1. Background
Germany is required to align its foreign direct investment screening regime with the standards set out in EU FDI Regulation 2026/1386 by January 17, 2028. This is also consistent with the coalition agreement of May 2025, under which the governing parties committed to a faster, simpler, and more user-friendly investment screening process.
From a more technical perspective, the reform is also intended to strengthen the legitimacy of the regime by replacing the current framework, which is largely based on government-issued regulations, with a statutory framework approved by Parliament.
The government's draft German Federal Foreign Direct Investment Screening Act (Investitionsprüfungsgesetz—IPG) has been anticipated for some time. A first leaked draft has now begun circulating and offers an initial preview of what is expected to be formally presented in the coming days. It marks the starting point for a broader public and parliamentary debate that is likely to continue over the coming weeks and months.
2. Structure of the new German FDI regime
The substantive scope of review, procedural rules, and available legal remedies will be set out in the IPG. A separate German Federal Ordinance on Foreign Direct Investment Screening (Investitionsprüfungsverordnung—IPV) will define the relevant business activities and classify them into three different categories. Certain business definitions will continue to refer to other regulatory frameworks, for example in relation to the definition of critical infrastructure.
As a result, the existing three-tier structure of Germany's FDI regime will largely remain unchanged. The framework will continue to consist of a federal statute (currently the Foreign Trade and Payments Act (AWG), to be replaced by the IPG), a federal ordinance (currently the Foreign Trade and Payments Ordinance (AWV), to be replaced by the IPV), and sector-specific regulations that define concepts such as critical infrastructure.
In essence, many of the procedural provisions that are currently contained in the AWV will be elevated to statutory level and incorporated into the IPG.
3. Personal scope
Non-German investors will remain subject to mandatory screening in specific sectors, particularly in the defense and defense-related industries, which are defined largely in line with the current regime. In other sectors, only non-EU investors will be subject to screening requirements. Accordingly, the treatment of investors from the UK, the United States, the Middle East, or China remains largely unchanged.
One notable difference is that the new regime will no longer treat investors from EFTA countries in the same manner as EU investors. This change will affect investors from Switzerland, Norway, Liechtenstein, and Iceland. The approach is consistent with the EU FDI Regulation but could still change, particularly if the EU and EFTA reach an agreement providing for equivalent treatment in investment screening procedures.
4. Investment thresholds
The initial investment thresholds triggering a mandatory filing will remain largely familiar. A threshold of 10% of the voting rights, held directly or indirectly, will apply to German companies engaged in defense-related activities. The same 10% threshold will apply to certain additional security-sensitive businesses, most notably operators of critical infrastructure.
A third category of businesses will be subject to a 25% threshold, which is slightly higher than the currently applicable threshold of 20%. Where a filing obligation exists, the direct acquirer must notify the transaction, and a standstill obligation will apply until clearance has been obtained.
In addition, the Federal Ministry for Economic Affairs and Energy will continue to have the authority to call in acquisitions by non-EU investors where the investor acquires, directly or indirectly, at least 25% of the voting rights in a German company that is considered relevant to Germany's public order or security.
Consequently, the established approach to FDI-related closing conditions in transaction documents is unlikely to change materially.
Overall, if adopted in its current form, the new regime would not differ substantially from the existing framework. Additional notification thresholds will continue to apply to subsequent increases in shareholdings, whereby a full-take-over is now subjected to the regime (currently, there is no additional screening requirement once an investor has reached or exceeded the 75 % threshold).
5. Listed companies
According to the leaked draft, acquisitions of shares in listed companies will continue to benefit from the existing post-closing filing privilege. However, the draft does not introduce any exemption for portfolio investments, despite such an exemption being permissible under the EU FDI Regulation.
Instead, the proposal introduces even lower thresholds for investments in listed companies. For example, a filing may be required at a 15% threshold, compared to 20% for privately held companies operating in the same sector. The draft also introduces an additional threshold at 30%.
6. Greenfield investments
The leaked draft does not introduce a dedicated screening mechanism for greenfield investments. Asset acquisitions, however, may continue to be subject to review to a similar extent as under the current regime.
7. Internal restructurings
The existing exemption for intra-group restructurings will be extended to the defense sector, effectively excluding from the scope of the German FDI regime transactions in which the ultimate beneficial owner remains unchanged and no additional jurisdiction is introduced into the holding structure.
8. Clearance procedure and remedies
The clearance procedure is not expected to change significantly. The Federal Ministry for Economic Affairs will remain the competent authority. In line with the EU FDI Regulation, the procedure will consist of a Phase I review, which must generally be completed within 45 days, and a Phase II review with a standard duration of 120 days. The latter period may, however, be extended on various grounds. As a result, the practical impact of German FDI reviews on transaction timetables is unlikely to change substantially.
A prohibition decision will no longer require the consent of the entire government (cabinet) but still require the consent of the Federal Chancellery, the Federal Foreign Office, the Federal Ministry of the Interior, the Federal Ministry of Defense and the Federal Ministry of Finance.
Judicial review remains available; however, appeals will not have suspensive effect, and a higher administrative court will have direct jurisdiction to accelerate proceedings.
The draft also provides a more detailed framework for mitigation measures. Potential remedies include requirements regarding board appointments, restrictions on the exercise of voting rights, limitations on access to sensitive information, commitments to continue supplying certain customers, measures ensuring business continuity and the procurement of critical raw materials, cybersecurity-related obligations, and requirements concerning data storage and processing.
Furthermore, investors may be required to tolerate monitoring of compliance with such commitments by an independent third-party trustee or monitor.
9. Preliminary conclusions
The leaked draft suggests that Germany's FDI regime will remain broadly familiar to investors and transaction parties. While the legislative framework will be modernized and elevated to statutory level, the fundamental concepts, filing thresholds, and review mechanisms will largely remain unchanged. At the same time, the new framework is designed to retain sufficient flexibility to enable the government to respond to evolving geopolitical, economic, and technological developments.
The legislative process is expected to begin shortly and will likely be accompanied by extensive discussions with stakeholders, industry associations, and the wider public. It is therefore reasonable to expect that the final version of the legislation may differ in certain respects from the leaked draft currently under discussion.
