Germany lowers the threshold for foreign investments to acquisitions of 10%

The German Government announced that foreign investments by acquiring 10% or more of the voting rights in companies operating in the defence sector and operating a critical infrastructure will be reviewed.

Last year, the Federal Government already amended its existing rules for reviewing foreign investments in German companies made by non-EEA investors in order to tighten the review.

In the summer of 2018, it was announced in the press that a further overhaul of the review procedure was to take place (see here). At that time, it was considered lowering the review threshold to capture the acquisition of a 15% stake.

The Federal Government has now announced that it will implement a new review scheme and new thresholds. The foreign investment review procedure will now be triggered by the acquisition of 10% or more of the voting rights.

The new threshold of 10% will apply to the sector-specific review, which concerns companies operating in sensitive security areas such as manufacturers and developers of weapons of war, ammunition, military equipment, and products with IT security features that are used for processing classified government information. In the sector-specific review the acquisition by all foreign investors (including by EU and EEA investors) meeting the threshold will be reviewed.

In the cross-sector review, the new 10% threshold concerns companies which operate a “critical infrastructure”, which is defined as facilities of vital importance to the nation's society and economy the failure or degradation of which would result in sustained supply shortages and a significant disruption of public safety and security. The existing law includes size thresholds for companies in the water, energy, food, transportation, media, health, information technology, and financing sector. Additionally, the new law will also define certain media companies with a broad circulation, and influence on public opinion shall be covered by the 10% threshold.

In all other cases, the foreign investment review will be triggered if 25% or more of the voting rights are acquired.

The German Government’s move is coming at a time when foreign investment is under scrutiny also on EU level, and a proposed regulation of the EU Commission is currently in the legislative process after the tri-log discussions between the EU Parliament, the EU Commission and the EU Council recently having ended successfully.