Germany tightens scrutiny on foreign direct investment in strategic industries

Publication July 2017


The German Government has published new rules tightening the scrutiny on foreign direct investment. On 12 July 2017, the German Ministry for Economic Affairs and Energy (BMWi) published an ordinance amending the currently applicable rules on foreign takeovers contained in the Foreign Trade and Payments Ordinance (AWV). It will come into force on the day after its publication in the Federal Gazette. This move is widely seen as a reaction to recent controversial takeovers by non-EU investors.


Already under current rules, the German government has the possibility to examine whether the public order or security of the Federal Republic of Germany is endangered where a non-EU resident acquires more than 25 per cent of a domestic company. Acquirers from the member states of the European Free Trade Association (EFTA) are treated as equivalent to EU residents. In this so-called cross-sectoral examination on the basis of Section 55 AWV the BMWi has the possibility to examine a transaction and restrict or prohibit it. The German government will have to approve such a restriction or prohibition. An investor may request a binding certificate of non-objection prior to the acquisition to obtain legal certainty.

In addition, even stricter rules exist pursuant to Section 60 AWV for acquisitions in sensitive security areas (sector-specific examination). These are applicable to all acquirers resident outside of Germany and such a transaction has to be notified to the BMWi, which will examine whether it endangers essential security interests. Following such an examination the BMWi can restrict or prohibit a transaction without requiring the approval of the German government.

Clarification and extension of scope

The recent amendments clarify the meaning of the terms public order or security in the context of a cross-sectoral examination. Section 55 AWV now states explicitly that the acquisition of certain undertakings qualified as providing critical infrastructure can endanger the public order or security. This comprises, in particular, undertakings in the energy, information technology and telecommunications, transport, health, water, food as well as the finance and insurance industries. Undertakings that produce sector specific software for these companies, cloud computing services and developers of telecommunications infrastructure are explicitly mentioned as well. The amendments then provide additional explanations on what constitutes sector-specific software in the industries mentioned above. Acquisitions in these sectors must now be notified in writing to the BMWi. Failure of notification is not subject to administrative or criminal sanctions but will lead to a provisional invalidity of the contract. The already applicable stricter requirements regarding sector-specific examinations for acquisitions in the defence industry have been extended. These rules are now also applicable to additional categories of key technology intended for the support of defence related activities.

Section 55 AWV is currently applicable to EU/EFTA residents where there are indications of an abusive approach or a circumvention transaction. Pursuant to the new amended wording of the provision this can also be the case where the circumvention is just one but not necessarily the sole purpose of the transaction. In addition, a lack of business activity or commercial presence in the EU/EFTA of the immediate acquirer can serve as an indication for circumvention. Section 60 AWV has been amended accordingly in relation to acquirers resident in Germany.

Procedural changes

The amendments provide the BMWi with increased powers to intervene regarding acquisitions seen as damaging to Germany’s security interests.

Whereas previously the BMWi could only examine a transaction for three months after conclusion of the purchase agreement it will now have three months to launch a cross-sectoral examination from the date on which it obtains knowledge of the transaction. Upon receipt of an application for non-objection the BMWi will have two months instead of one to decide whether to launch a formal investigation. The time limit for concluding such an investigation has been increased from two months to four months and the period will be suspended during the negotiations of the BMWi with the applicants. This could make the total duration of the proceedings difficult to predict for undertakings. For the benefit of undertakings, an absolute five year limitation period has been introduced, which begins from the date of conclusion of the purchase agreement.

For sector-specific examinations a clearance shall be deemed to have been issued if the BMWi does not launch an examination procedure within three months (previously one month) after receipt of the complete documentation. A prohibition or further instructions need to be issued within this timeframe as well.


Whilst undertakings might welcome the clarification on the affected industry sectors, the extension of the time at the BMWi’s disposal to examine a transaction might cause concern. It has to be taken into account as well that undertakings are required to submit a significant amount of documentation in a formal examination. In 2013, the BMWi published a list of the required documents, which have to be, moreover, provided in German. To obtain legal certainty as quickly as possible it can be expected that undertakings will make increased use of the option to request a certificate of non-objection from the BMWi in cross-sectoral examinations.

Further developments in this area, either on EU or on national level, are likely. In its press statement accompanying the adoption of the amendments, the German Minister for Economic Affairs pointed out that Germany would work together with France and Italy to push for similar changes to EU law. Already in February 2017, the three countries had asked the European Commission to rethink rules on foreign investment into the EU amid concerns that technological know-how was being transferred abroad. They proposed an EU-wide control of investments by non-EU investors in European companies, which would need to be implemented through new legislation at the EU level. At the same time the Dutch government launched a consultation on legislation allowing it to block certain acquisitions in the telecommunication sector. The UK announced in September 2016, that it was considering a reform of the law on foreign infrastructure investment. In a paper published in May of this year the European Commission did not propose concrete steps but acknowledged that careful analysis and appropriate action was warranted regarding this issue.

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