GERMANY TRENDS AND DEVELOPMENTS Contributed by: Daniel Möritz, Jan Bonhage, Hendrik Bockenheimer, Carl-Philipp Eberlein, Markus Ernst, Matthias Rothkopf, Christoph Wilken and Alexander Rang, Hengeler Mueller
The Tightening of German Foreign Direct Investment Screening
applicable entry threshold (10%, 20% or 25%) are reviewable if the cumulated post-closing voting rights share meets or exceeds subsequent thresholds. By way of example, in the case of the 10% entry thresh - old, the further thresholds are 20%, 25%, 40%, 50% and 75%. The number of formal FDI screening procedures con - ducted by the German Federal Ministry for Economic Affairs and Energy (MoE) has risen steeply in the past decade – ie, the number of procedures has increased more than sevenfold since 2016 to more than 300 in both 2021 and 2022. Recently, the number has stabi - lised, with 257 in 2023 and 261 in 2024 and potentially more in 2025. Although most notified transactions do not raise regulatory concerns or undergo in-depth scrutiny, around 20 proceedings have been inves - tigated annually since 2022. The historically rather small team at the MoE, as well as other ministries and authorities dealing with FDI screening, have been substantially expanded in recent years. Tightening of the German FDI screening regime In recent years, Germany tightened its FDI screening regime several times. Initially, the COVID-19 pandemic induced a stricter screening of health sector deals. Then, German regulations reinforced FDI screening – in particular, by an extended FDI clearance require - ment for certain critical infrastructure, sensitive tech - nologies and other strategic targets. A further reform of German FDI screening, potentially including a new Investment Screening Act, is being discussed. Such reforms might broaden the scope of application of the German FDI regime and its rules on mandatory fil - ings for investments in critical infrastructure and criti - cal technologies, IP licensing contracts, and possibly certain greenfield investments in hi-tech sectors. COVID-19 and wider screening of health sector investments In light of the earlier COVID-19 pandemic, the Ger - man government intensified the FDI screening of health sector transactions by listing further segments of health service providers as critical targets. The extended list also captures developers and producers of medicinal products (and their starting materials and active substances), personal protective equipment,
Market and valuation volatilities triggered by geopoliti - cal and macroeconomic tensions, supply-chain and tariff uncertainties as well as technological disrup - tion continued to impact the M&A market throughout 2025. The need to address these factors while at the same time attracting foreign investments explains why foreign direct investment (FDI) screening remains a hot topic in Germany, throughout the EU, and globally. High scrutiny Fundamental changes in geopolitical circumstances and global trade have not only materialised in trade conflicts, tariffs, sanctions, and the negotiation of trade agreements. The EU and Germany have also recalibrated their perception of threats from state- supported investments and industrial strategies and increased their awareness of the vulnerabilities of cer - tain sectors, taking into account European digital and technological sovereignty. These developments have led to great attention being paid to FDI and related security and public policy risks. Market fluctuations rooting in the earlier COVID-19 pandemic and Russia’s ongoing war against Ukraine triggered and accelerated this trend. FDI screening remains a major issue in many transactions, including in Germany – as a result of which, the German gov - ernment extended and tightened the FDI screening regime repeatedly in recent years. FDI screening in Germany Germany has had an FDI screening regime for more than 15 years and, for defence deals, even since 2004. Under current FDI laws, the German FDI screening applies across all sectors and to direct and indirect acquisitions of 10%, 20% or 25% of voting rights – depending on the sector (no dilution up the acquisition chain) – by non-EU/non-EFTA (European Free Trade Agreement) acquirers or by any non-German acquirer in the defence sector and certain related areas (eg, IT encryption of classified information). A 10% screening threshold applies to certain par - ticularly security-relevant transactions, including defence and critical infrastructure deals. Follow-up investments by already invested investors above the
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