Switzerland adopts foreign direct investment regime

Background

The Swiss Parliament had previously instructed the Federal Council to draft a formal screening mechanism for foreign takeovers of Swiss companies. Although the government advanced the proposal reluctantly, the resulting regime now offers a policy instrument that aligns with the global trend of elevating national security concerns in cross-border transactions. With the National Council having resolved all outstanding differences with the Council of States, the Swiss Parliament is now set to pass the new law this December.

Scope of application

The purpose of the new FDI regime is to prevent transactions that could jeopardize Switzerland’s public order or security.

Mandatory filings for approval of a transaction will be required if:

1. (i) a foreign state body, (ii) an undertaking with its head office outside of Switzerland, that is directly or indirectly controlled by a foreign state body, (iii) an asset-holding entity without legal personality (e.g. a fund company), that is directly or indirectly controlled by a foreign state body, or (iv) an individual or undertaking acting on behalf of a foreign state body (foreign investor);
2. acquires control over a target that is registered in the Swiss Commercial Register (Swiss target);
3. a critical sector is concerned; and
4. applicable de minimis or turnover thresholds are met.

In areas such as electricity, water, natural gas, war materials and security-relevant IT services, screening is required if the de minimis threshold is met, i.e. the Swiss target had an average of at least 50 full-time employees worldwide or a worldwide, annual turnover of at least CHF 10 million in the two financial years preceding the application for approval of the transaction.

Additional critical sectors are captured if the Swiss target had an average, worldwide annual turnover – or, for banks, gross income – of at least CHF 100 million in the two financial years preceding the application for approval of the transaction; these include major hospitals, pharmaceutical and medtech firms, key transport hubs, railroad infrastructure, major food distribution centers, telecommunications networks, and systemically important financial market infrastructures and banks.

The tiered thresholds aim to balance risk-based oversight with Switzerland’s traditionally open investment environment.

Procedure

The Swiss target will be able to apply to the State Secretariat for Economic Affairs (SECO) as the competent approval body for a binding preliminary decision on whether a takeover is subject to notification.

If a filing is required, there is a standstill obligation. The violation of this standstill obligation can be sanctioned with administrative penalties of up to 10% of the Swiss target's global annual turnover.

Like in merger control proceedings, the approval process will be two-staged and consist of a Phase I review (one month) and an in-depth Phase II review (three months).

If SECO or an administrative unit opposes the takeover, or if the decision has significant political implications, the approval authority is transferred from SECO to the Federal Council. Only the Federal Council can decide to prohibit a takeover.

Practical implications

The new FDI regime places Switzerland firmly within the global shift towards prioritizing national security amid intensifying geopolitical tensions. In practice, distinguishing between private and state-controlled investors may prove challenging, especially when counterparties operate in jurisdictions with opaque state influence.

The substantive test under the new regime for approval is whether a takeover gives reason to assume that public order or security is endangered or threatened. The law provides for a non-exhaustive list of approval criteria, such as whether the products, services or the infrastructure of the Swiss target are substitutable within a reasonable time or the foreign investor was involved in espionage.

Outlook

The FDI regime will be passed this December by the Swiss Parliament and is expected to enter into force in 2027, once the implementing ordinance has been enacted.

Following the adoption of the new regime, attention will shift to implementation – namely how SECO will interpret state control in complex ownership structures and apply the sector-specific thresholds in practice. For cross-border transactions involving Swiss targets, early risk mapping and proactive stakeholder engagement remain advisable.

Please do not hesitate to contact us in case of any questions.

Legal Note: The information contained in this Smart Insight newsletter is of general nature and does not constitute legal advice.