New Investment Screening Act: Germany Reforms the Control of Foreign Investments

On 15 October 2026, the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie – BMWE) initiated the consultation of the German federal states (Länder) and industry associations on the ministerial draft bills for a standalone Investment Screening Act (Investitionsprüfungsgesetz – IPG) and a complementary Investment Screening Ordinance (Investitionsprüfungsverordnung – IPV). Since 22 October 2026, the draft bills have been published on the BMWE's website. The reform is intended to consolidate the current provisions of the Foreign Trade and Payments Act (Außenwirtschaftsgesetz – AWG) and the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung – AWV) into a single statute, accelerate screening procedures and close existing protection gaps. At the same time, the draft transposes the new Regulation (EU) 2026/1386 of the European Parliament and of the Council on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452, which will apply across all Member States from 17 January 2028. Directly derived from the EU Regulation are, above all, the new EU case groups and the termination of the equal treatment of EFTA states. The draft sharpens the scope of covered investors, revises the shareholding thresholds, introduces new acquisition triggers and expands the BMWE's powers of intervention and sanctioning. Simultaneously, it contains noticeable simplifications: individual thresholds are abolished, statutory deadlines are shortened, the internal restructuring exemption is expanded and the review limitation period is reduced. Primarily affected are target companies in defense, aerospace, dual-use items, semiconductors, artificial intelligence, quantum technologies, critical raw materials and critical infrastructure. For private equity investors, venture capital funds and other financial investors, the structuring and documentation of transactions will also change, including through new attribution rules for trust and fund structures. This newsletter outlines the principal reforms and analyzes their implications for M&A transactions and VC financings.

1. Three Standalone Screening Procedures

Under the IPG, three distinct screening procedures will apply in the future, differing in their scope of application, notification requirements and substantive review standards.

Sector-Specific Investment Screening

Sector-specific investment screening applies to domestic companies (target companies) active in a security-relevant sector under Section 1 IPV within the fields of military weapons and defense equipment or IT security. It covers, in particular, companies that develop, manufacture or modify goods listed in Part I Section A of the German Export List (Ausfuhrliste) or have physical control (tatsächliche Gewalt) over such goods. Screening may be triggered at a voting rights threshold of 10%. It captures every "foreigner" (Ausländer), thus also encompassing acquirers from other EU Member States. The acquisition is subject to a mandatory prior notification requirement.

Case-Group-Specific Investment Screening

The notifiable case groups will form a standalone screening procedure in the future. It captures acquisitions by non-Union persons (i.e. persons not resident in the Union within the meaning of Section 3(3) IPG / foreign investors under Regulation (EU) 2026/1386) of domestic companies active in the sectors set out in Sections 2 and 3 IPV. Such acquisitions are subject to a mandatory prior filing requirement. Depending on the relevant case group, a threshold of 10% (Section 2 IPV, essentially covering critical infrastructure (KRITIS) and related areas) or 25% (Section 3 IPV) of voting rights applies. The previous 20% threshold is abolished; the affected case groups are raised to 25%, representing a welcome procedural relief.

Cross-Sector Investment Screening

As a catch-all procedure, the BMWE may continue to review other acquisitions by non-Union persons to determine whether they are likely to negatively affect public order or security. Screening is possible from a voting rights share of 25%. There is no mandatory notification requirement. The BMWE may initiate a screening procedure ex officio within three years after conclusion of the contract. The direct acquirer may, however, also submit a voluntary request for authorization to obtain early legal certainty. Even in the absence of a statutory closing prohibition, the BMWE has the power to provisionally prohibit closing in this procedure. Practical consequence: Because the BMWE may intervene up to three years after signing, buyers of targets with a security nexus should consider submitting a voluntary filing even absent a mandatory notification requirement, and agree clearance as a condition precedent to closing.

2. Shareholding Thresholds and Expanded Concept of Acquisition

Investment screening continues to attach to voting rights rather than economic equity participation. The decisive metric is the direct or indirect voting rights share following the acquisition, including attributed voting rights. The draft bill provides for the following threshold structure:

• Sector-specific screening (Section 1 IPV): initial screening threshold of 10%; step-up acquisition thresholds at 25%, 50%, 75% and 100% (30% instead of 25% for publicly listed targets).
• Case groups under Section 2 IPV (inter alia KRITIS): initial screening threshold of 10%; step-up acquisition thresholds at 25%, 50%, 75% and 100% (30% instead of 25% for publicly listed targets).
• Case groups under Section 3 IPV: initial screening threshold of 25% (15% for publicly listed targets); step-up acquisition thresholds at 50%, 75% and 100%.
• Cross-sector screening: initial screening threshold of 25%; step-up acquisition thresholds at 50%, 75% and 100%.

