Just adopted: Switzerland to introduce an Investment Screening Act

The Federal Assembly this morning adopted the Federal Act on the Screening of Foreign Investments (Investment Screening Act, IPG; the so-called "Lex China").

The enactment is the outcome of a five-year legislative process, triggered inter alia by the acquisition of Syngenta by the Chinese state-owned enterprise ChemChina at the time and the associated concerns about the takeover of security-relevant companies and infrastructures by foreign state investors. The Act is not expected to enter into force before 2027.

With the Investment Screening Act, Switzerland for the first time acquires a general statutory instrument for reviewing foreign direct investments - a milestone that aligns Switzerland’s openness to foreign investment with the targeted protection of its security interests. At the same time, Switzerland joins a global trend towards regulating cross-border transactions.

Around the world, an increasing number of countries are introducing regimes to control foreign direct investments (FDI). In the EU, all Member States except Cyprus now screen foreign investments, and Cyprus will follow as the last country in April 2026. CMS is represented in most European countries and, thanks to our CMS colleagues in those jurisdictions, we already have substantial experience with similar authorisation procedures that are, in some respects, lacking in transparency.

What does the new law mean?

Purpose: protecting public order and security

The new Investment Screening Act is intended to prevent acquisitions of domestic companies by foreign investors where such acquisitions endanger public order or security in Switzerland. It therefore primarily pursues a security policy objective. Other aims, such as safeguarding the supply of essential goods and services, were not included in the statutory text but, according to statements made during the parliamentary debate, are nevertheless intended to be covered as well.

Personal scope: limited to state-controlled investors

The Act applies exclusively to acquisitions of domestic companies by state-controlled foreign investors. This includes foreign state bodies as well as companies and legal entities that are directly or indirectly controlled by a foreign state body. The scope of application also covers acquisitions by natural or legal persons acting on behalf of a foreign state body. The Federal Council may exempt investors from certain states from the authorisation requirement.

Acquisitions by private foreign investors are not covered. As a result, the Swiss regime is less restrictive than most foreign regulations. This limitation likewise reflects a series of debates in the National Council and Council of States and their preparatory committees and is ultimately an expression of Switzerland’s continuing openness to foreign direct investment. In practice, however, distinguishing between state and private foreign investors, and the related assessments, are likely to be far from straightforward.

The concept of an acquisition

An acquisition within the meaning of the Act is any transaction by which one or more investors directly or indirectly obtain control over one or more independent undertakings. The notion of "control" is aligned with that used for merger control under competition law. The scope therefore also includes, for example, the acquisition of a minority shareholding or the conclusion of an agreement where this confers control within the meaning of the Act.

The authorisation requirement: thresholds and sectors

An acquisition is subject to authorisation only if the state-controlled foreign investor obtains control over a Swiss target undertaking in a security-relevant sector and the undertaking to be acquired meets certain size criteria. The threshold for the filing requirement is lower where the activity is deemed particularly critical for public order and security:

• Activities considered particularly critical include certain activities in the areas of the manufacture of goods or transfer of intellectual property relevant to the military, national security institutions and space programmes, as well as in the areas of electricity, water, natural gas and central security-relevant IT services. In these areas, a filing is required if the target undertaking in the two financial years preceding the submission of the application on average had at least 50 full-time employee positions, or generated worldwide annual turnover of at least CHF 10 million.
• Less critical - yet still subject to authorisation upon reaching a higher turnover threshold - are acquisitions notably in the areas of hospitals, pharmaceuticals, transport hubs, rail infrastructure, food distribution centres, telecommunications, financial market infrastructure, and activities of systemically important banks. In these sectors, a filing is required if the average global annual turnover amounted to at least CHF 100 million in the two financial years preceding the application.

Moreover, the Federal Council may subject further categories of domestic undertakings to an authorisation requirement for a period of 12 months where necessary to ensure public order or security. This period may be extended by a further 12 months.

The authorisation procedure

The application for approval of an acquisition must be submitted by the foreign investor to the State Secretariat for Economic Affairs (SECO) prior to completion. SECO must then decide, in agreement with the interested administrative units, within one month of receipt of the application whether to approve the acquisition directly or to open an in-depth review. If an in-depth review is initiated, SECO - again in coordination with the interested administrative units - must decide on the approval within three months. Decision-making competence passes to the Federal Council if SECO or an administrative unit is opposed to approval, or where the matter is of considerable political significance.

The domestic company involved in the acquisition may also request SECO in advance to determine whether a transaction is subject to filing. Such a binding advance ruling, which SECO must issue within two months, is valid for 12 months and may be extended once for a further 12 months.

Legal remedies and sanctions

The foreign investor and the affected domestic undertaking may appeal decisions made in the authorisation procedure to the Federal Administrative Court. A breach of the standstill obligation (completion of a notifiable, approval-requiring acquisition prior to approval) may be sanctioned with a fine of up to 10% of the domestic undertaking’s worldwide annual turnover. In addition, the Federal Council may order administrative measures to restore the proper state of affairs (including, in particular, divestment) if an approval-requiring acquisition is completed without approval, approved on the basis of false information, or a condition or obligation in the approval decision is breached.

Our international perspective

The Investment Screening Act is unlikely to enter into force before 2027. Companies should nonetheless factor the new Act into the planning of their investment and M&A projects now, as future deals could be affected by the new authorisation requirement in Switzerland. Moreover, foreign investments are already subject to screening and approval in many countries, especially among our European neighbours. As part of CMS, with 50 offices in Europe, we have accumulated a wealth of experience over the years with comparable authorisation procedures and would be delighted to draw on this expertise for your benefit. You can find the link to our CMS internal Foreign Investment Screening expert group here.