Foreign Direct Investments in Sweden – New Far-Reaching Regime for Investments and Transactions from 1 December According to Legislative Bill

Last week, on 16 May 2023, the Swedish Government presented a legislative bill on foreign direct investments (the FDI Act) to the Swedish Parliament. The FDI Act, which is suggested to enter into force on 1 December 2023 significantly expands the Government’s current powers to scrutinize foreign investments. Given its broad scope, it will no doubt impose an additional administrative burden on many transactions and investments in Sweden and lead to delays in closing times. Now it remains for the Parliament to vote on the bill.

A broad range of investments are covered
The FDI Act aims to protect Sweden’s national security as well as public order and public security in Sweden by introducing a mandatory notification requirement on investments in undertakings domiciled in Sweden that carry out certain “protected activities”. The proposed screening mechanism is broader than many of its counterparts in other EU Member States as it catches investments made by investors also from Sweden and other EU Member States. If adopted, it will require prior notification and clearance of investments in a wide range of sectors.

The FDI Act provides for mandatory notification of investments in Swedish companies that carry out certain “protected activities” in a variety of sectors. These include, e.g., security-sensitive activities, essential services, military equipment, emerging technologies, and critical raw materials, metals and minerals. Also, businesses dealing with location data and personal data may be covered. However, unlike the EU FDI Regulation, investments in media companies are excluded from its scope.

Anyone who acquires 10% or more of the total number of shares or votes in a company engaging in such activities will have to notify the acquisition. This obligation applies to investors from both third countries and EU Member States (including Sweden). That said, investments which are purely related to Swedish or EU citizens may not be subject to in-depth scrutiny or prohibition.

Far-reaching sanctions
In certain cases, investments may be prohibited or made subject to conditions and sanctions, including fines of maximum SEK 100 million (approx. EUR 9 million), and may be prohibited also after completion.

Standstill
Where screening is mandatory, investors will have to obtain clearance prior to closing. The screening authority will have the power to call in investments that are not notifiable if there is reason to believe that they will harm the interests protected by the FDI Act, but companies will not be able to submit voluntary notifications. In case notification is not filed although filing is mandatory, the authority has the power to draft the notification.

Competent authority
The bill does not designate the competent authority, declaring that this should be decided by the Government by way of an ordinance. Today, the Inspectorate of Strategic Products (Sw. Inspektionen för strategiska produkter) is in charge of EU coordination of FDI screening, and according to media, it will be nominated as the competent authority also under the FDI Act.

The authority’s assessment
When assessing the investment, the authority will examine the nature of the target’s operations and whether the investor (i) is controlled, directly or indirectly, by the government of a third country, or (ii) has already been involved in activities affecting security or public order, or whether there are other circumstances that may affect national security, public safety or public order. This, we recognize from Article 4 of the EU FDI Regulation.

Prohibitions and conditional approval
The authority will be able to prohibit investments or make clearance subject to certain conditions. If an investment has been completed without notification or before the competent authority has completed its review and the conditions for a prohibition are met, it may not only impose an administrative fine, but also prohibit the investment. The prohibition means that the investment is null and void and will therefore have to be reversed.

Timelines for scrutiny
A two-stage screening procedure is suggested. In the first stage, the authority will have 25 working days to decide whether to carry out an in-depth review, in which case it will have an additional three months to scrutinize the investment. This deadline may be extended up to six months.

Other notification regimes will apply in parallel
The screening mechanism will not replace but complement existing notification requirements under the Protective Security Act (which applies to transfers of security-sensitive activities) and the Competition Act. Nor will it be affected by the EU Foreign Subsidies Regulation. As a result, an investment may be cleared under one screening mechanism and prohibited under another. The complexity that comes with different aims, notification requirements and timelines require early and careful review of potential investments.

Next steps
The Parliament will now have to vote on the bill which is expected to take place early autumn 2023. Companies should not wait for the FDI Act to be passed but start preparing for the new regime as it will apply to transactions closing already on or after 1 December 2023.

Considering the many EU Member States with FDI regulations in place, it is important for companies that invest in such Member States or in companies with customers in the UK (which has a far-reaching FDI regime) to ensure that they fulfil mandatory notification obligations and assess potential implications of their investments. It is important to consider the application of the FDI rules for all investments and transactions considering the far-reaching potential implications.