Note on the threshold overview: That the 30% step-up threshold applies to the 10% cases derives from the wording of Section 7(2) sentence 2 IPG. The explanatory memorandum refers generally to a 30% threshold for publicly listed companies. According to the explanatory memorandum, the 15% threshold for listed targets is intended to apply only in sectors with a 25% threshold; however, the literal wording of Section 7(1) IPG also permits its application in cross-sector proceedings, making clarification in the subsequent legislative process desirable. The previous step-up thresholds of 20% and 40% are eliminated. The 30% threshold for publicly listed companies aligns with the control threshold in Section 29(2) of the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz – WpÜG). In public takeover bids, investment screening must therefore be integrated into offer planning from the outset. Also new is the 100% voting rights threshold. Consequently, even a full buyout by an investor already holding 75% or more can become subject to screening, as veto rights of other shareholders may be extinguished, rendering control absolute. Practical consequence: Increases to 100%, for instance through the exercise of call options over minority shares or via a squeeze-out, must in future be reviewed for a renewed filing requirement.

Atypical Acquisition of Influence

The draft bill replaces the previous "atypical acquisition of control" with the concept of an atypical acquisition of influence. The crucial innovation is that special rights were previously only reviewable in conjunction with an acquisition of voting rights; going forward, they suffice entirely without any acquisition of voting rights if, individually or together with voting rights, they confer influence equivalent to a relevant voting stake. Special rights expressly listed in the draft bill include guaranteed seats or majorities on supervisory or management boards, veto rights regarding strategic business or personnel decisions, and rights to obtain company-related information concerning security-relevant business areas. Under Section 6(2) IPG, such an acquisition is "deemed" an acquisition under the general acquisition trigger, to which the mandatory notification requirement in notifiable sectors attaches. On the statutory wording, it is therefore strongly arguable that atypical acquisitions of influence in these sectors are subject to a mandatory notification requirement, although the explanatory memorandum remains ambiguous on this point. Practical consequence for VC financings: Board seats, consent provisos in articles or investment agreements, and extensive information rights of a non-Union investor can in future trigger screening and potentially a notification requirement even below the voting rights thresholds. Term sheets, investment agreements and side letters must therefore be reviewed at an early stage. Wherever feasible, information rights should be restricted to non-security-relevant areas and veto rights confined to standard minority investor protections.

Expanded Anti-Circumvention Rule

In the future, a reviewable acquisition will also exist where a structure objectively results in the circumvention of investment screening; a subjective intent to circumvent is no longer required. An indicator may be where multiple acquisitions are coordinated so that none individually reaches a threshold, such as financing rounds where several investors acting in concert each take stakes just below the notification thresholds.

Asset Deals, Licenses and Acquisitions without a Purchase Agreement

The acquisition of a separable business division or of assets constituting a material part of the assets of a domestic enterprise is also subject to screening. According to the explanatory memorandum, this may also include granting a license to a non-Union person or foreigner. German domestic assets of foreign enterprises are likewise covered. Licensing and technology transfer agreements, carve-outs and joint ventures with non-Union partners must therefore be structured with investment screening rules in mind. Also captured and potentially notifiable are acquisitions occurring without an underlying contractual transaction, such as the compulsory redemption (Einziehung) of GmbH company shares or acquisitions by succession. In the case of redemption, the notification requirement arises upon the adoption of the redemption resolution. In VC structures, this can be critical where founder shares are redeemed upon a leaver event, thereby elevating the voting percentage of a non-Union investor across a statutory threshold.

Indirect Acquisitions, Attribution and Fund Structures

Indirect acquisitions via intermediate holding entities and multi-tier corporate chains remain fully subject to screening; the entire shareholding and control structure up to the ultimate beneficial owner is decisive. Any party acquiring a foreign parent company of the target is deemed a direct acquirer. A key novelty is that voting rights held by a third party for the account of the acquirer are attributed to the acquirer, with the explanatory memorandum explicitly citing trust arrangements and fund structures. Furthermore, joint exercise of voting rights is presumed where state bodies of the same third country are capable of exercising influence over both the acquirer and co-shareholders. Practical consequence: PE and VC funds should map out their entire ownership chain — including fund managers, general partners and trust structures — well in advance to enable rapid assessments of notification requirements in each transaction.

