Germany further tightens investment control regime – 4th amendment within a year


On 27 April 2021, the German government passed the 17th Ordinance Amending the Foreign Trade and Payments Ordinance (AWV), which already came into force on 1 May 2021. With this 4th amendment in Germany’s foreign trade law within the last 13 months (for the previous amendments, see this article (German) and this blog post) the notification requirement for shareholdings in domestic companies is once again significantly expanded. It remains to be seen whether this really marks the end of the fundamental reform of the Foreign Trade and Payments Act (AWG) and German investment control regime. At least at the European level, deliberations are continuing on how domestic companies can be better protected against unfair competition from abroad. Investments from China are a particular focus here.


There is no change to the basic division between cross-sectoral (Sections 55 et seq. AWV) and sector-specific (Sections 60 et seq. AWV) examination. The general procedure continues to be directed at non-EU investors in all sectors, while the sector-specific investment control concerns all foreign acquirers and is applied to acquisitions in the defense industry and other security-sensitive sectors. As a result of Brexit, investors from the United Kingdom have also been subject to the requirements of German investment control since the beginning of the year. The last rounds of amendments already lowered some of the take-up thresholds from 25% to 10% of voting rights for particularly critical sectors, and the latest amendment now adds further thresholds. The German Federal Ministry for Economic Affairs and Energy ("BMWi") reviews relevant transactions for concerns regarding public safety and order. Until cleared by the BMWi, acquisitions that must be notified are subject to an enforcement ban. There have been very few bans to date, but the number of review procedures has doubled from 78 in 2018 to 159 in 2020, and in the current year 142 cases have already been registered with the BMWi in the first four months.

Expansion of reportable sectors to include 16 new key technologies

The most drastic change in practice is the inclusion of 16 new industrial sectors in Section 55a AWV designed to safeguard the future and competitiveness of the German economy. As with comparable developments at the level of the EU and other member states, the focus is on technology companies where investment in particular from China is seen critically. Additional case groups of reportable activities have been introduced to the regulations on cross-sectoral examination (cf. Section 4 (1) No. 4, Section 5 (2) AWG and Sections 55 to 59 AWV); the number of case groups subject to the stricter regulations increases from 11 to 27. The new case groups essentially correspond to the sectors also included in the EU Screening Regulation (EU) 2019/452 (read more in this article (German)) and concern future and key technologies, such as artificial intelligence, autonomous driving, aerospace, robotics, semiconductors, quantum and nuclear technology or cyber security.

On 10 May 2021, the Council of the European Union approved a revision of the "Dual-Use Regulation". 90 days after execution and publication in the official EU Journal, hence likely in August or September 2021, this regulation will apply also to surveillance technologies such as eavesdropping software, biometric surveillance (e.g. facial recognition), microchips or sensors that could be used in human rights violations. The export of such technologies (and under certain circumstances also technical support in connection with dual use goods) may require specific approvals or can be banned in the future. Against this background, foreign investments in these areas will become more cumbersome either.

Last year, in response to the pandemic, the German government had already defined certain areas in the healthcare sector, such as manufacturers of vaccines, medicines or protective equipment, as requiring special protection (Nos. 8 to 11); the new key technologies are found from No. 12 onwards. For target companies covered by the case groups of No. 8 to No. 27 (i.e. in particular the healthcare sector and other future technologies), the threshold for voting rights above which a reporting obligation is triggered is 20%. The draft bill initially envisaged a threshold of 10%, but fortunately the concerns of startups and financial investors were taken into account. For target companies covered by the case groups No. 1 to No. 7 and already classified as sensitive (especially critical infrastructures), the threshold remains at 10%.

Extension of the sector-specific examination

The sector-specific examination (Section 4 (1) no. 1 and Section 5 (3) AWG as well as Sections 60 to 62 AWV) is extended to companies operating in the value chain of the export list. Investments in companies that develop, manufacture, modify or have actual control over military equipment are now also covered. In future, all military equipment as defined in Part I Section A of the export list will be relevant here (previously, only 5 of the total of 22 list items were covered), and knowledge of or other access to the underlying technology is sufficient. In addition, other areas of IT security and crypto-technology have been included in the review catalogue. Every foreign investment into target companies covered must be reported, regardless of whether the acquirer comes from the EU or from third countries, if a share of 10% or more (previously 25% in some cases) is acquired.

