Foreign Direct Investments in Germany

In principle, there are no restrictions on foreign investments in Germany. However, Germany has a wide range of legal instruments at its disposal to prevent a threat to national security and order. Com-pany acquisitions are subject to the control of the German Federal Cartel Office and the European Commission, if only to protect competition. However, general competition law as well as sector-specific regulation of individual network industries (energy, telecommunications) and the instruments of company law not only offer protection of competition, but also indirectly protect against abusive be-haviour by foreign investors.

In order to avoid security risks, the Federal Ministry of Economics and Energy (BMWi) may review the acquisition of domestic companies by foreign buyers in individual cases. The basis for this is the Foreign Trade and Payments Act (AWG) and the Foreign Trade and Payments Ordinance (AWV). In 2019, 106 takeovers of domestic companies by foreign investors were examined. Insofar as relevant security risks were identified, these were in almost all cases remedied by contractual agreements.

Sector-specific investment review: Concerns every foreign acquisition of a company. Special invest-ment examination rules apply to the acquisition of companies operating in particularly security-sensitive areas. These include manufacturers or developers of war weapons and other key military technologies, of specially designed engines or transmissions for armoured military tracked vehicles and of products with IT security functions used for processing government classified information. Corre-sponding special regulations also apply to the acquisition of a company that operates a high-quality remote earth sensing system.

Any company acquisition through which foreign investors acquire at least 10 percent of the voting rights in a company based in Germany can be examined.

The standard of review is whether the concrete acquisition endangers essential security interests of the Federal Republic of Germany. Relevant EU law and the case law of the European Court of Justice (ECJ) must be taken into account.

Cross-sector investment review: In principle, all acquisitions of companies through which investors based outside the European Union (EU) or the EFTA area acquire at least 25 percent of the voting rights in a company based in Germany can be reviewed. If the domestic company operates a critical infra-structure within the meaning of the German Federal Office for Information Security Act or provides other particularly security-relevant services within the meaning of Section 55 (1) sentence 2 nos. 1 to 6 AWV, the audit is possible from an acquisition of at least 10 percent of the voting rights.

As a rule, the so-called cross-sectoral investment review is applied. In principle, it applies to all sectors, irrespective of the size of the companies involved in the acquisition. Deviating special rules apply to the acquisition of certain defence or IT security companies.

Regardless of which of the two procedures is carried out, there is an obligation to notify the BMWi.

The aim of the procedure is to issue a clearance certificate or a clearance decision. In the negative case, a prohibition order is issued, which makes the company takeover inadmissible.

Sector-specific investment review: Acquisitions that are subject to the sector-specific investment re-view are subject to notification. In the written notification, the planned acquisition, the acquirer, the domestic company to be acquired and the respective business areas must be described in their basic features. If the BMWi does not initiate a formal investigation procedure within three months of receipt of the written notification, the acquisition is deemed to be approved.

In the event of the opening of an investigation procedure, the acquirer is obliged to submit further doc-uments. In addition, the BMWi may request further documents for the examination. After submission of the complete documents, the acquisition can only be restricted or prohibited within three months.

The legal transaction on which the acquisition is based is pendingly ineffective until the BMWi expressly or implicitly gives its approval within the above-mentioned periods. The BMWi is responsible for con-ducting the examination procedure. It involves the other ministries concerned in the specific individual case within the scope of their responsibilities. Orders or prohibitions are issued in agreement with the Federal Foreign Office, the Federal Ministry of Defence and - in the IT sector - with the Federal Ministry of the Interior, Building and Homeland Security.

Cross-sector investment review: The criterion is whether the specific acquisition poses a threat to pub-lic order or public security in the Federal Republic of Germany, i.e. whether there is a genuine and suffi-ciently serious threat affecting one of the fundamental interests of the society. In this respect, the legal text makes express reference to EU law and the case law of the European Court of Justice (ECJ). To date, the ECJ has recognised the possibility of public order or security being affected when it comes to questions of securing supplies in the event of a crisis, in the telecommunications and electricity sectors or in guaranteeing services of strategic importance.

Acquisitions through which the investor acquires at least 10 per cent of the voting rights in a company that operates a more precisely defined Critical Infrastructure or provides certain particularly security-relevant services, especially in connection with the operation of such infrastructure, must be reported to the BMWi. Apart from this, investors are not required to obtain approval or register. However, the BMWi may, within three months of becoming aware of the conclusion of the Acquisition Agreement, initiate an examination ex officio.

In order to obtain legal certainty at an early stage, the investor can independently apply for a legally binding clearance certificate from the BMWi even before the acquisition. This confirms that there are no objections to the acquisition with regard to public order or security.
The written application must outline the main features of the planned acquisition, the acquirer, the domestic company to be acquired and the respective business areas.
If the BMWi does not initiate an examination procedure within two months of receipt of the acquirer's written application for a clearance certificate, the certificate shall be deemed to have been issued.

In the event that an examination procedure is opened, the purchaser is obliged to submit to the BMWi all documents relevant to the examination. In addition, the BMWi may request further documents for the examination. After submission of the complete documents, the acquisition can only be restricted or prohibited within four months.

During the review period, the legal transaction underlying the investment remains effective. However, the acquisition is subject to the resolutory condition of a prohibition.

Antitrust clearances:

• EU antitrust clearance is required if the German operation is deemed to have an EU dimension.
• German Federal Cartel Office (Bundeskartellamt) clearance is required if: the operation is not deemed to have an EU dimension and the undertakings concerned jointly achieved worldwide turnover revenues of more than EUR 500 million in the last financial year and at least one un-dertaking concerned achieved turnover revenues of more than EUR 25 million in Germany and another undertaking concerned achieved turnover revenues of more than EUR 5 million, or, if neither the undertaking to be acquired nor another undertaking concerned achieved turnover revenues of more than EUR 5 million each, - the value of the consideration for the combination is more than EUR 400 million and the undertaking to be acquired has significant operations in Germany.