06 December 2022
This is an Insight article, written by a selected partner as part of GCR’s co-published content. Read more on Insight
Overview: investment screening
Regulatory framework and recent developments
The German foreign direct investment regime (the German FDI Regime) is based on the Foreign Trade and Payments Act (AWG)[2] and the Foreign Trade and Payments Ordinance (AWV),[3] which regulates the implementation of the provisions of the AWG. The AWV especially contains the procedural rules and defines the reporting provisions.
Both the AWG and the AWV have been amended and adapted various times in the past few years. Three amendments occurred in 2020 alone, in response to the covid-19 pandemic and to implement the EU FDI Regulation[4] into national law. A further amendment came into force in May 2021. For 2022, no further amendment is intended.
These recent legislative acts have led to substantial changes to the German FDI Regime by tightening the regime and expanding the types of entities that trigger filing obligations. According to recently published figures by the German government, the number of national FDI cases increased from 66 in 2017[5] to 306 in 2021 (plus an additional 240 EU notifications).
In June 2020, as a first reaction to the covid-19 crisis, the legislator extended the types of entities triggering a mandatory filing obligation to companies who are active, inter alia, in the field of personal protective equipment, various medicinal products and in vitro diagnostics. These changes were made in the context of (unsubstantiated) media reports[6] that former US President Trump attempted to acquire German pharmaceutical company CureVac to secure exclusive covid-19 vaccine production for the United States.
With another significant amendment, the legislator considerably lowered the thresholds for intervention in respect of FDI in Germany. Previously, the intervention threshold required an actual threat to public order or safety. However, pursuant to amendments that entered into force in July 2020, it is now sufficient if the foreign investment is likely to affect public order or security.
The legislator also introduced a standstill obligation for all transactions in which a filing obligation exists. This includes ‘cross-sectoral’ entities (covering the acquisition of critical infrastructure, among other things, by non-members of the European Union (EU) and European Free Trade Association (EFTA) (see below)) as well as sector-specific screening cases, covering the acquisition of defence and related industries by non-German buyers (see below).
With a further amendment, the implementation of the EU FDI Regulation in Germany was completed by introducing the EU-wide cooperation mechanism.
The latest substantial amendment occurred in May 2021, whereby the scope of application was significantly expanded by, inter alia, introducing 16 new types of entities for mandatory filing. The definition of the new entities is kept very narrow and therefore more specific than the EU FDI Regulation and the regulations of other EU Member States covering,[7] inter alia, future and key technologies such as artificial intelligence (AI), cybersecurity, quantum technology, robotics or autonomous driving, but also closing existing gaps by introducing types of entities relating to airlines or large agricultural farms.
The coalition agreement of the new German federal government, signed in December 2021,[8] raised the question whether in the event of clearly defined security threats due to takeover of critical infrastructures (such as power grids or broadband networks) through foreign investors, current legal instruments are sufficient. In this regard, the German government is discussing the implementation of further instruments for it to react quickly and accordingly. However, no relevant amendments to the law have been made yet.
In the light of these recent developments, the current German FDI Regime can be described as follows.
Competent authority
The German Federal Ministry of Economic Affairs and Climate Action (BMWK or the Ministry)[9] in Berlin is the sole competent authority for all investment screenings in Germany.[10]