Germany's draft Investment Screening Act: Implications for cross-border transactions explained

The draft formally reorganises German investment screening into three statutory review regimes:

• Sector-specific review: Covers defence, military equipment, and classified IT security. It applies to acquisitions by any foreign (including EU) buyer crossing a 10% threshold. It is subject to a mandatory filing obligation and a statutory closing prohibition. The scope of this tier remains unchanged from the previous law.
• Case-group-specific review: Covers critical infrastructure and sensitive sectors listed in the new ordinance (KRITIS, semiconductors, AI, dual-use, healthcare). It is likewise subject to mandatory notification and a statutory closing prohibition.
• Cross-sectoral review: Serves as a catch-all for other business activities outside the case-groups. This regime is strictly non-mandatory. It triggers no filing obligation or closing prohibition but provides the Ministry with a call-in right. 

Across all three regimes, the draft codifies explicit substantive review criteria for assessing whether a transaction is likely to harm public order, security, or essential security interests. The Ministry assesses whether an acquisition risks an outflow of critical know-how weakening supply security, leads to a significant loss of domestic manufacturing capacities or threatens economic or technological sovereignty. By explicitly embedding substantive criteria into primary legislation, the draft provides the Ministry with an explicit legal basis to scrutinise post-closing production cuts, R&D transfers, or supply chain shifts abroad. While codifying these criteria creates transparency, it risks extending the concepts of “public order and security” into the realm of industrial policy.

A key area of changes deals with the question of what level of influence on German companies is significant enough to become notifiable – including a readjustment of voting rights thresholds, and expansions of the catch-all concepts of “atypical influence” and circumvention. Another change affects all situations in which a company holds shares on account of someone else. These changes are intended to close alleged “gaps” in the Ministry’s screening net.

Tailored voting thresholds

Standard initial screening triggers remain at 10% (for defence and critical infrastructure) and 25% (for other sensitive sectors). Subsequent acquisitions will trigger reviews at 50%, 75%, and a new 100% threshold, which captures full buyouts from existing majority control. The intermediate 20% and 40% thresholds will be abolished. This removes unnecessary regulatory friction and simplifies incremental stake-building in private companies. For publicly traded companies, the draft introduces dedicated thresholds of 15% and 30%. The 30% threshold is inspired by German takeover law and the 15% threshold captures anchor stakes that often confer de facto influence due to low attendance at annual general meetings. Furthermore, the Ministry is empowered to establish, by statutory ordinance, differing or additional screening thresholds.

The draft also introduces a new 100% threshold. This is unprecedented; under current law, the highest statutory threshold is 75%. This provision would be applicable to all companies, not just listed companies. From a corporate governance and security perspective, this new threshold appears to make little sense. Once an investor holds 75% of the voting rights, any blocking minority under German corporate law is already eliminated. The shareholder already exercises complete strategic control. For listed companies with an initial 15% threshold, an 85% threshold would mirror the loss of a 15% blocking stake. Pushing the threshold all the way to 100%, however, appears to lack substantive justification. Instead, it creates an unnecessary regulatory hurdle for routine corporate clean-ups, minority buyouts, and statutory squeeze-outs where no additional control is gained.

Atypical influence decoupled from voting stakes

Atypical influence is a concept that allows the Ministry to treat board seats, veto rights, or information rights like voting shares if they grant comparable influence.

The draft sensibly renames ‘atypical control’ to ‘atypical influence’, appropriately reflecting that these cases by no means involve an acquisition of corporate control. The current test requires the acquisition of at least some voting rights alongside additional influence. The draft expands this so that securing board seats, strategic veto rights, or sensitive information access can trigger review even without acquiring any voting rights. In the view of the Ministry this closes a loophole which, according to the Ministry, was previously used to avoid review. But by triggering screening without any share purchase, the draft removes investment control from the M&A process. Instead of screening transactions, it effectively creates a permanent, ongoing review of routine corporate governance.

Asset deals and IP licensing

The Draft IPG clarifies the perimeter of covered asset transactions, confirming that the acquisition of essential business assets “in whole or in substantial part” or significant domestic real estate triggers review. 

Crucially for the tech sector, the draft refrains from introducing a general, standalone screening trigger for licence agreements. Commercial licences will not be caught. Licensing arrangements will only face screening if the licensed intellectual property constitutes the target’s essential operational assets or if the structure serves to circumvent the rules.

Expansive ‘object or effect’ anti-circumvention rule 

The anti-circumvention rule has long been a key priority for the Ministry, which has grown increasingly frustrated with deal structures designed to sit just below statutory thresholds for purported tax or commercial reasons. While the Ministry previously had to prove that parties acted with a deliberate intent to evade investment screening, the Draft IPG now introduces an objective “object and effect test”. Going forward, the Ministry will no longer need to demonstrate that the parties acted with the deliberate intent to avoid review; it will be sufficient that the transaction structure objectively results in evading review. 

Read literally, the new provision could have an extremely broad scope of application as many – completely legitimate transaction structures – could have as their “effect” that German investment screening law is not applicable. The draft offers little guidance on where the line will be drawn. Although the Ministry drew inspiration from European antitrust law, competition case law will be of limited help in practice, as the standard is applied here in an entirely different context. 

