Switzerland Introduces New (But Limited) FDI-Regime

The Swiss Parliament is set to introduce a limited-scope foreign direct investment (FDI) regime. The regime will only cover acquisitions of control by foreign state investors over Swiss entities active in specific sectors. This new regime ensures that Switzerland remains open to foreign investment and attractive to investors. It is expected to take effect on 1 January 2027.

Affected Investors

The new FDI regime only applies to foreign state investors, not private investors.

A foreign state investor is defined as one of the following:

• A foreign state body;
• An undertaking with headquarters outside of Switzerland that is directly or indirectly controlled by a foreign state body;
• An undertaking with legal capacity (e.g., a fund company) that is directly or indirectly controlled by a foreign state body;
• A natural or legal person acting on behalf of a foreign state body.

Accordingly, the term "foreign state investor" is broadly defined. This broad definition is intended to capture attempts to circumvent the Swiss FDI regime. This includes cases where a person is instructed by a state to make an acquisition or receives financial means (including subsidies or loans) from a state, without which the acquisition would not have been possible. A company with a service mandate from a state is also considered a foreign state investor.

The law grants the Federal Council the power to exempt foreign state investors from certain states from the approval requirement. Potential candidates for these exemptions may include EU and EFTA member states.

Affected Transactions

ONLY ACQUISITIONS OF CONTROL

The FDI regime only captures transactions that confer control as defined by Swiss and EU merger control laws. Therefore, an acquisition of a minority stake without controlling rights is not reportable.

ONLY SWISS SUBSIDIARIES OR BRANCHES

The target of the acquisition, whether direct or indirect, must be an entity registered in the Swiss Commercial Register. This formal requirement establishes legal certainty, as mere assets or turnover in Switzerland are insufficient.

Affected (Critical) Sectors

The FDI regime only applies to acquisitions in certain critical sectors. The Swiss regime differentiates between highly sensitive sectors, where the thresholds are lower, and other sectors, where the thresholds are higher.

HIGHLY SENSITITVE SECTORS

Targets active in highly sensitive sectors must have averaged at least 50 full-time job equivalents or a worldwide turnover of at least CHF 10 million per year over the previous two years. These sectors are:

• Manufacturing of goods or transfer of IP: (i) that are of crucial importance for the operational readiness of the Swiss Armed Forces, other federal institutions responsible for national security, or space programmes in which Switzerland participates, and (ii) whose export is subject to authorisation under the War Material Act or the Goods Control Act;
• Domestic transmission grids for electricity or distribution grids at grid level 1-3, through which at least 450 GWh are sold annually;
• Domestic power plants for electricity production with a capacity of 100 MW or more;
• Domestic high-pressure natural gas pipelines;
• Supply of water to more than 100,000 residents in Switzerland;
• Central security-related IT systems or central security-related IT services for domestic authorities.

OTHER CRITICAL SECTORS

In the other critical, less sensitive, sectors, the target must have had an average yearly worldwide turnover of at least CHF 100 million in the previous two years. These less sensitive sectors are:

• Pharma, medical devices, and medical protective equipment;
• Important domestic hubs for the transport of goods or people, such as ports, airports or transshipment facilities for combined transport;
• Domestic railway infrastructure;
• Important domestic food distribution centres;
• Domestic telecommunications networks;
• Systemically important financial market infrastructures;
• Systemically important banks.

The Federal Council may include additional sectors for a limited period of up to 12 months if this is necessary to ensure public order or security. The Federal Council may extend this period by up to 12 additional months.

Approval Criteria

Notifiable transactions are approved if there is no reason to believe that the acquisition will jeopardise or threaten public order or security.

In making that assessment, the following factors, among others, are considered:

• The involvement of the foreign state investor in activities having an adverse effect on public order or security in Switzerland or other countries;
• Espionage activities of the respective state or foreign state investor;
• Whether sanctions have been imposed on the foreign state investor under the Embargo Act;
• The possibility to replace the products in question within a reasonable amount of time;
• Whether the acquisition grants access to significant securityrelated information or to particularly sensitive personal data under the Data Protection Act.

The above catalogue grants a broad discretion whether to approve an acquisition.

Procedure

Notifiable acquisitions must be notified to the State Secretariat for Economic Affairs (SECO).

Upon receiving the complete notification, SECO decides within one month (i.e. in phase 1) whether to initiate a three-monthlong phase 2. This decision is made in agreement with the relevant administrative units and after consultation with the Federal Intelligence Service (FIS). If SECO and the relevant administrative units cannot agree to approve the acquisition in phase 1, phase 2 is initiated.

In phase 2, if either SECO or a relevant administrative unit objects to the acquisition's approval, the Federal Council decides. The Federal Council also decides if the decision has significant political implications.

The mentioned deadlines can be extended if, for example, certain information is not provided in a timely manner by the parties, or if information from a foreign authority is outstanding.

Conclusion

While many countries are broadening their FDI regimes, Switzerland has chosen a limited regime that will not affect its attractiveness as an investment destination. The new regime is expected to trigger only a handful of notifications each year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.