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28 July 2022

Foreign Investment Control in Switzerland

On 18 May 2022, the Federal Council published the preliminary draft of an Investment Control Act ("ICA") together with an explanatory report. The purpose of this law is that certain takeovers of Swiss companies by foreign investors must be reported and may not be completed until governmental approval has been obtained.

The public discussion of the ICA (consultation) will last until 9 September 2022, after which parliament will debate the law and the introduction of foreign investment control in Switzerland.

What is the Investment Control Act about?

Switzerland has always been open to foreign investment. Outside of regulated markets (e.g. in the banking sector), foreign direct investments are only subject to a competition law review if certain turnover thresholds are met.

However, influenced by a strong increase in Chinese investments in Switzerland, which peaked in 2017 with the acquisition of Syngenta by Chemchina for USD 43 billion, this topic was also addressed in the Swiss political arena.

In 2018, National Councilor Beat Rieder submitted the motion "Protecting the Swiss economy through investment controls". It demanded that the Federal Council draft a law to control foreign direct investment. Furthermore, two requests called on the Federal Council to take a position on takeovers by foreign investors and on investment review.

In its 2019 report, the Federal Council concluded that the current laws were sufficient and that the cost-benefit ratio of investment control was unfavorable. Nevertheless, in spring 2020, the Swiss Parliament adopted the Rieder 2020 motion, prompting the Federal Council to act.

What is the aim of the Investment Control Act?

The Federal Council is committed to an open and liberal Swiss economic policy. Switzerland should be perceived abroad as an attractive investment location. Against this background, the Federal Council, which continues to oppose the introduction of an investment control law, proposes a narrowly formulated objective: The purpose of the investment control law should be to prevent a threat or endangerment to public order or security through acquisitions of domestic companies by foreign investors. The Federal Council would like to dispense with other possible goals, such as the protection of Swiss jobs or the support of specific sectors or industries.

Critical voices have repeatedly pointed out in the past that economically motivated takeovers by investors close to the state can lead to distortions of competition, such as when a foreign investor first takes over a Swiss company, appropriates its know-how and then, thanks to state subsidies in the home country, drives Swiss competitors out of the market with low prices. However, according to the Federal Council, such distortions of competition should only be prevented if they could endanger public order or security.

Which acquisitions should be examined?

The Investment Control Act is to apply to acquisitions of domestic private and public enterprises.

On the question of what should be considered a domestic company, the Federal Council submits two proposals. According to the first option, any company that is entered in the Swiss commercial register is considered domestic. The second option requires, in addition to the requirement of registration in the Swiss commercial register, that the company is not part of a foreign group of companies.

If a foreign parent company wants to sell its Swiss participation to a foreign investor, this would therefore only be covered by the Investment Control Act if the first option is adopted. The acquisition of a foreign group with a subsidiary in Switzerland by a foreign investor would also only be covered by this option.

Under the first option, significantly more takeovers would thus be covered by the scope of application of the Investment Control Act. Under option two, it would probably be more likely that potentially problematic takeovers would not be covered. According to a regulatory impact assessment commissioned by the State Secretariat for Economic Affairs (SECO), around 45 takeovers would have been covered by option one and around 23 takeovers by option two each year from 2016 to 2020.

Foreign investors are companies with their headquarters and head office outside Switzerland. If a Swiss subsidiary of a foreign group of companies acts as an investor, it also qualifies as a foreign investor. Companies with assets (e.g. investment funds) that are controlled by persons abroad or by another state also qualify as foreign investors.

Individuals without Swiss citizenship who act as investors are also considered foreign investors. Due to the obligations arising from the Agreement on the Freedom of Movement with the EU and the EFTA Convention, citizens from EU/EFTA member states are exempt from this rule if they wish to take up self-employment in Switzerland by taking over a company.

The concept of a takeover is based on the concept of control under cartel law. A takeover is any transaction through which - directly or indirectly - control over an enterprise or parts of it is acquired. The ICA specifically mentions mergers, the acquisition of a shareholding, the acquisition of significant assets and the conclusion of a contract.

According to the ICA, two categories of takeovers are subject to approval:

  • If the investor is a foreign state or state-related investor, all takeovers are subject to approval.
  • Takeovers by foreign private investors are only subject to approval in certain cases. The following applies:

Regardless of the turnover of the target company, the acquisition of the following companies shall be reviewed:

  • Companies that supply defense equipment or provide services that are crucial to the operational capability of the Swiss Armed Forces;
  • Companies that produce dual-use goods;
  • Companies active in the fields of energy and water supply;
  • Companies that supply central security-relevant IT systems or provide security-relevant services for domestic authorities.