Intragroup Restructurings and Greenfield Investments

The exemption for internal restructurings will apply across all three screening procedures. The prerequisite is a legal transaction executed exclusively between entities whose shares are wholly owned by the same controlling enterprise. Furthermore, no acquirer having its registered office or place of central administration in a third country not already represented among the existing participants may be introduced. The previous requirement that all participating entities must be resident in the same third state is eliminated. The exemption will also apply where the controlling enterprise itself participates as acquirer or transferor, facilitating pre-deal reorganizations and internal carve-outs within international groups. Pure greenfield investments — establishing new undertakings or facilities — remain outside the scope of German investment screening, aligning with the discretion afforded under Regulation (EU) 2026/1386. Likewise excluded remain acquisitions executed through resolution tools within the statutory recovery and resolution frameworks for credit institutions, central counterparties or insurance undertakings (so-called bank bailouts).

3. New and Amended Sector Case Groups in the IPV

Dual-Use Items

Particularly broad is the new case group for companies that develop, produce or commercialize dual-use items listed in Annex I to Regulation (EU) 2021/821, for which an initial screening threshold of 25% applies. Because commercialization (vertreiben) is expressly captured, this case group directly encompasses trading companies, distributors and specialized technology suppliers. The target company's dual-use export control classification should therefore be established at the earliest stage of due diligence.

Aerospace, AI, Semiconductors and Quantum Technologies

Companies that develop or manufacture goods or technologies for space or space infrastructure systems, as well as air transport undertakings holding an operating license, fall under case-group-specific screening with a 25% threshold. The artificial intelligence case group is realigned in direct alignment with the common minimum scope under Article 4(15)(c) and Annex I of Regulation (EU) 2026/1386. It covers enterprises conducting research into or developing AI technologies where used for general-purpose AI models or AI systems based on such models suitable for developing space or defense applications, or for general-purpose AI models with systemic risk within the meaning of Article 51 of Regulation (EU) 2024/1689 (Artificial Intelligence Act) or AI systems based on such models; the previous national AI case group is merged into this definition. In semiconductors, the entire value chain is captured, from integrated circuit design, electronic design automation (EDA) software and manufacturing to fabrication equipment and specialized materials. Additionally, companies developing, manufacturing or conducting research into goods or core components in quantum computing, quantum communications or quantum sensing are captured. Deep-tech start-ups in these domains must routinely review prospective filing requirements in funding rounds with non-Union investors and factor them into round timelines.

Raw Materials, Critical Infrastructure and Further Modifications

Screening covers undertakings that explore, extract, process, recycle, recover or stockpile strategic or critical raw materials pursuant to Regulation (EU) 2024/1252. In critical infrastructure (KRITIS, 10% threshold), holding physical control over a critical installation will suffice in the future; operator status is no longer exclusively required. Newly added are voter registration databases, voting systems and comparable information systems designed to manage electoral operations. Concurrently, the draft bill narrows certain existing case groups: personal protective equipment is restricted to protection against biological agents, and for pharmaceuticals, an exhaustive cross-reference to the list of supply-critical active substances (critical medicines) replaces the previous open-ended term "essential medicines". For transactional practice, this means regulatory classification will depend even more heavily on specific products, technologies, R&D activities and positioning within security-critical supply chains. Going forward, sector lists will be enacted by the BMWE alone via ministerial ordinance without requiring Bundesrat consent, enabling swift adjustments to technological advances; classification should thus be re-verified immediately prior to signing.

4. Expanded Personal Scope of Application

The draft bill tightens the conditions under which an investor qualifies as domestic or Union-resident. The previous equal treatment of acquirers from EFTA states (Switzerland, Norway, Iceland and Liechtenstein) with EU acquirers is abolished, reflecting the strict third-country definition in Article 2(5) of Regulation (EU) 2026/1386. These states will now be treated as third countries, with immediate effect on case-group-specific and cross-sector screening. For natural persons, nationality is now decisive alongside habitual residence: only individuals holding exclusively German nationality qualify as domestic investors, and only those holding exclusively the nationality of one or more EU Member States qualify as Union residents. A Munich-resident founder or business angel holding dual German and US citizenship will thus be classified as a non-Union person. Practical consequence: In VC financings, cap tables should capture the nationalities of founders and angels, including multiple citizenships; in M&A deals involving buyers from Switzerland, Norway, Iceland or Liechtenstein, filing requirements and timelines must be reassessed.

5. Substantive Review: When Can an Investment Be Restricted or Prohibited?

The substantive test is whether an acquisition is likely to negatively affect the public order or security of Germany, another Member State, or projects and programs of Union interest. In sector-specific screening, the benchmark is a likely impairment of essential security interests of the Federal Republic of Germany. The draft bill elaborates on these criteria: sector-related considerations include the loss of know-how and technology, substantial reductions in production, processing or fabrication capacities, and threats to economic or technological sovereignty in a sector. Per the explanatory memorandum, the BMWE will also assess a "security-critical mass" — whether excessive sector concentration exists in the hands of acquirers from a single third state.

