As Europe’s largest economy, Germany is a major destination for foreign direct investment (FDI). Germany is consistently ranked as one of the most attractive investment destinations based on its stable legal environment, reliable infrastructure, highly skilled workforce, and world-class research and development. U.S. investment continues to account for the third-largest share of Germany’s FDI after Luxembourg (first) and The Netherlands (second).
An EU member state with a well-developed financial sector, Germany welcomes foreign portfolio investment and has an effective regulatory system. Capital markets and portfolio investments operate freely with no discrimination between German and foreign firms. Germany has a very open economy, routinely ranking among the top countries in the world for exports and inward and outward foreign direct investment.
Foreign investment in Germany mainly originates from other European countries, the United States, and Japan, although FDI from emerging economies has grown in recent years. The United States is the leading source of non-European FDI in Germany. In 2021, total U.S. FDI in Germany was $170.2 billion. Key U.S. FDI sectors include manufacturing ($37.2 billion), chemicals ($13.1 billion), information technology ($12.6 billion), machinery ($8.0 billion), finance ($13.2 billion), and professional, scientific, and technical services ($7.8 billion). From 2020 to 2021, total U.S. FDI in the industry sector “chemicals” grew significantly from $9.5 billion to $13.1 billion and in “information technology” from $5.3 billion to $12.6 billion. Historically, machinery, information technology, finance, holding companies (nonbank), and professional, scientific, and technical services have dominated U.S. FDI in Germany.
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. Germany’s well-established enforcement laws and official enforcement services ensure investors can assert their rights. German courts are fully available to foreign investors in an investment dispute. New investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all national and EU regulations.
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, particularly from China, in recent years. German authorities may screen acquisitions by foreign entities acquiring more than 10 percent of voting rights of German companies in critical sectors, including health care, artificial intelligence, autonomous vehicles, specialized robots, semiconductors, additive manufacturing, and quantum technology, among others. Foreign investors who seek to acquire at least 10 percent of voting rights of a German company in one of those fields are required to notify the government and potentially become subject to an investment review.
German authorities are committed to fighting money laundering and corruption. Federal Minister of Finance Christian Lindner (FDP) announced in August 2022 a plan to create a new agency – the Higher Federal Authority for Combating Financial Crime – to address shortcomings within the anti-money laundering system within Germany. The government promotes responsible business conduct and German Subject Matter Experts are aware of the need for due diligence.