Raphaël Schindelholz, Marie Flegbo-Berney, and Stéphane Lagonico (Bonnard Lawson) authored this publication

Unlike many other European jurisdictions, Switzerland has traditionally been a very attractive jurisdiction for foreign investments, with few or no restrictive conditions. However, that could change under a new FDI regulation, the idea of which was first mooted by the Swiss Parliament in March 2020, and slated to take effect sometime in 2024.

Recent updates

• Historically, there has been no general foreign investment control in Switzerland
• However, and while the Swiss Federal Council has been opposed to legislation on foreign investment in Switzerland, Parliament passed a motion to that effect in March 2020. In this context and at the time, the Federal Council stated that the objective in introducing broader investment controls would be to ensure that Switzerland remains open and attractive to foreign investors. The consultation process on the new FDI regulation was completed on September 9, 2022, and the preliminary draft of the bill revealed the stated purpose was to prevent a threat or endangerment to public order or security by the acquisition of domestic enterprises by foreign investors
• This preliminary draft has led to a great deal of criticism, being both too broad (the circle of companies covered goes beyond the strategic and security areas) and imprecise (the criteria are not detailed, which leaves far too much room for maneuver to the federal administration, i.e., the Secretariat of State for Economic Affairs). That being said, given recent events in Europe, there has been new momentum behind this legislation, particularly on the importance of securing supply chains and energy

Who files

There are currently no general foreign investment controls in Switzerland; foreign investment control only applies to certain industries and sectors, in particular banking/securities and real estate, where prior government approval is required. A number of additional business activities require a license from the authorities and, in the following fields: aviation; telecommunications; nuclear energy; and radio/television, the licensing conditions include specific requirements regarding foreign investors.

In the cases mentioned above, the reasons for the longstanding limitation of access to foreign investors in the legislation are linked to the very specific context of these sectors, as opposed to a desire to control foreign investment from an economic perspective.

However, the Swiss Parliament has mooted the idea of a new bill, which may lead to greater controls on FDI into Switzerland. This new bill contains two differing axes. First, there is a mandatory authorization regime that will apply to any acquisition by a foreign state or a foreign company under state influence, regardless of the target industries or activities (but subject to a general exemption if the target company has had fewer than 50 full-time employees and annual sales of less than CHF 10 million on average worldwide in the past two financial years). Second, for private (i.e., neither state nor state-controlled) foreign investors, acquisitions in certain restricted sectors would be subject to an authorization regime regardless of the turnover of the target company.

Under this new bill, applications, where required, should be submitted by the foreign investor. The State Secretariat for Economic Affairs (SECO)  - Federal Department of Economic Affairs, Education and Research will be the competent authority to consider applications submitted by or on behalf of foreign investors.

Types of deals reviewed

As the preliminary draft bill currently stands, the chosen approach of the future legislation is based on two different axes:

• A mandatory authorization regime will apply to any acquisition by a foreign state or a foreign company under state influence, regardless of the target industries or activities (but subject to a general exemption if the target company has had fewer than 50 full-time employees and annual sales of less than CHF 10 million on average worldwide in the past two financial years)
• For private (i.e., neither state nor state-controlled) foreign investors, acquisitions in the following areas are also subject to an authorization regime regardless of the turnover of the target company:
  • Companies that provide defense equipment or services essential to the operational capability of the Swiss military
  • Companies that produce dual-use goods
  • Companies active in the fields of energy and water supply and
  • Companies that provide central IT security systems or security services for the national authorities

The same will apply to acquisition in the following areas if the target company had an average turnover of at least CHF 100 million in the two years preceding the planned acquisition:

• General hospitals
• Companies active in the research, development, production and distribution of pharmaceuticals, medical devices, vaccines and personal medical protection equipment
• Companies in the field of freight and passenger transportation and logistics, such as operators/owners of airports, railroad infrastructures or food distribution centers
• Operator/owners of national telecommunications networks and
• Operators of systemically important financial market infrastructures and systemically important banks

However, the bill reserves the right for the authority to subject any other sector to authorization, for a period of 12 months, if it considers that the guarantee of public order or security so requires. Some critics will see this as a strong legal uncertainty, even if its application is reserved for "exceptional circumstances."

No thresholds are disclosed regarding the target company's turnover or regarding the percentage of stock/participation rights triggering a compulsory notification. The definition of an acquisition will be very broad, inspired by the notion of control in antitrust law. The explanatory report of the Federal Council explains that the term "acquisition of control" includes all possible means and forms of control, direct and indirect. The foreign investor(s) exercising control must be able to decide on important questions of management and business policy of the controlled company, but the extent to which the possibility of control is actually exploited is not relevant; it may, for example, result from the acquisition of an equity interest or the conclusion of a contract. The determining level of participation is thus variable: from 50 percent of the voting rights in a private company with only a few shareholders, it can be lowered to 20 percent or 30 percent when the company is open to the public.

The notion of acquisition also covers (i) the purchase of important assets (such as plant, machinery or patents) in order to prevent a company from selling its strategic assets—this being comparable to a loss of control—and (ii) the merger of at least one foreign company with at least one Swiss company that were previously independent of each other.

An acquisition only occurs if all or part of an existing Swiss company is taken over—the creation of an entirely new company is not subject to control by the authority.

Scope of the review

In principle, the acquisition will be approved if there is no reason to believe that it threatens or endangers public order or safety.

The decision will be based on the following key elements, among other things:

• Investor characteristics (activities having a negative effect on the public order or security of Switzerland or other states; resorted to espionage; sanctioned by an embargo)
• The services, products or infrastructure of the Swiss company can be replaced within a reasonable period of time
• The acquisition provides access to key data protection information and
• The acquisition leads to significant distortions of competition

Review process timeline

The review is to be carried out in two stages:

• An expedited (within a month) review of the need for authorization. If none of the criteria are met, the acquisition may be carried out without an in-depth approval procedure
• If deemed necessary, an in-depth approval procedure, the duration of which is limited to three months. SECO will be responsible for coordination with other offices. If one of the agencies involved disagrees or if they unanimously deem the acquisition to be of significant political importance, the Federal Council will be the ultimate decision-making body

If SECO exceeds these processing deadlines, the authorization will be deemed to be granted.

How foreign investors can protect themselves

The new bill is still under consideration by the Swiss Parliament, and it is still unclear what the new FDI regime will eventually look like. Foreign investors should continue to stay plugged into this topic, and seek local counsel assistance if they expect to encounter any potential FDI issues.

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