Foreign Direct Investment Regimes 2025

1. Foreign Investment Policy

1.1 What is the national policy with regard to the review of foreign investments (including transactions) on national security and public order grounds?

Switzerland is one of the world's largest recipients of foreign investments and one of the world's largest investors abroad. Accordingly, Switzerland has so far maintained a policy of openness towards foreign investment. Currently, there is no generally applicable law regarding the screening of foreign investments. There are, however, sectoral laws regulating or restricting foreign investments, particularly in the banking and real estate sectors, and in telecommunications, nuclear energy, radio and television, and aviation. Under Swiss compe­tition law, the merger of independent undertakings or the acquisition of direct or indirect control over an undertaking is subject to control by the Swiss Competition Commission ("ComCo") if certain thresholds are reached.

1.2 Are there any particular strategic considerations that the State will apply during foreign investment reviews? Is there any law or guidance in place that explains the concept of national security and public order?

Since there is currently no general law regulating foreign investments, strategic considerations that the State will apply during foreign investment reviews are sector-related – e.g., with regard to foreign investments in real estate, the State, among other things, takes into consideration the general situation in the real estate market in a given location and the purpose and circumstances of the real estate purchase. When licensing and supervising a bank or financial institutions, the Swiss Financial Market Supervisory Authority ("FINMA") takes into account "qualified" foreign participation when granting licences to operate.

In Switzerland, the notion of national security is not defined by law. The Swiss Constitution and sectorial laws generally use the term "internal and external security". This most notably includes the defence against threats posed by terrorism, violent extremism, foreign intelligence services and organised crime, but also any other acts or endeavours that seriously endanger Switzerland's current relations with other States or aim at undermining the constitutional order or peace. The defence against these threats coincides with the notion of national security.

Under Swiss law, the term "public order" includes all rules that are indispensable for the orderly existence of private individuals, whereas the term "public security" means the invi­olability of the law, the legal interests of the individuals (life, health, freedom, property, etc.) and the institutions of the State.

1.3 Are there any current proposals to change the foreign investment review policy or the current laws?

In 2018, Parliament mandated the Federal Council to create the legal basis for the screening of foreign direct investments. In response to this mandate, the Federal Council referred a draft bill for a Foreign Investment Screening Act ("FISA") to Parliament in December 2023.

The aim of the FISA is to prevent threats to public order and security originating from the acquisition of domestic compa­nies by foreign investors. The Federal Council assumes that the main threats to public order and security originate from investors under the direct or indirect control of a foreign state. The Federal Council has therefore proposed in its draft bill to only subject investments by state investors in certain critical economic sectors, such as the armaments, electricity or tele­communications sectors, to the FISA. Such investments would have to be notified and approved by the Federal Administration or the Federal Council.

The Economic Affairs and Taxation Committee of the National Council, which is one of the two chambers of Parliament, has largely agreed with the general direction of the draft bill but proposes to extend its personal scope of appli­cation not only to state foreign investors but also to non-state foreign investors.

In the second half of 2024 and in 2025, the draft bill is expected to be debated in both chambers of Parliament – first in the National Council, then in the Council of States.

2. Law and Scope of Application

2.1 What laws apply to the control of foreign investments (including transactions) on grounds of national security and public order? Does the law also extend to domestic-to-domestic transactions? Are there any notable developments in the last year?

There is currently no law that provides for a screening of foreign investments in general.

Laws that address foreign investments in specific sectors include the following:

• the Federal Law on the Acquisition of Real Estate by Persons Abroad (so-called "Lex Koller");
• the Federal Banking Act ("Swiss Banking Act") and Federal Act on Financial Institutions ("FinIA");
• the Federal Telecommunications Act;
• the Federal Nuclear Energy Act;
• the Federal Act on Radio and Television; and
• the Federal Aviation Act.

The Swiss Federal Act on Cartels and Other Restraints of Competition and the Ordinance on the Control of Concentrations of Undertakings generally regulate the merger of undertakings or the change of direct or indirect control of an undertaking. Competition law regulates domestic-to-domestic as well as international-to-domestic transactions.

The most important development at the time of writing is the ongoing parliamentary debate on the FISA (see question 1.3 above).

2.2 What kinds of foreign investments, foreign investors and transactions are caught? Is the acquisition of minority interests caught? Is internal re-organisation within a corporate group covered? Does the law extend to asset purchases?

