information Security (BSIG)¹⁴ (i.e., infrastructures in the energy, water, IT and telecommunications, finance and insurance, health, transport and traffic or nutrition sectors) or delivers cloud computing services and exceeds certain thresholds, as defined in the BSI-KritisV;
2. specifically develops or modifies industry-specific software that serves the operation of critical infrastructures under the BSIG;
3. is entrusted with organisational tasks under Section 110 of the Telecommunications Act for the operation of a telecommunications system that provides publicly available telecommunications services or produces technical facilities for implementing legally prescribed measures for monitoring telecommunications (or has produced such facilities and maintains knowledge of the underlying technology);
4. holds permission for components or services for the telematics infrastructure under Section 325 or Section 311 Subsection 6 of the Fifth Book of the German Social Code;
5. is active in the media industry and contributes to public opinion through broadcasting, telemedia or print products and is characterised by particular topicality and has a broad impact; or
6. delivers services that are necessary to ensure the effectiveness and functioning of state communication infrastructures within the meaning of Section 2(1), sentences 1 and 2 of the Act on the Establishment of a Federal Authority for Digital Radio for Authorities and Organisations with Security Tasks.

The acquisition of 20 per cent or more of the voting rights in a German target (including the German activities of a foreign target) by a non-EU or non-EFTA investor triggers a mandatory filing if the target is active in the following sectors pursuant to Section 55a(1) No. 8-27 of the AWV, specifically where the target:

1. designs or manufactures personal protective equipment within the meaning of Article 3(1) of Regulation (EU) 2016/425;
2. develops, manufactures or markets medicinal products essential for ensuring the provision of healthcare to the population, including their starting materials and active substances, or is the holder of a corresponding marketing authorisation under pharmaceutical law;
3. develops or manufactures medical devices intended for the diagnosis, prevention, monitoring, prediction, prognosis, treatment or alleviation of life-threatening and highly contagious infectious diseases;
4. develops or manufactures in vitro diagnostic medical devices used to provide information on physiological or pathological processes or conditions or to determine or monitor therapeutic measures in connection with life-threatening and highly contagious infectious diseases;
5. operates a high-quality remote earth observation system;
6. develops or manufactures goods with artificial intelligence that may be used for cyber-attacks, to spread targeted disinformation, to enable internal repression or for the purpose of surveillance;
7. develops or manufactures autonomously navigating motor vehicles or unmanned aerial vehicles or essential components thereof;
8. develops or manufactures robots that are specially designed to handle highly explosive substances, to withstand high radiation doses, to operate at altitudes above 30,000 metres or to operate in water below 200 metres;
9. develops, manufactures or processes semiconductor circuits, micro or nano structured optical circuits, or manufacturing or processing tools to manufacture the aforementioned goods;
10. develops or manufactures certain IT products (or components thereof) essential to the integrity of IT systems or defence against attacks on such systems or that support criminal investigations by law enforcement agencies;
11. operates an air carrier with an operating licence pursuant to Regulation (EU) No. 1008/2008 or develops or manufactures certain goods listed in Annex I to Regulation (EC) No. 428/2009 or goods used in space infrastructure systems;
12. develops, manufactures, modifies or uses certain dual-use items;
13. develops or manufactures goods based on or relating to quantum physics;
14. develops or manufactures goods specifically designed for the operation of wireless or wireline data networks;
15. manufactures smart meter gateways and related goods;
16. employs individuals working in 'vital facilities';
17. mines, processes or refines certain raw materials or their ores as defined by the European Commission's 'raw materials initiative';
18. develops or manufactures goods based on classified patents or classified utility models; or
19. directly or indirectly cultivates an agricultural area of more than 10,000 hectares.

Mandatory notifications under the sector-specific regime

Any investment of 10 per cent or more of voting rights by non-German investors in a German target (including the German activities of a foreign target) active in the following sectors listed in Section 60(1) of the AWV triggers a mandatory filing, specifically where the target:

1. develops, manufactures, modifies or actually possesses goods within the meaning of Part I Section A of the Export List;
2. develops, manufactures, modifies or actually possesses defence technology goods covered by a patent rendered secret pursuant to Section 50 of the Patent Act or a utility model rendered secret pursuant to Section 9 of the Utility Models Act;
3. manufactures or has manufactured products with IT security functions for processing classified state material or components essential to the IT security function of such products and still possesses the underlying technology and the company's products or, in the case of essential components for the IT security function, the overall product has been licensed by the Federal Office for Information Security; or
4. qualifies as a facility that is vital to defence within the meaning of Section 1 Subsection 5 sentence 2 No. 1 of the Security Clearance Check Act.