Acquirer-related criteria focus on whether the foreign investor is under effective third-country governmental influence (e.g. through ownership structures or significant state financing), previous conduct negatively affecting public order or security, and substantial risk of involvement in criminal activities. In addition, the assessment factors laid down in Article 19 of Regulation (EU) 2026/1386 apply cumulatively, including opaque ownership structures and third-country intelligence cooperation laws. Buyers should assemble disclosures regarding state ownership and funding sources early. The BMWE may grant clearance, issue clearance subject to mitigating measures, or enter into a public-law contract in lieu of administrative orders. Potential mitigating measures encompass board governance restrictions, operational supply commitments, data localization within the EU, and the appointment of an independent monitoring trustee under Section 30 IPG. Practical consequence: Transaction agreements must specify which remedies an acquirer is required to accept and who bears compliance costs. Outright prohibition remains the remedy of last resort (ultima ratio). Interministerial coordination is unified: clearance across all procedures will require the formal concurrence (Einvernehmen) of the Federal Chancellery, Foreign Office, Interior Ministry, Defence Ministry and Finance Ministry.

6. Procedural Harmonization and Review Timelines

Screening procedures are harmonized and accelerated, with statutory time limits calculated strictly in calendar days. Phase 1 (preliminary review) is shortened from two months to 45 calendar days, with no possibility of extension; during this phase the BMWE decides whether to open an in-depth investigation. Phase 2 (in-depth investigation) must be concluded within 120 calendar days. Where the investigation entails extraordinary complexity, the BMWE may extend the deadline by up to 90 calendar days. Consensual extensions require only the consent of the direct acquirer. Phase 2 is tolled (suspended) while information requests remain pending, while inquiries from other Member States or the Commission under the EU cooperation mechanism are being addressed, or during negotiations on a public-law mitigation contract. Crucially for transaction planning, deadlines commence only on the calendar day following complete receipt of all required filing documents, the exact content of which is defined by the BMWE via general administrative order (Allgemeinverfügung). Practical consequence: The review window may span up to 255 calendar days (45 + 120 + 90), excluding tolling periods and consensual extensions; long-stop dates must be structured accordingly, and seller cooperation obligations regarding the filing should be explicitly detailed in the transaction agreement. Furthermore, non-resident direct acquirers must designate an authorized domestic agent for service of process, failing which service may occur via public notice.

Authorization, Deemed Clearance and Review Limitation Period

The former distinction between a clearance certificate (Unbedenklichkeitsbescheinigung) and a formal approval (Freigabe) is eliminated; going forward, the BMWE will issue a uniform authorization (Genehmigung) across all screening procedures. The statutory deemed clearance upon expiry of deadlines is retained. The absolute limitation period for the BMWE to initiate ex officio screening is shortened from five to three years following the execution of the acquisition agreement, after which no formal investigation may be commenced.

7. Gun-Jumping Prohibitions, Sanctions and Judicial Recourse

For notifiable transactions, the closing of the transaction (Vollzugsgeschäft) is provisionally invalid (schwebend unwirksam) pending BMWE authorization or the expiry of review periods without a prohibition order. Prior to clearance, the acquirer is strictly prohibited from exercising acquired voting rights and from receiving company-related information regarding security-relevant business areas. An exemption applies to on-exchange public market purchases provided an immediate filing is made; however, voting rights cannot be exercised until cleared. Practical consequence: Gun-jumping risks extend beyond closing; disclosures in due diligence, pre-closing integration covenants, and interim information rights of VC investors must be scrutinized to ensure they do not touch security-relevant operational domains, making robust clean-team agreements essential.

The draft bill establishes an explicit statutory basis for preliminary interim measures: upon learning of an impending transaction, the BMWE may restrict voting rights and information flows, order the transfer of shares to an independent trustee under Section 30 IPG at the acquirer's expense, or prohibit closing, even in cross-sector proceedings. Even prior to the formal initiation of Phase 1, the BMWE may issue formal information orders under Section 19(3) in conjunction with Section 16 IPG to investigate and prepare interim orders. Sanctions are significantly intensified:

• Intentional violations of the gun-jumping prohibition (e.g. unlawful exercise of voting rights or unauthorized information sharing) or of enforceable administrative orders and prohibitions constitute criminal offences punishable by imprisonment of up to five years or a criminal fine.
• Negligent violations of the gun-jumping prohibition can trigger administrative fines of up to EUR 1,000,000.
• Newly introduced is an administrative fine of up to EUR 100,000 for failing to submit a mandatory notification without undue delay, failing to timely provide complete screening documentation, or failing to properly comply with formal information orders under Section 16 IPG. Consequently, compliance becomes an immediate personal liability and criminal risk for corporate officers on both the buyer and target sides.