Attribution of voting rights

Voting rights of several investors were already attributed on the basis of pooling agreements, for example. An attribution based on Section 56 (4) AWV is now expressly presumed in the case of state-owned enterprises investing in parallel. This change is obviously targeted again in particular at China.

Acquisition of additional voting shares

The newly inserted Sec. 56 (2) AWV explicitly states that not only the initial but also subsequent, incremental acquisitions of voting shares by the same acquirer trigger an investment review. The amendment now introduces specific thresholds for the acquisition of additional voting rights that must be reached or exceeded (20%, 25%, 40%, 50% or 75%). This means that not (any longer) every additional acquisition of minimal shareholdings beyond the review threshold can trigger an obligation to notify the BMWi. However, the amendment explicitly grants the ministry the authority to specify further notification requirements in a clearance certificate even below the thresholds mentioned.

Right to examine atypical control acquisitions

Even below these thresholds, so-called atypical acquisitions of control may henceforth be examined by the BMWi pursuant to Section 56 (3) AWV. According to the amendment, it is sufficient for the investor to acquire a share of voting rights below the relevant threshold if this is accompanied by "additional seats or majorities in supervisory bodies or in the management", the "granting of veto rights in strategic business or personnel decisions" or the "granting of rights over information within the meaning of Section 15 (4) sentence 1 number 3 AWG". This ultimately covers constellations in which the acquirer, even without certain voting rights, has other means of influence and thus ultimately control over a German company. The vagueness of terms such as "influence" or "information rights" does not contribute to legal certainty and will pose some challenges for M&A practice. At least there is no reporting obligation per se here, but voluntary reporting and obtaining a clearance certificate may be advisable in individual cases.

Clearance certificate and informal preliminary inquiry

In order to achieve legal certainty at an early stage, foreign investors can apply for a legally binding clearance certificate from the BMWi in the cross-sector procedure even before the acquisition (Section 58 (1) sentence 1 AWV). However, due to the new Section 58 (3) AWV, it will no longer be possible to apply for a clearance certificate from the BMWi in advance of an acquisition that is subject to notification. The obligation to notify and the application for a clearance certificate are therefore now mutually exclusive. Informal preliminary inquiries will, however, remain possible.

Exceptions for intra-group restructurings

Pursuant to Section 55 (1 b) AWV, intra-group restructurings are no longer subject to investment control if the group parent company remains the same and the legal transaction is concluded between wholly-owned group companies domiciled in the same third country. Outside this rather narrow "safe harbor" clause, however, restructurings generally remain within the scope of investment control.

Unification of deadlines

In the future, the BMWi is able to switch between the examination procedures. For this reason, the new Section 58a AWV adjusted the deadlines for the sector-specific and cross-sector examination, cf. Section 61 AWV. A preliminary procedure initiated after notification of a transaction ends either by release or release fiction, whereby according to Section 14a AWG, this generally occurs in both procedures if the ministry does not initiate the review procedure within two months of knowledge or otherwise decides within four months.

Implications for M&A practice

The 17th AWV amendment significantly expands the scope of application and once again increases the complexity of investment control in Germany. The requirements for the legal assessment of reporting obligations and chances for approval have increased significantly, which will also have an impact on the timing of many transactions. With the focus on future technologies, venture capital investments are now also coming more into contact with the AWG and AWV. At least the German government has made an effort to clarify the newly introduced key technologies, even if the wording of some new case groups remains broad and a legally secure assessment will therefore not always be possible. The BMWi has also yet to apply the new regulations in practice. Significantly more companies are now falling within the radius of the investment review and it is to be expected that the number of acquisitions subject to notification will continue to rise sharply. At the same time, it is to be hoped that Germany's attractiveness as an investment location will not suffer as a result of lengthy and non-transparent review procedures. All parties involved in the transaction process would be well advised to address the requirements of investment control at an early stage and, if necessary, approach the BMWi in advance. Also in view of the sometimes draconian sanctions for violations of the statutory enforcement prohibition (up to and including imprisonment), the new reporting requirements should be taken very seriously.

Thomas Weidlich, LL.M. (Hull)

Thomas Weidlich, LL.M. (Hull)
+49 221 9937 16280