Calculation of voting rights

The acquisition of voting rights equal to or exceeding the applicable 10, 20, 25, 40, 50 or 75 per cent threshold (depending on the activities of the German target and the number of the purchaser's voting rights held prior to the transaction) leads to the applicability of the German FDI regime regardless of the type of acquisition (e.g., share or asset deal or a transaction structure such as a merger, swap transaction or capital increase). For assets to meet the test, they must constitute either a 'definable part' of the target's business operations or 'all the essential operating equipment' of the target.¹⁵ However, according to the BMWK, even the acquisition of stand-alone intellectual property rights may constitute an acquisition of assets. There is no de minimis exemption (i.e., no transaction value or revenue threshold below which investments are exempted from review.)

German FDI rules apply to both direct and indirect acquisition of voting rights. In indirect acquisitions where voting rights are held by two or more entities in the investor's holding structure, voting rights held by a subsidiary are attributed to the investor if both the subsidiary holding the voting rights and the investor (or one of its (direct or indirect) subsidiaries) have voting rights of 10, 20 or 25 per cent in their respective subsidiaries.¹⁶ In addition, pursuant to Section 56(4) of the AVW, voting rights of third parties are attributed to the investor where the investor and a third party concluded a vote pooling agreement or, as a matter of fact, they are expected to exercise their voting rights jointly (this includes the assumption that voting rights held by state-owned entities from the same state are added together).

Based on the above, the transaction structure must be closely examined for an FDI review. For example, the acquisition of a non-German, non-EU or non-EFTA target having an interest equal to or exceeding 10, 20 or 25 per cent in a German company (depending on the activities of the German target) may trigger a mandatory review. Similarly, an EU company in which a non-EU shareholder has voting rights of 10, 20 or 25 per cent or more (depending on the activities of the German target) acquiring an interest equal to or exceeding 10, 20 or 25 per cent in a German target (depending on the target's activities) may also trigger a review. It is important to emphasise that a review is triggered through the acquisition of voting rights alone (i.e., unlike under merger control law, there is no requirement for the investor to acquire economic shares or control).

In addition, a review (but not a filing obligation) may be triggered by the acquisition of 'atypical control' over a German target.¹⁷ Atypical control is assumed if, in addition to the acquisition of voting rights, the acquirer also obtains:

1. seats in supervisory bodies or in management that are disproportionate to the investor's shareholding or voting rights;
2. veto rights in strategic business or personnel decisions; or
3. certain information rights.

iv Voluntary screening

Under certain circ*mstances, a voluntary application for a certificate of non-objection might be advisable in cases where a notification is not mandatory. As set out above, the BMWK has the power to review any investment by a non-EU or non-EFTA investor (or by an EU or EFTA investor in which a non-EU or non-EFTA investor holds a relevant interest) equal to or exceeding 25 per cent of voting rights in the German target (regardless of the sector involved). The BMWK may exercise its right to review for up to five years after signing.¹⁸ This poses a significant risk to transaction security, particularly as the review may, in a worst-case scenario, even lead to a (retroactive) prohibition of the transaction (which would have to be unwound) or the imposition of conditions.

To mitigate this risk, it may be advisable to voluntarily apply for a certificate of non-objection. The application triggers a two-month review period within which the BMWK must decide whether an in-depth review is warranted.¹⁹ In considering whether or not to apply for a certificate of non-objection, investors may consider:

1. the investor's identity or nationality;
2. how closely related the German target's activities are to sensitive sectors mentioned in Sections 55a and 60 of the AWV;
3. the option to explain the transaction (and its non-sensitivity) to the BMWK; this may be particularly helpful where extended press coverage or third-party complaints are expected;
4. the existence of supply contracts with federal, state or municipal entities, in particular the armed forces, police or intelligence services;
5. obligations to notify the same transaction with other EU Member States' FDI or merger control authorities; or
6. exposure of the target's business activities to any political or strategic interests of Germany or the EU.

