Key features of the Draft FDI Act: what investors can expect
While the Draft FDI Act has not yet been published, signals from the MoE suggest that several substantive changes are on the horizon, alongside the continued reliance on proven and well-established concepts.
Sectoral focus
Transactions involving German companies in strategically sensitive sectors—such as critical infrastructure, defense, machine tools, defense semiconductors, advanced technologies and sensitive data—already attract heightened attention from the MoE.
They are likely to face enhanced scrutiny under the new Draft FDI Act, potentially by broadening the scope of these sectors, reflecting heightened security concerns in these strategic areas.
Given that member states may not fall below the minimum sectoral scope defined by the upcoming revised EU FDI Regulation, new sectors will need to be added.
Greenfield and IP-only transactions on the radar
The Draft FDI Act may extend the screening regime to cover transactions currently outside its scope.
The evolving EU framework may prompt member states to address certain greenfield scenarios. Current indications suggest that Germany is unlikely to extend the Draft FDI Act to greenfield investments in a blanket manner, but rather introduce selective and sector-specific rules, focusing on areas of elevated security sensitivity, potentially through targeted sectoral legislation.
Purely contractual licensing and IP agreements may be brought within scope reflecting growing regulatory concerns that such arrangements can confer the transfer of sensitive know-how without an equity acquisition. Based on recent enforcement experience and policy discussions, this potential extension appears primarily aimed at addressing perceived circumvention risks, rather than subjecting ordinary commercial licensing arrangements to systematic and mandatory review.
No safe harbor for purely financial stakes
Despite the formal focus on voting rights, administrative practice also treats financial stakes as in-scope—an approach of particular relevance for private equity structures.
Under the Draft FDI Act, acquisitions by limited partners are expected to continue to be reviewed on a case-by-case basis, with no blanket exemptions anticipated. This reflects the MoE’s experience that limited partners may, in certain cases, exercise influence exceeding that of typical passive investors.
Foreign individuals: nationality instead of place of residence
Under the current regime, the origin of natural persons acting as foreign investors is assessed based on their place of residence.
This criterion is expected to shift to nationality, in order to prevent circumvention and to allow for a more consistent and streamlined assessment.
Broader restructuring privilege
The current narrow exemption for internal restructurings is expected to be broadened.
As a result, a wider range of purely internal transactions may fall outside the scope of FDI review.
Non-dilution principle to be maintained
Unlike standard corporate law principles, the German FDI rules do not provide for the dilution of voting rights when calculating an investor's indirect shareholding in a German target company. The MoE examines each level of the holding chain without applying any reduction or dilution factor.
This approach has significant practical implications for transaction planning. The "look-through" methodology adopted by the MoE results in a broader scope of FDI scrutiny, as it captures indirect acquisitions that might otherwise fall below the applicable thresholds under conventional attribution rules.
Investors should therefore be aware that even a relatively modest shareholding by a foreign entity at a higher level of the acquisition structure may trigger a mandatory filing requirement.
Despite criticism that this mechanism may capture economic interests of clearly less than 0.1% in FDI reviews, it is expected that this approach will likely remain unchanged, with no introduction of dilution concepts.
No de-minimis threshold to come
Similarly, Germany is not expected to introduce de-minimis thresholds based on revenue or employee numbers.
The MoE’s position is that strategic relevance does not depend on size, and that even very small businesses may play a strategically significant role justifying FDI scrutiny.
Procedural updates
The Draft FDI Act will likely introduce faster review procedures, with the “phase 1” review period likely to be shortened from two months to 45 days, partly in response to the requirements under the EU Screening Regulation.
Procedural rules will likely be amended to include shortened review deadlines and standardized form requirements. Additionally, procedural provisions for terminating review procedures are anticipated.
Continued fragmentation of the German FDI regime
At present, German law already contains sector-specific regulatory regimes—most notably in areas such as energy—that include provisions functionally comparable to FDI screening rules.
Given that these regimes are specifically tailored to the specific characteristics and risk profiles of the activities they govern, it appears unlikely that they will be consolidated into the Draft FDI Act.
It also remains to be seen how forthcoming EU-level initiatives will be reflected in the German framework, including whether such initiatives will be addressed within the (Draft) FDI Act itself or through other, existing or future regulatory instruments.
This applies, for instance, to proposals such as the Industrial Accelerator Act, which, according to a leaked draft proposal, could introduce additional notification requirements and even foreign ownership caps for EU companies operating in certain emerging key strategic sectors.
Practical implications
Once the Draft FDI Act has been published by mid-2026, it will enter the formal legislative process and be debated in parliament.
Its provisions may therefore be subject to further amendments before the act ultimately enters into force, and the final rules will likely be shaped by the developing EU framework and shifting geopolitical and security realities.
Investors should in any case prepare for continued vigilance in assessing filing requirements, particularly in the strategic sectors highlighted above.
While procedural improvements should accelerate timelines and reduce administrative burdens, the substantive scope of screening is expected to remain comprehensive.
The direct incorporation of the EU FDI Regulation into German law should provide greater harmonization with European standards while preserving national competence in screening decisions.
Following the announcement of the Draft FDI Act, the German Federal Ministry of Defence (Bundesministerium der Verteidigung)—often involved in FDI review procedures— published a communication on January 29, 2026 underscoring the importance of Germany’s FDI regime as a key instrument for safeguarding national security interests, in particular with respect to foreign investments in the defense sector.
While the communication does not introduce any fundamentally new insights, it also draws attention to structural gaps in the current FDI framework, most notably the fact that greenfield investments and transfers of know-how/IP are, at present, largely outside the scope of German FDI rules. As mentioned above, these aspects may be addressed by the Draft FDI Act and could therefore become subject to closer regulatory scrutiny going forward.
We will continue to monitor developments as the draft legislation progresses. In the meantime, if you’d like to discuss further, please contact your usual A&O Shearman contact, or the authors of this alert.