The acquisition of the following companies is subject to a notification requirement if the target company has achieved average revenues 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 parmaceuticals, medical devices, vaccines and personal medical protective equipment;
  • Companies in the field of goods and passenger transport and logistics, such as operators/owners of airports, railway infrastructures or food distribution centers;
  • Operator/owner of domestic telecommunications networks;
  • Operators of systemically relevant financial market infrastructures and systemically relevant banks.

Small companies are to be exempt from the authorization requirement according to the ICA. Admittedly, it cannot be ruled out that small companies such as start-ups have also developed security-relevant technologies or products and that their takeovers could lead to a threat to public order or security. Nevertheless, takeovers of domestic companies would not be subject to the review requirement if they have had an average of less than 50 full-time positions in the past two business years and have generated annual global revenues of less than CHF 10 million.

On the other hand, according to the preliminary draft, the law grants the Federal Council the right to subject further categories of domestic companies to the approval requirement for a maximum of 12 months, if this is necessary to safeguard public order or security.

What are the criteria for approving the takeover?

The intended takeover must be approved if there is no reason to assume that public order or security in Switzerland is endangered or threatened by the takeover. The consequences of the intended takeover on and in Switzerland must therefore be examined.

The ICA lists by way of example and not exhaustively criteria that are to be taken into account. Of interest, for example, is the reputation of the foreign investor and whether the foreign investor can offer a guarantee of irreproachable business activity in Switzerland. This would not be the case if the foreign investor engages in or has engaged in espionage. It must then be examined whether the services, products or infrastructure of the domestic company can be replaced within a reasonable period of time. Finally, it must be assessed whether the takeover will result in significant distortions of competition that endanger or threaten public order or security. The foreign investor's willingness to cooperate is also important. If the foreign investor unjustifiably refuses to cooperate with the investment control authority or makes it more difficult, this can lead to a refusal of approval.

How does the approval procedure work?

The State Secretariat for Economic Affairs SECO is responsible for conducting the investment review. The preliminary draft of the ICA provides for a two-stage approval procedure, whereby in a first step being to quickly clarify whether the acquisition can be approved directly or whether an in-depth examination is required. In the latter case, an examination procedure will be carried out in a second step.

The approval procedure is initiated by the foreign investor with an application to SECO. Within one month of submission of the application, SECO decides, in agreement with the other interested administrative departments and after hearing the Federal Intelligence Service, whether to approve the takeover directly or to initiate an examination procedure. If SECO and the co-interested administrative departments cannot reach an agreement, an examination procedure will be initiated.

Once the examination procedure has been initiated, SECO again decides on the approval in agreement with the co-interested administrative departments and after hearing the Federal Intelligence Service. If SECO and the administrative departments reach a consensus, approval is granted. If SECO and the administrative departments cannot agree or if they agree that the approval decision is of considerable political significance, the Federal Council will decide on the approval at the request of the Department of Economic Affairs, Education and Research. The review procedure must in principle be concluded within three months.

Until approval has been granted, the civil law validity of a takeover requiring approval remains suspended.

What are the consequences of breach of the regulations?

Although a takeover subject to approval is ineffective under civil law until approval is granted, the preliminary draft expressly provides that the Federal Council may order the necessary measures to restore the proper state of affairs, in particular a divestment, if a takeover subject to approval is executed despite the absence of approval.

In addition to these measures, the preliminary draft also provides for sanctions. Thus, a charge of up to 10% of the transaction value may be imposed if (i) a takeover subject to approval is completed without approval, (ii) a takeover is completed that was approved on the basis of intentionally made false statements and is prohibited after re-examination, or (iii) a measure to restore the proper state of affairs is not implemented.

If the foreign investor, the domestic company or other persons involved in the takeover violate the obligation to provide information to SECO during the approval procedure, they may be sanctioned with an amount of up to CHF 100,000.


The consultation on the preliminary draft of the Investment Control Act will last until 9 September 2022. After reviewing the feedback, the Federal Council will finalize the draft and submit it to parliament for consideration together with the dispatch. In view of the geopolitical developments, in particular the war in Ukraine, the Investment Control Act stands a good chance of finding a majority in the Swiss parliament. 

We will closely follow the further legislative process and keep you informed

If you have any questions, please do not hesitate to contact the VISCHER team.

Categories: China Desk, Corporate and commercial, Antitrust and Competition, Mergers & Acquisitions, Private Equity & Venture Capital, Startup Desk