v ProceduresEx officio review and review upon notification

The BMWK may initiate an ex officio review or review the investment upon notification. In ex officio proceedings, after obtaining knowledge of the transaction, the BMWK has two months to inform the direct acquirer and the domestic target company that it intends to initiate an in-depth review, which adds four months to the review timeline.²⁰ In practice, it is difficult to determine when the two-month period commences (and expires) unless the parties actively inform the BMWK. In any event, the BMWK's power to initiate an ex officio review expires five years after signing. If a filing is mandatory, the direct acquirer is obliged to submit a filing to the BMWK without undue delay after signing. Filings may also be made before signing if the transaction is sufficiently certain. The two-month (Phase I) review period starts on the day of submission of the (complete) filing. If the BMWK does not commence an in-depth review in Phase I, clearance is deemed to be granted.²¹

The BMWK's decision to open a Phase II review is typically accompanied by a request for further information. Part of this information is listed in an administrative directive.²² In addition, the BMWK typically requires further transaction-specific information. The four-month Phase II review timeline begins only once all information has been received by the BMWK. The BMWK may extend this period by another three months if the assessment reveals particular 'actual or legal difficulties' and by one additional month if the transaction affects defence interests. A stop-the-clock mechanism applies if the BMWK requests additional information or if conditions are being negotiated.²³ Taking all this together, the timeline for a Phase II review can range from a couple of months to over a year.

Notification formalities

Mandatory and voluntary notifications require certain mandatory information about the target, the transaction structure, the investor (including the entity directly acquiring the German target) and the seller.²⁴ Information and documents to be provided include:

1. a power of attorney;
2. information on the German target entity;
3. details of the acquisition;
4. information on the direct acquirer and indirect acquirer; and
5. information on the direct seller.

Since April 2023, the notification must include four Excel forms (containing information on (1) the transaction, (2) the target, (3) the acquirer and (4) the seller; available on the website of the BMWK)²⁵ and must be submitted to the BMWK electronically (i.e., by email).²⁶ Unlike in other EU Member States, the BMWK does not require investors to submit the EU form with the original filing. Instead, the form is required only if the BMWK initiates an in-depth (Phase II) review.

Decisions

The BMWK has two months to conduct the initial Phase I review and initiate the in-depth Phase II review. If the two months elapse without any decision, the investment is deemed cleared by the BMWK (tacit clearance).

As well as clearing or prohibiting a transaction, the BMWK may impose restrictive measures (e.g., prohibiting the investor from exercising voting rights). During the in-depth review, the BMWK may also negotiate agreements with the parties to mitigate potential public order or security concerns. The ensuing clearance decision will make reference (and be conditional upon) these security agreements. Alternatively, the BMWK may grant clearance only subject to fulfilment of certain instructions (i.e., imposed rather than negotiated conditions).

From a civil law perspective, the contract underlying the transaction is rendered void (in relation to the German activities) if the BMWK prohibits an investment.

Judicial relief

The parties to the transaction may seek judicial relief against the BMWK's decisions. Proceedings follow the general rules of the German Code of Administrative Court Procedure, under which the Berlin Administrative Court has jurisdiction for legal actions against the BMWK's decision. Legal actions do not have a suspensory effect. This means that the parties are bound by the BMWK's decision until the Court reverses it. Legal actions against BMWK prohibitions are currently rare but expected to become more common as the number of prohibitions increases.

Standstill obligation and gun-jumping

If filing a notification to the BMWK is mandatory, parties are prohibited by law from implementing (certain parts of) the investment (a standstill obligation). Premature closing (known as gun-jumping) constitutes a criminal offence with severe fines or even imprisonment pursuant to Section 18(1b) and Section 19(1) No. 2 of the AWG. For the investor, this means that neither voting rights nor economic rights can be exercised.

For the seller and target company, this means that certain sensitive information may not be shared with the investor. Prior to signing, it may be prohibited to exchange information that is subject to non-disclosure agreements or classified under German law. Once the transaction is signed, the exchange of any information relating to public order or security interests is prohibited as this triggers a filing obligation.²⁷ Determining such information requires a case-by-case analysis considering both the German target's activities and the technological know-how it owns. On the one hand, publicly available information such as information from the patent register, purely commercial information or public permits are not sensitive. On the other hand, information such as technological know-how, access information for IT systems, technical drawings or plans, personal user data and classified information will often be considered sensitive. In cases of doubt, the parties are well advised to discuss the issue with the BMWK to avoid sanctions.

vi Prohibition and mitigation

Of the total of 306 filings to the BMWK in 2022, 262 were filed under the cross-sectoral regime and 44 under the sector-specific regime.²⁸ The BMWK does not publish specific data on the number of transactions it has prohibited. Publicly available information suggests that in approximately five to 10 cases transactions were either prohibited or abandoned by the parties for lack of German FDI clearance.