Given that there is currently no law that provides for a screening of foreign investments in general, regulation on foreign investment is sector-specific. The most important sector-specific regulations are listed below.

a. Real estate (Lex Koller)

In principle, the direct or indirect acquisition of real estate or rights to real estate which give owner-type control rights in Switzerland by persons abroad (non-Swiss citizens) is prohibited, unless an exception applies. Major exceptions are:

1. EU citizens having residence in Switzerland and UK citi­zens having residence in Switzerland prior to 1 January 2021 with a so-called "B-permit" or non-EU citizens with a so-called "C-domicile permit".
2. Non-EU citizens with a so-called "B-residence permit" if the object of the transaction is real estate for personal residential use or persons abroad in case of holiday apartments (limited in size of the apartment, to certain cantons and subject to certain quotas).
3. The real estate is used for a commercial purpose.
4. Acquisition of real estate by legal heirs as part of an estate, or acquisition from relatives in line of ascent or descent.
5. Residential premises are a minor part of a commercial property and cannot reasonably be separated or acquisi­tion of a company, with a minor share of the assets being residential or excessive land reserves.
6. Acquisition of shares (including a majority) of listed real estate companies.

The direct acquisition of minority interests in real estate is also caught by the Lex Koller. Furthermore, in case of a real estate company in the sense of the Lex Koller, even the acquisi­tion of one share is prohibited.

Internal re-organisation within a corporate group is subject to regulation by the Lex Koller if it results in control by persons abroad within the meaning of the law as defined above.

b. Banking

Banks require a licence from FINMA to commence banking activities in Switzerland. This is also applicable to foreign banks that establish a Swiss branch or appoint a permanent representative in Switzerland.

The establishment of a controlling foreign influence in Swiss banks is also subject to regulation by the Swiss Banking Act. If there is a controlling foreign influence, FINMA may make the granting of a licence subject to the additional condi­tion that the countries in which the foreigners that exercise a controlling foreign influence are domiciled or headquartered grant reciprocity (provided that there are no international obligations to the contrary). FINMA may also require the use of a company name that does not indicate or suggest a Swiss character of the bank.

The acquisition of minority interests is considered a controlling foreign influence if a plurality of foreigners with qualified shareholdings jointly exercises a controlling influ­ence. Also, any individual or legal entity that directly or indi­rectly hold equity interest in a Swiss bank of at least 10% of the capital or voting rights or whose business activities are other­wise such that they may influence the Swiss bank in a signif­icant manner deemed to have a qualified participation. Such individuals or legal entities must notify FINMA prior to directly or indirectly acquiring or selling their qualified participation in a Swiss bank. A notification obligation to FINMA also exists in cases where a qualified participation is increased or reduced in such a way as to reach, exceed or fall below the thresholds of 20%, 33% and 50% of the capital or voting rights, respectively.

Internal re-organisation within a corporate group is also covered, subject to the following condition: if a Swiss bank becomes foreign-controlled after its establishment or if there is a change in a pre-existing controlling foreign influence, additional authorisation is required.

A Swiss bank's board members and management must notify FINMA of all matters that could imply that the Swiss bank is under foreign control or that there has been a change in foreign shareholders with qualified equity interest.

If a Swiss bank belongs to a financial group or a financial conglomerate, FINMA may make the licence conditional on the approval of the relevant foreign supervisory authorities.

Any Swiss bank with controlling foreign influence must provide the Swiss National Bank with information on its scope of business activities and its relationships abroad.

c. Financial institutions

Foreign financial institutions that have their registered office abroad and that wish to establish a branch in Switzerland that employs persons who perform any of the below listed activities in the name of the foreign financial institution on a permanent commercial basis in or from Switzerland require authorisation from FINMA:

• asset management or trustee activities;
• portfolio management for collective investment schemes or occupational pension schemes;
• securities trading;
• conclusion of transactions; or
• client account management.

A foreign financial institution is any entity organised under foreign law that:

• possesses authorisation abroad as a financial institution;
• in the company name, in the description of its business purpose or in commercial documents uses terms such as portfolio manager, trustee, manager of collective assets, fund management company or securities firm or terms of similar meaning; or
• operates a financial institution acting as portfolio manager, trustee, manager of collective assets, fund management company or securities firm.

FINMA may additionally make the authorisation condi­tional upon the granting of a reciprocal right in the State in which the foreign financial institution is domiciled.

Foreign fund management companies are prohibited from establishing branches in Switzerland.