Judicial Recourse and Publication of Decisions

Legal challenges under the IPG will be assigned directly to the Higher Administrative Courts (Oberverwaltungsgerichte) as courts of first instance to expedite proceedings. Actions challenging administrative screening measures will continue to have no suspensive effect. The BMWE is required to publish prohibition orders on its website and may publish mitigating measures and public-law contracts at its discretion, typically via press releases naming the participating entities, their industry sector and the general nature of the remedies imposed. The resulting reputational exposure must be proactively managed in transaction communications.

8. Entry into Force and Transitional Regime

The IPG is scheduled to enter into force on the day following its promulgation, but will apply only to contractual acquisition agreements executed on or after a cut-off date in 2027 that remains to be specified in the final legislation. For public takeover offers, the decisive trigger is the publication of the decision to launch an offer; for acquisitions without a contractual agreement, the legal act on which the acquisition is grounded governs. A corresponding transitional rule applies to the IPV. The date of signing is therefore decisive: agreements executed prior to the cut-off date remain governed by the AWG and AWV. For transactions signing near the cut-off date, strategic timing may be advantageous: the new regime delivers accelerated deadlines and a broader internal restructuring exemption, but simultaneously introduces new sector case groups and expanded acquisition triggers.

9. Checklist for M&A and VC Transactions

Although the draft legislation is not yet enacted, dealmakers planning transactions with signing scheduled from 2027 onwards, or currently negotiating multi-year investment agreements, should integrate the reform into deal planning today. We recommend the following steps:

1. Target Screening: Map the target company's products, technologies and R&D pipelines against the anticipated IPV case groups — especially the broad new dual-use case group — and confirm export control classifications.
2. Investor and Cap-Table Analysis: Audit direct and indirect ownership structures including fund and trust vehicles, and verify the nationalities of individual founders and angels, including dual and multiple citizenships.
3. Governance Review: Examine board seats, veto powers and information covenants in term sheets, investment agreements and side letters for potential atypical acquisitions of influence.
4. Licenses and Carve-Outs: Assess whether intellectual property licensing arrangements or transfers of essential assets may constitute a reviewable asset acquisition.
5. Transaction Agreement Drafting: Include regulatory clearance as a condition precedent to closing, provide sufficient headroom in long-stop dates, define regulatory cooperation covenants, agree clear allocations of remedy burdens (hell-or-high-water vs. remedy caps) and address deal breakage risk (e.g. via regulatory break fees). Align signing schedules with the transitional cut-off date.
6. Due Diligence and Interim Covenants: Establish strict clean-team protocols for sensitive security information and restrict pre-clearance information exchanges and interim operating controls to what is legally permissible.
7. Portfolio Company Compliance: Ensure that follow-on share increases, leaver share redemptions and internal group reorganizations are systematically vetted under investment screening rules, noting the new administrative fine exposure for failure to notify. Existing historical foreign investments do not require retroactive reporting.

10. Conclusion and Outlook

The proposed Investment Screening Act represents a substantial evolution of Germany's investment screening regime. It simplifies and accelerates procedures by eliminating the 20% and 40% step-up thresholds, shortening review deadlines, expanding the internal restructuring exemption and reducing the ex officio review limitation period. At the same time, it expands the universe of covered investments, target enterprises and acquisition triggers. Most significant are the new dual-use case group, the concept of atypical acquisitions of influence without voting rights, tightened attribution rules, the explicit capture of licensing deals, the substantive review criteria of technological sovereignty and "security-critical mass", and intensified criminal and administrative sanctions. For M&A transactions and VC financings, investment screening moves upstream from a pre-closing formality to an indispensable element of early target screening, term sheet negotiation and deal structuring. Several open questions remain, including whether atypical acquisitions of influence are strictly notifiable and the reach of the 15% threshold for listed targets. The draft bills are currently subject to consultation with Länder and industry associations, with comments due by 12 November 2026, and amendments are anticipated during parliamentary proceedings.

11. How HEUKING Can Support You

HEUKING advises buyers, sellers, financial sponsors and portfolio companies across corporate acquisitions, minority participations, venture capital financings, licensing arrangements and joint ventures from an investment screening perspective — from initial exposure assessments and contract negotiation to formal notifications and representation before the BMWE. We combine specialized expertise in foreign trade and payments law, M&A, defense, space, new space and technology law, including export controls and regulatory commitments concerning data localization and cybersecurity.