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

Unlike many other European jurisdictions, Switzerland has traditionally been very attractive 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.

Summary of major changes in 2023

• Historically, there has been no general foreign investment control in Switzerland
• The preliminary draft bill submitted for consultation in 2022 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—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
• On may 10, 2023, the Swiss Federal Council acknowledged widespread skepticism about the preliminary draft bill and its impact on Switzerland's business attractiveness and the infringement on the economic freedom. Despite opposition and because of a minority in favor of screening, the council instructed the Federal Department of Economic Affairs to revise the draft legislation by year-end, focusing on critical security-related investments. The new draft bill will align with international obligations and focus on screening when a foreign state-controlled investor acquires a domestic company in critical sectors. The revised bill aims to be less detrimental to businesses compared to the initial proposal

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 and securities and real estate, where prior government approval is required. Several additional business activities require a license from the authorities and, in the fields of aviation, telecommunications, nuclear energy, and radio and 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.

Despite the planned limitation of controls to state-owned foreign investments, the approval procedure is not expected to be amended: it will be up to the foreign investor or its representative to submit a foreign investment that would be subject to control by the competent authority—the State Secretariat for Economic Affairs within the Federal Department of Economic Affairs, Education and Research.

Types of deals reviewed

According to the Federal Council's press release in May 2023 about the refinement of the law project, the new draft will be limited to the control of investments driven by foreign states and aimed at taking over a Swiss company active in a particularly critical field—such as the manufacture of military capital goods, the operation of power grids, electricity production, healthcare infrastructure or communications infrastructure.

Under the future legislation, it is expected that an authorization regime will apply to any acquisition by a foreign state or a foreign company under state influence in the following areas: defense equipment or services essential to the operational capability of the Swiss military; dual-use goods; energy and water supply; central IT security systems; or security services for the national authorities.

Scope of the review

The future project is likely to be limited to the control of foreign-directed investments in critical areas. In this regard, most of the critics do not question the criteria set out in the first draft, but rather call for certain clarifications to avoid legal uncertainties. Therefore, most of the criteria for an approval decision, set out in the first project for this type of situation, remain fully relevant.

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: if the investor's activities will have a negative effect on the public order or security of Switzerland or other states; if the investor has resorted to espionage or been sanctioned by an embargo); the services, products or infrastructure of the Swiss company can be replaced within a reasonable period of time; and the acquisition provides access to key data protection information.

Review process timeline

Because the future project is likely to be limited to the control of foreign-directed investments in critical areas, it seems safe to assume that every acquisition subject to control will be carefully examined by the relevant authorities.

In this respect, most of the criticisms leveled at the first draft do not call into question the approval system per se or the length of the proposed procedural deadlines. Consequently, the deadline set out in the first draft, which gives the supervisory authorities up to three months to approve or reject an investment in cases requiring in-depth examination, remains fully relevant.

How foreign investors can protect themselves

It can already be established that restrictions on foreign investment will be much more limited than the first draft envisaged, but the contours of the new foreign investment regime remain relatively vague. 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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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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