Sector-specific requirements

There are no sectors in which foreign investments are prohibited per se. The BMWK has sole authority to review FDI. Prohibitions must be authorised by the German government.

Typical transactional structures

Depending on the exact structure of a transaction, the German FDI analysis can be quite complex, especially where more than two parties are involved or where the target's activities are sensitive. Even the acquisition of a non-German target that holds voting rights equal to or exceeding 10, 20 or 25 per cent in a German target may be reviewable. Similarly, an EU-domiciled acquirer's investment in a German target is reviewable if a non-EU or non-EFTA shareholder holds voting rights equal to or exceeding 10, 20 or 25 per cent in the acquirer. Apart from lowering the level of voting rights to be acquired, there is very little an investor can do to avoid FDI review. For example, greenfield investments, such as setting up new production facilities, are not covered by the German regime.²⁹

Even internal reorganisations can trigger filing obligations and there is only a very narrow exemption: Section 55(1b) exempts internal reorganisations only if the German entity's ultimate parent entity remains the same and no (direct, indirect or intermediate) shareholder from a new jurisdiction enters the holding structure. Furthermore, as narrow as this exemption is, it also applies only to the cross-sectoral review and not to internal reorganisations that would trigger a sector-specific review.

Private equity fund structures may also raise particular issues. Typically, funds are structured as limited partnerships, where the general partner exercises 100 per cent of the voting rights and the limited partners do not exercise any voting rights. In practice, it is sufficient to disclose the identity of the general partner for the purposes of the FDI review. However, the BMWK may request additional information on the identity of any limited partner during the process.

It is advisable to consider potential German FDI implications at an early stage of the transaction and, at the latest, when drafting transaction documents. If filing is mandatory, closing should be conditional upon FDI clearance by the BMWK. Parties may also consider allocating the regulatory risk of obtaining German FDI clearance in the transaction documents. Lastly, parties should have in mind the potentially lengthy and sometimes unpredictable review periods when setting long-stop dates.

Other strategic considerations

The BMWK actively participates in the European cooperation mechanism set up by the EU FDI Screening Regulation. The cooperation mechanism facilitates the exchange of information between Member States. Parties should be aware of the increased transparency between Member State FDI regulators, particularly in cases involving filings in various Member States.

Investments in German targets may also trigger merger control filing obligations. However, investments subject to FDI review do not automatically require merger control clearance, and vice versa. If a merger control filing is required, procedures are, as a general rule, independent and follow a different set of rules and timelines. The Federal Cartel Office (FCO) is an independent authority, but it reports to the BMWK. Parties filing a merger control notification with the FCO should therefore assume that the BMWK will become aware of the FCO notification and, as such, of the transaction.

Although the review standards deployed for merger control and investment screening differ significantly, there are a couple of points of overlap: first, in some of its recent cases, the FCO explored whether state-owned enterprises are particularly likely to employ predatory pricing strategies and it considered, for example, national industrial strategies and state subsidies as well as previous predatory or exclusionary behaviour by the states concerned.³⁰ This is similar to what the BMWK has done in at least one review (of a Chinese state-owned acquirer). Second, whereas market entry by foreign companies may be seen favourably for the purposes of merger control review, potential entries from certain states (e.g., China) may be viewed critically in an FDI review. Lastly, both merger control and FDI authorities may consider the extent to which a company is indispensable to the supply of certain goods or services.

Outlook

The review of foreign investments remains an area of increasing regulatory scrutiny in Germany. Not only is the German regime in line with a discernible international trend, it can also be considered one of the forerunners. Following many legislative actions and amendments in recent years, the BMWK is considering combining the various rules on FDI that are currently spread out over the law on foreign trade and an ordinance on foreign trade into one new law on FDI review. While it will likely take some time for this change to take shape, the BMWK will likely introduce a filing fee for FDI filings in the shorter term. In addition, the war in Ukraine, sanctions against Russia and Belarus, potential energy shortages and a shift in political alliance may well trigger further legislative developments.