Germany

Executive Summary

As Europe’s largest economy, Germany is a major destination for foreign direct investment (FDI) and has accumulated a vast stock of FDI over time.  Germany is consistently ranked as one of the most attractive investment destinations based on its stable legal environment, reliable infrastructure, highly skilled workforce, positive social climate, and world-class research and development.

Foreign investment in Germany mainly originates from other European countries, the United States, and Japan, although FDI from emerging economies (and China) has grown over 2015-2018 from low levels. The United States is the leading source of non-European FDI in Germany.

The German government continues to strengthen provisions for national security screening of inward investment in reaction to an increasing number of high-risk acquisitions of German companies by foreign investors in recent years, particularly from China.  In 2018, the government lowered the threshold for the screening of investments, allowing authorities to screen acquisitions by foreign entities of at least 10 percent of voting rights of German companies that operate or provide services related to critical infrastructure. The amendment also added media companies to the list of sensitive businesses.

Further amendments enacted in 2020 to implement the 2019 EU FDI Screening Regulation, which Germany strongly supported, include to:

a) facilitate a more pro-active screening based on “prospective impairment” of public order or security by an acquisition, rather than a de facto threat, b) take into account the impact on other EU member states, and c) formally suspend transactions during the screening process.

Furthermore, acquisitions by foreign government-owned or -funded entities will now trigger a review, and the healthcare industry will be considered a sensitive sector to which the stricter 10% threshold applies. A further amendment, in force since May 2021, introduced a list of sensitive sectors and technologies (similar to the current list of critical infrastructure) including artificial intelligence, autonomous vehicles, specialized robots, semiconductors, additive manufacturing and quantum technology, among others. Foreign investors who seek to acquire at least 10% of voting rights of a German company in one of those fields would be required to notify the government and potentially become subject to an investment review.

German legal, regulatory, and accounting systems can be complex but are generally transparent and consistent with developed-market norms.  Businesses operate within a well-regulated, albeit relatively high-cost, environment. Foreign and domestic investors are treated equally when it comes to investment incentives or the establishment and protection of real and intellectual property.  Foreign investors can rely on the German legal system to enforce laws and contracts; at the same time, this system requires investors to closely track their legal obligations. New investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all national and EU regulations.

German authorities are committed to fighting money laundering and corruption.  The government promotes responsible business conduct and German SMEs are aware of the need for due diligence.