On December 19, 2018, the German federal government enacted the lowering of thresholds for the review of certain foreign investments. The previous practice has been that foreign investments can be reviewed and under certain circumstances prohibited if at least 25% of the voting rights in a German company are acquired (hereinafter the "review initiation threshold").
- Review initiation threshold to apply to acquisitions of 10% or more of voting rights
- Scope of application limited to specific sectors
- Expansion of existing notification requirements
- Changes to enter into force shortly
By enacting the 12th Ordinance Amending the German Foreign Trade Ordinance (Außenwirtschaftsverordnung, AWV), the German federal government had once again intensified the legal foundations for investment review and expanded its review powers. In the context of investment review, the German Federal Ministry of Economics and Technology can review foreign investments into German companies and prohibit these in the event that public security or order are endangered.
The reduced review initiation threshold applies to certain areas in the context of cross-sector investment review and to all areas of sector-specific investment review.
- Cross-sector investment review
Cross-sector investment review only applies to investors coming (directly or indirectly) from non-EU and non-EFTA countries (hereinafter "Non-EU Investors").
The review initiation threshold of 10% applies when Non-EU Investors acquire (directly or indirectly) at least 10% of the voting rights of German companies that
- operate critical infrastructures,
- develop or update certain industry-specific software used to operate critical infrastructures,
- are tasked with activities in the telecommunications surveillance field or produce or have produced technology for the implementation of the same,
- provide cloud computing services and in so doing have access to certain infrastructures crucial for security,
- hold authorizations relating to components or services in the telematics infrastructure, or
- contribute to shaping public opinion in the media industry through radio, telemedia or printed matter and are characterized by particular topicality and wide-ranging impact.
The last item listed above, companies from the media industry, is a new addition to the catalogue of particularly sensitive areas. It was only added as part of the prior amendment of the AWV in 2017 (in this regard, please see our Client Information dated 18.07.2017).
For all other areas (apart from sector-specific investment review), the review initiation threshold of 25% remains applicable.
- Sector-specific investment review
Sector-specific investment review is applicable to all acquirers coming from outside of Germany.
The review initiation threshold of 10% applies when foreigners acquire (directly or indirectly) at least 10% of the voting rights of German companies that
- produce or develop goods defined in Part B of the War Weapons List,
- produce or develop certain components of combat tanks or of other military vehicles,
- currently produce or have produced products with IT security functions used to process classified state secrets or components of such products that are essential for IT security functions, or
- produce or develop goods covered by specific list items in Part I Section A of the Export List.
- Expanded notification requirements; entry into force
Since notification requirements apply to acquisitions in companies in the aforementioned sectors, the reduced review initiation threshold will also result in an expansion of notification requirements.
The amendments are expected to enter into force shortly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.