Switzerland has long been known for its open economy and investor-friendly climate, attracting foreign direct investments (FDI) without significant regulatory barriers. However, growing concerns over national security, critical infrastructure, and foreign state-controlled investments have led to the introduction of the Investment Control Act (ICL). This proposed legislation aims to establish a screening process for foreign investments, aligning Switzerland with international best practices while addressing potential risks associated with strategic takeovers.
This insight provides an in-depth look at the Investment Control Act, including its purpose, affected industries, approval thresholds, key arguments, and implementation timeline.
What is the new Investment Control Act, and what are its main goals?
Switzerland has traditionally maintained an open approach to foreign direct investments (FDI), lacking a general framework for screening such transactions. However, in March 2020, the Swiss Parliament adopted the Rieder Motion titled “Protection of the Swiss Economy Through Investment Controls,” directing the Federal Council to draft legislation for foreign investment screening.
In response, the Investment Control Law was first introduced on May 18, 2022. Its primary goal is to prevent foreign investments that could threaten national security. The law initially covered a broad scope, targeting state-controlled foreign investors and critical industries such as defense, energy, and telecommunications. However, following criticism, a revised draft was published on December 15, 2023, narrowing its scope to foreign state-controlled acquisitions in highly sensitive sectors.
Public Order and Security
The proposed investment screening mechanism is designed to prevent state-backed foreign acquisitions that could pose risks to Swiss national security and economic stability. Concerns include strategic, non-commercial motivations by state-controlled investors, potential relocation of decision-making centers, job losses, and weakened environmental, social, and governance (ESG) standards.
Switzerland currently lacks an investment control framework, making it an outlier among EU and OECD nations. This legislation would align Swiss investment regulations with international FDI screening standards, ensuring a level playing field.
Which industries will be most affected?
The Investment Control Act specifically targets acquisitions in national security-sensitive industries, including:
✔ Military equipment and dual-use goods (civilian & military applications)
✔ Electricity generation and grid operations
✔ Water supply infrastructure
✔ Healthcare and pharmaceutical industries
✔ Telecommunications and IT infrastructure
✔ Transport infrastructure (railways, airports, key logistics hubs)
What are the de minimis and turnover thresholds?
To avoid excessive bureaucracy, the ICL applies quantitative thresholds to filter transactions subject to screening.
De Minimis Threshold
Investments in critical sectors do not require approval if the target company meets both criteria:
✔ Fewer than 50 full-time employees worldwide
✔ Annual global turnover below CHF 10 million in the past two years
However, certain industries remain exempt from this threshold, meaning all acquisitions in these sectors require approval, regardless of company size. These include:
✔ Military and national security-related industries
✔ Electricity grids, power plants, and natural gas pipelines
✔ Water supply infrastructure serving 100,000+ Swiss citizens
✔ Security-related IT systems and services
Turnover Threshold
For other critical sectors, the law requires transaction screening if the target company’s global revenue exceeds CHF 100 million in the previous financial year. Affected industries include:
✔ Hospitals and healthcare providers
✔ Pharmaceutical, medical, and vaccine production
✔ Personal protective equipment manufacturing
✔ Railway infrastructure
✔ Food distribution networks
✔ Telecommunications networks
✔ Financial market infrastructures (e.g., systemically important banks)
If a foreign state-backed investor seeks to acquire a company in these industries, they must notify the State Secretariat for Economic Affairs (SECO), which will assess the transaction and decide whether to approve or block it.
What are the main arguments against the new regime?
The Investment Control Act has sparked debate among Swiss policymakers and businesses. Critics argue that Switzerland already has sufficient safeguards through its existing regulatory framework. They point out that key infrastructure is largely state controlled, minimizing risks of hostile foreign takeovers.
Historical data suggests that Switzerland has not faced significant threats from foreign state-backed acquisitions, as investments from autocratic regimes have been relatively low. Critics believe the legislation is a response to hypothetical risks rather than actual threats.
Another major concern is the potential negative impact on Switzerland’s business climate. Critics argue that increased regulatory scrutiny could deter beneficial foreign investment, making Switzerland less attractive to international businesses and investors. There are also fears of retaliatory measures by foreign countries, potentially restricting Swiss firms’ ability to invest abroad.
What is the timeline for implementation?
The Swiss Parliament and Senate are reviewing the draft law, which will undergo further amendments before final adoption. The legislation is expected to be implemented by 2028 or later, depending on parliamentary deliberations, industry feedback, and SECO’s regulatory preparations.
Switzerland’s Investment Control Act represents a significant shift in its foreign direct investment policies, introducing sector-specific investment reviews to safeguard national security. While the law aims to align Switzerland with international best practices, concerns persist regarding its impact on business openness and economic competitiveness. As legislative discussions progress, the final version of the law will determine Switzerland’s foreign investment landscape for years to come.