The acquisition of minority interests, internal re-organisation or asset purchases by foreign financial insti­tutions are not specifically regulated by the FinIA. However, it should be noted that persons who directly or indirectly acquire a qualified participation (i.e., hold at least 10% of the share capital or votes or who can significantly influence the business activities of the Swiss financial institution) in a Swiss financial institution must notify FINMA. This noti­fication obligation also exists where a qualified participa­tion is increased or reduced in such a way as to reach, exceed or fall below the thresholds of 20%, 33% or 50% of the share capital or votes. In addition, in case of changes in facts that call into question prudent and sound business activity on the part of the Swiss financial institution owing to the influence of owners or qualified participation, the Swiss financial insti­tution must obtain prior authorisation from FINMA in order to proceed with its activity. In this context, FINMA states that changes in qualified participation in foreign-controlled Swiss financial institutions require authorisation.

d. Telecommunications

The Telecommunications Act restricts access to the telecom­munications market for foreign service providers. The compe­tent authority may:

• prohibit foreign service providers from using radio frequencies or addressing resources unless reciprocal rights are granted by a foreign service provider's country of domicile; and
• refuse to grant a radiocommunications licence to foreign service providers unless reciprocal rights are granted by a foreign service provider's country of domicile.

Foreign service providers are defined as telecommunica­tions providers that are organised under foreign law.

The acquisition of minority interests, internal re-organisation or asset purchases by foreign financial insti­tutions are not specifically regulated by the Telecommunications Act.

2.3 What are the sectors and activities that are particularly under scrutiny? Are there any sector-specific review mechanisms in place?

There are sectoral laws regulating or restricting foreign invest­ments, particularly in the banking and real estate sectors, tele­communications, nuclear energy, radio and television and aviation (see questions 2.1 and 2.2 above).

2.4 Are terms such as 'foreign investor' and 'foreign investment' defined in the law?

Terms such as "foreign investor" and "foreign investment" are defined in various statutes, e.g. the Lex Koller, the Swiss Banking Act, the FinIA and the Telecommunications Act.

a. Real estate

Foreign investors (the legal term used in the Lex Koller is "person abroad") are defined as: foreigners domiciled abroad; foreigners domiciled in Switzerland, who are nationals of neither an EU nor an EFTA Member State and who do not hold a valid C settlement permit, citizens of the UK who took resi­dence in Switzerland after 1 January 2021; companies that have their registered office abroad (even if they are Swiss-owned); and Swiss legal entities or companies with or without legal personality but capable of owning property and which are controlled by persons abroad.

A foreign investment (the term is not used by the law) is any direct or indirect acquisition of real estate or rights that give owner-type control rights over real estate in Switzerland (including the financing of the acquisition of real estate under certain conditions; see question 2.2 above).

b. Banking

A foreign investor is:

1. any person who has neither Swiss citizenship nor a Swiss residence permit; or
2. any legal entities and partnerships domiciled abroad or, if they are domiciled in Switzerland, controlled by a person pursuant to letter a.

A foreign investment (the term used is "controlling foreign influence") in a Swiss bank occurs when a foreign investor directly or indirectly holds more than half of the voting rights or exercises a controlling influence by other means.

c. Financial institutions

A foreign investor (the term used is "foreign financial institu­tion") is any entity organised under foreign law that is active in the regulated financial industry fulfilling the criteria pursuant to Article 76 Federal Ordinance on Financial Institutions (see question 2.2 above).

Foreign investment is not a relevant term in this area of regulation. However, note that in relation to changes in qual­ified participations in a foreign-controlled Swiss financial institution, FINMA states that such changes require authori­sation (see question 2.2 above).

d. Telecommunications

A foreign investor (the term used is "foreign service provider") is defined as an undertaking organised under foreign law.

Foreign investment is not a relevant term in this area of regulation.

2.5 Are there specific rules for certain foreign investors (e.g. non-EU/non-WTO), including state-owned enterprises (SOEs)?

a. Real estate

For natural persons, the applicable law distinguishes between nationals of an EU or an EFTA Member State, nationals of the UK and Northern Ireland, and nationals of other coun­tries. Nationals of an EU or EFTA Member State and of the UK and Northern Ireland who have taken residence in Switzerland prior to 1 January 2021 that have residence in Switzerland with the so-called "B-residence permit" and other non-Swiss nationals domiciled in Switzerland with the so-called "C-domicile permit" are exempt from the Lex Koller. Other nationals having residence in Switzerland with the so-called "B-residence permit" may acquire residential real estate, but only for their own personal use.

For legal entities, the applicable law distinguishes between Swiss companies, which are controlled by Swiss nationals, companies that have their registered office abroad and Swiss companies that are controlled by persons abroad. No distinc­tion is made between companies domiciled or controlled by persons that are EU/WTO or non-EU/non-WTO members.

The applicable law does not distinguish between private and State-owned enterprises.

To view the full article please click here.

Originally published in Global Legal Group

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.