Switzerland’s first FDI screening framework: what M&A practitioners need to know

Roman Graf

Lenz & Staehelin, Geneva

roman.graf@lenzstaehelin.com

Introduction

Switzerland has long maintained a liberal approach to foreign investment and, unlike many other OECD jurisdictions, has not operated a general foreign direct investment (FDI) screening mechanism. With limited sector-specific exceptions – such as real estate acquisitions by non-residents or certain regulated financial activities – foreign investors have generally been able to acquire Swiss companies without prior government approval.

In December 2025, the Swiss Parliament adopted the Federal Act on the Screening of Foreign Investments (the ‘Investment Screening Act’ or ISA), expected to enter into force in 2027. The new regime introduces a targeted approval requirement for certain acquisitions by foreign state-controlled investors in defined sensitive sectors.

Although the adoption of an FDI screening framework represents a policy development, its practical impact is expected to remain limited. The Swiss model is deliberately narrow in scope and reflects a conscious effort to preserve Switzerland’s traditionally open investment environment. For M&A practitioners, however, the ISA introduces an additional regulatory consideration that should be assessed early in cross-border transactions involving Swiss targets.

A carefully calibrated policy compromise

The ISA is the result of several years of political debate balancing the protection of national security and the preservation of Switzerland’s traditionally open investment climate.

The final statute reflects a deliberate compromise. In contrast to many foreign regimes, the Swiss framework is limited in two key respects. First, it applies only to acquisitions by foreign state-controlled investors. Private foreign investors fall outside its scope. Second, the regime focuses exclusively on acquisitions involving particularly sensitive sectors of the Swiss economy. The legislator expressly avoided creating a broad, economy-wide investment control system.

As a result, the number of transactions captured by the regime is expected to remain modest, and Switzerland’s general openness to foreign investment remains intact.

Who and what is covered?

The approval requirement applies exclusively to foreign state-controlled investors. The statute adopts a functional definition intended to capture foreign government bodies, companies headquartered outside Switzerland that are directly or indirectly controlled by foreign states, and entities or individuals acting on behalf of such states. In practice, determining whether an investor qualifies as state-controlled may require careful analysis of ownership structures and governance arrangements.

The regime applies to acquisitions of control over Swiss companies registered in the Swiss commercial register. The concept of control aligns with Swiss merger control principles and encompasses transactions conferring decisive influence, whether through share acquisitions, mergers, contractual arrangements or other mechanisms. Minority investments that do not confer control generally fall outside the regime.

Greenfield investments are not subject to screening under the ISA, but other sector-specific regimes – including restrictions on the acquisition of Swiss real estate by persons abroad – may apply.

Sensitive sectors and thresholds

The approval requirement is triggered only if the target operates in specified sensitive sectors and meets defined size thresholds. The statute distinguishes between two categories reflecting differing levels of sensitivity.

For highly sensitive sectors – including defence-related goods, electricity transmission networks and major power plants, high-pressure gas pipelines, large-scale water supply systems and central security-relevant IT services – approval is required where the target has at least 50 full-time employees worldwide or annual global turnover of at least CHF 10m.

For additional critical sectors – including university and major hospitals, pharmaceutical and medical technology companies, operators of key transport infrastructure, railway infrastructure, major food distribution centres, telecommunications networks, systemically important financial market infrastructures and systemically important banks – a higher turnover threshold of CHF 100m applies.

The Federal Council – Switzerland’s executive authority – may temporarily extend the regime to additional sectors where required to protect public order or security. It may also exempt acquisitions by foreign state-controlled investors from specific states where sufficient cooperation exists to mitigate risks. Any such exemption is intended to be based on reciprocal arrangements. This mechanism provides additional flexibility and reflects the legislator’s intention to preserve Switzerland’s open investment framework.

Review procedure and timelines

The review process will be administered by the State Secretariat for Economic Affairs (SECO), acting in coordination with other federal authorities and the intelligence service.

The procedure follows a two-phase structure comparable to Swiss merger control proceedings. Within one month of receiving a complete notification, SECO must decide whether to approve the transaction directly or initiate an in-depth review. Where a full review is opened, a decision must generally be issued within three additional months.

If SECO or another authority opposes approval, or if the transaction raises significant political considerations, the Federal Council assumes decision-making authority and may prohibit the acquisition.

Breach of the notification or standstill obligation may lead to significant administrative measures, including divestment orders and fines of up to 10 per cent of the Swiss target’s global annual turnover.

If no decision is taken within the statutory deadlines, approval is deemed to have been granted.

Substantive assessment criteria

The substantive test is whether the acquisition poses a threat to Switzerland’s public order or security. The statute provides a non-exhaustive list of factors that may be considered, including the investor’s past activities affecting national security, potential espionage risks, sanctions history, whether the target’s products or infrastructure can be substituted within a reasonable timeframe and whether the transaction would provide access to sensitive security-related information.

Where concerns can be mitigated, approval may be granted subject to conditions. In more serious cases, the Federal Council may prohibit the transaction or impose remedial measures.

Practical implications for M&A transactions

Although the regime is expected to affect only a limited number of deals, it already warrants consideration in transaction planning ahead of its anticipated entry into force in 2027. In particular, transactions signed in 2026 but closing after the ISA becomes effective may need to take the new approval requirement into account.

Early risk assessment is essential. Parties must determine whether an investor qualifies as state-controlled and whether the target operates in a covered sector. This analysis may require careful review of ownership structures and business activities.

FDI approval will become an additional condition precedent in affected transactions. Review timelines must be factored into long-stop dates and overall transaction planning. Coordination with other regulatory approvals, including merger control and sector-specific licensing, will be important in complex transactions.

The regime’s focus on control also means that structuring decisions – including governance rights and shareholder arrangements – may influence whether a transaction triggers notification requirements, even where a foreign state-controlled investor holds only a minority shareholding.

Outlook

With the ISA, Switzerland introduces a targeted investment screening mechanism while maintaining a largely open investment regime.

As implementing regulations are finalised and administrative practice develops, greater clarity is expected regarding the interpretation of state control and sector classification. For M&A practitioners, the key takeaway is that FDI risk analysis should now form part of early transaction planning in cross-border deals involving Swiss targets, even though the regime is expected to apply only in a limited number of cases.