An Update on Foreign Investment Control in Germany - McDermott Will & Emery

An Update on Foreign Investment Control in Germany


The German government recently tightened regulations on foreign investments in Germany in order to restrict non-EU/foreign acquisitions of German companies in certain industries. On 18 July 2017 an amendment to the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung or GFTPO) came into effect which specified critical industries, introduced obligations to notify the authorities and extended applicable review periods, among other things. This amendment is part of a recent political trend towards stricter control of foreign investments, triggered in particular by Chinese efforts to acquire German companies such as KUKA, Osram and AIXTRON.

In Depth

Review of Foreign Investments by German Authorities

In order to protect public order and security, the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie, or BMWi) may review acquisitions of German companies by foreign investors. The review may result in restrictions or, in the worst case, prohibition of an acquisition. The GFTPO distinguishes between cross-sectoral reviews and sector-specific reviews in explaining the details of the review procedure.

Cross-Sectoral Reviews

A cross-sectoral review may be conducted if the investor (1) is located outside the European Union and the European Free Trade Association (EFTA) region, and (2) the investment comes under the scope of German foreign trade law. The latter is the case if the investor acquires a direct or indirect participation of at least 25 per cent of voting rights in a German company. This includes voting rights of third or intermediate holding companies in which the investor holds at least 25 per cent of the voting rights and voting rights of other shareholders with whom the investor agreed on the joint exercise of voting rights.

Acquisitions through EU/EFTA-resident companies which were set up in order to circumvent these rules (not necessarily exclusively) may also be reviewed. According to the most recent amendment, acquisitions via EU/EFTA-based companies without a considerable independent business activity or a permanent presence in the form of premises, personnel or asset base are now regarded as a manifestation of such circumvention.

The latest amendment introduces examples of German companies whose acquisition may threaten public order or security:

  • Operators of critical infrastructure (particularly in the sectors of energy, transport, water, information technology and telecommunications, finance, insurance and health)
  • Developers of software serving the operation of critical infrastructure
  • Certain companies in the area of telecommunications and surveillance technology
  • Certain companies in the area of cloud computing
  • Certain companies in the area of telematics

The BMWi must be notified in writing about acquisitions within the scope of the abovementioned example industries, according to the new rules. The BMWi may conduct an in-depth review only if it notifies the acquirer and the target within three months from the day it becomes aware of an acquisition, or at the latest five years from the conclusion of the acquisition agreement. The legal uncertainty deriving from the BMWi’s five-year deadline to initiate an in-depth review (and potentially prohibit the acquisition) can only be avoided by combining the required notification with a request for a certificate of non-objection.

The amended GFTPO extends the procedural deadlines. A certificate of non-objection is now deemed to be granted if the BMWi does not launch an in-depth review within two months from the request (compared to one month previously). The acquisition may be restricted or prohibited within four months (compared to two months previously) after a full set of documents requested by the BMWi for the purpose of the in-depth review has been submitted. Moreover, this review period shall be suspended as long as the BMWi enters into negotiations with the parties concerned.

Sector-Specific Reviews

In order to protect German security interests, special rules apply when target companies operate in sensitive security areas (in particular the defense sector) and are acquired by (1) foreign investors (including EU-resident investors) or (2) German companies which were set up in order to circumvent the rules on foreign investments.

These special restrictions apply to the acquisition of a direct or indirect participation of 25 per cent or more of the voting rights in manufacturers and developers of the following:

  • War weapons
  • Specially designed engines and gearboxes for military-tracked armored vehicles
  • Products with IT security features that are used for processing classified government information
  • Certain products which fall within the scope of special foreign trade regulations

The last category is newly added and focuses on military technology.

The procedural deadlines for review have also been extended. If the BMWi does not initiate an in-depth review procedure within three months (compared to one month previously) from the receipt of the investor’s obligatory written notification, the acquisition shall be deemed to have been approved. In the event that a review procedure is opened, the acquisition may be restricted or prohibited within three months (compared to one month previously) after the full set of requested documents has been submitted. Again, this review period shall be suspended as long as the BMWi enters into negotiations with the parties concerned.

Additional International Aspects

The amended GFTPO does not result in a material restriction on foreign investments in German companies. However, the extended application area, new notification requirements and, in particular, extended review periods require that foreign investors deal with these restrictions pro-actively and early in the process.

Potential development of similar initiatives at the EU level also must be taken into account. At the request of several governments and members of the EU parliament, the European Commission currently reviews EU politics regarding the protection of key technologies and reciprocity of market access.

Finally, the acquisition of German companies frequently results in the indirect acquisition of business activities in other countries, such as the United States, which have their own foreign investment control. The Committee on Foreign Investment in the United States, for example, played a decisive role regarding the failed acquisitions of AIXTRON SE and the LED division of the Dutch Philips group by Chinese investors.