GERMANY Trends and Developments Contributed by: Bettina Mertgen, Felix Siebler, Michael Herold and Ricarda Schelzke, GvW Graf von Westphalen
A new EU-wide screening framework On 8 June 2026, the EU Council formally adopted a revised regulation on the screening of foreign direct investments, replacing the previous framework that had been in place since 2020. The new rules will apply 18 months after the regulation enters into force. The key changes at EU level are as follows. • Mandatory screening in all member states – every EU country must now establish a national screen - ing mechanism, which was optional under the old regulation. • Common minimum scope – all member states must screen investments in certain sensitive areas, including dual-use and military items, critical raw materials, AI and other hyper-critical technolo - gies, energy, transport and digital infrastructure, electoral infrastructure and certain financial system entities. • EU-wide screening mechanism – member states have to notify certain transactions to the other member states where the target has subsidies. • Stronger co-operation – the regulation improves coordination between member states and the European Commission, including a shared data - base to prevent circumvention. Importantly, final screening decisions remain with the individual member states, and the Commission can - not overrule a national authority’s decision. Consolidation and tightening of German legislation Germany already operates one of Europe’s most active foreign direct investment (FDI) screening regimes covering investments in the majority of the mandatory sectors under the new EU regulation. In 2025, the responsible ministry processed a record of around 350 national screening procedures, up roughly 30% from the prior year. The vast majority of cases continue to clear relatively quickly, with only about 10% escalating to an in-depth formal (Phase II) review. Looking ahead, Germany plans to consolidate its existing rules (currently spread across the Foreign Trade and Payments Act and a separate ordinance) into a single Investment Screening Act ( Investition- sprüfungsgesetz ).
Anticipated changes include: • stricter rules for semiconductors, AI and cyberse - curity; • new sectors in line with the EU requirements, eg, covering certain targets producing certain-dual use goods • rules in line with the new notification requirements to other EU member states; and • streamlined procedures and narrower exceptions for intra-group reorganisations. Germany will also need to align its existing national framework with the new EU regulation once it takes effect. Future expansion to outbound investments Beyond inbound FDI, the EU is also exploring controls on outbound investments. In January 2025, the Com - mission adopted a recommendation asking member states to review EU investments into semiconductors, AI and quantum technologies abroad, with a compre - hensive report due by mid-2026. Whether this leads to a formal regulatory framework remains to be seen, but it signals a broader trend towards monitoring capital flows in both directions. Impact on compliance in practice For businesses planning cross-border transactions into Germany or the EU, the practical takeaway is that FDI clearance should be treated as a gating item in any deal process. Treating it as an afterthought may pose significant challenges. Timelines, notification obligations and sector coverage are all expanding. Early engagement with regulatory counsel is strongly advisable, ideally even before signing a letter of intent. III. National Security Regulation: Converging Requirements for Germany’s Defence Industry Germany’s national-security framework for the defence sector is moving from a largely compart - mentalised system – separating classified information, cybersecurity, procurement and investment screen - ing – towards an integrated model of operational resilience. The most significant development is the convergence of cyber, physical, personnel and sup - ply-chain security. Defence contractors must there - fore assess not only whether they handle classified
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