Transactions most likely to attract scrutiny under this rule include the divergence of capital and voting rights and synthetic control structures. Dealmakers can no longer take comfort simply from staying under the percentage triggers if the deal effectively bypasses screening in practice.

Holding voting rights “on account” of someone else

Under the draft IPG, the investment screening regime would also cover situations in which a person holds voting rights “on account” of someone else. According to the draft’s explanatory memorandum, voting rights are attributed to whoever bears the “economic risk” of the investment, presuming that economic exposure translates into actual voting influence. The memorandum explicitly confirms that this covers both trustee arrangements and fund structures. Phrased so broadly, this may trigger mandatory filings for passive financial capital, which should not be in the Ministry’s own interest. Beyond these expressly cited examples, the exact scope of this provision is not clear in practice It remains open how this rule will be applied to capital market instruments such as depositary receipts, total return swaps, or synthetic equity, where investors bear economic risk without holding governance or voting rights. 

In alignment with the revised EU Screening Regulation, or at least the Ministry’s strict interpretation of it, investors from EFTA states (Switzerland, Norway, Liechtenstein, Iceland) will no longer benefit from EU-equivalent treatment under the cross-sectoral regime. While not strictly required by the revised EU Screening Regulation, the draft aligns with practice across other Member States and the EU Commission’s goal to establish a uniform standard for foreign investments. Inbound acquisitions by EFTA acquirers in sensitive sectors will now face mandatory screening under the same terms as non-EU investors.

Beyond reclassifying EFTA investors, the draft also significantly tightens the nationality requirements for individuals. To qualify as domestic German investors, natural persons must now have their residence in Germany and hold exclusively German citizenship. The same standard applies at the EU level: individuals will only be considered EU investors if they reside within the Union and hold exclusively EU citizenship(s) — excluding dual nationals with third-country citizenship.

The regime currently uses a relatively long list of sectors. These are generally well-defined but contain some uncertainties, overly broad provisions and some sector designations which may no longer be considered sensitive. The security-relevant sectors will be set out in the accompanying ordinance, but the draft does not yet contain a list of additional sectors which will trigger future review. Our expectation is that the list is unlikely to be changed considerably. But the draft leaves it to the other ministries to suggest changes to the sectors falling into their respective purview. This seems like a missed opportunity to suggest narrowing the scope of investment screening. The other ministries may not want to give up “their” screening sectors and may instead be more likely to demand expansions. 

So far, the draft only integrates new sectors to reflect the revised EU Screening Regulation and/or concerns in the administration on next-gen technologies:

• Election infrastructure: voter registration databases, electoral software, and public voting systems are added to counter hybrid interference;
• Critical raw materials & dual-use goods: strategic raw materials (under the EU Critical Raw Materials Act) and items on the EU Dual-Use list; and
• Next-gen technologies: expanded coverage of semiconductors (including design, equipment, and advanced materials), advanced robotics, and general-purpose artificial intelligence models suitable for the development of space or defence applications or that pose systemic risk.

Under the current law, the Ministry operates under narrow and contested powers during an ongoing review. The draft IPG now establishes explicit statutory authority (§ 19 draft IPG) to issue binding interim orders as soon as it gains knowledge of an impending or signed transaction. To prevent gun-jumping and pre-clearance technology leakage, the Ministry will have an immediate freeze button: it can formally prohibit closing, suspend the exercise of voting rights, or mandate that shares be placed in trust with an independent third-party trustee at the investor’s expense. In addition, the Ministry can impose immediate information firewalls to block the transfer of sensitive technical and commercial data while the substantive investigation is still underway.

On the procedural side, the draft sharpens the Ministry’s fact-finding powers while updating statutory timelines and transparency rules.

Global intelligence sharing beyond the EU

The draft explicitly permits the Ministry to share information contained in filings with foreign screening authorities outside the EU (such as CFIUS in the US or the ISU in the UK) (subject only to GDPR safeguards). This is a major divergence from the strict confidentiality currently awarded to companies. The provision does not have any requirements, nor does it mandate a notice to be issued to the companies involved. Companies will have to anticipate that any information provided to the Ministry could – even in the distant future – be forwarded to any investment screening authority in the world. The exchange is not restricted to cases where contacting other authorities would be particularly helpful for the Ministry’s own review. This is a very noteworthy development which may well deter foreign investors. 

Binding third-party information requests 

Mirroring merger control authorities’ powers, the Ministry will be empowered to issue formal information demands to third parties (competitors, customers, suppliers), backed by administrative fines of up to €100,000 for non-compliance.

Streamlined review timelines and shortened ex-officio window

Reflecting the EU review timeline, Phase I corresponds to a 45-calendar-day review period. Phase II will be subject to a fixed 120-day review period, with a possible extension of up to 90 calendar days. In addition, the ex-officio call-in window for non-notified transactions is shortened from five years to three years from signing.

Public disclosure of prohibitions and remedies

To curb speculative leaks and increase transparency, the Ministry will be required to publish notices of formal deal prohibitions on its website, with the discretion to do the same for mitigation orders and public-law mitigation agreements. These disclosures will be limited to high-level summaries identifying the parties, the target's sector, and the abstract nature of any measures, while strictly shielding business secrets. Standard unconditional clearances will remain entirely confidential.