To read the Swedish version, click here
On 1 December 2024, the Swedish FDI-Act (sw. lag (2023:560) om granskning av utländska direktinvesteringar) marked its one-year anniversary. The FDI-Act, which entered into force on 1 December 2023, is intended to protect Swedish security interests, known as protection-worthy activity (sw. skyddsvärd verksamhet). The Act establishes, inter alia, a notification obligation for investors, enabling the Swedish Screening Authority, the Inspectorate of Strategic Products (the “ISP”) to review investments and, when necessary, prohibit such investments that may harm Sweden's national security, or public order or public security in Sweden. With a year of experience, we begin 2025 by reflecting on the statistics, lessons learned and future prospects.
Statistics
During the first year with the FDI-Act, the ISP has continuously provided statistics on the notifications received by the authority. In summary, the vast majority of notified investments have been approved without further screening. In few cases additional screening has occurred, and in some of these cases, the investments have been approved subject to conditions imposed by the ISP. The authority received 1,206 notifications from 1 December 2023 to 29 November 2024, of which 1,006 investments were approved without further investigation. In 24 cases, the ISP initiated a further screening. Following such, 11 investments were approved, and five investments were approved with conditions. No investments have been prohibited to date. In January 2025, however, the news was published that the ISP for the first time has decided to issue a penalty fee, which you can read more about here.
According to the statistics, the ISP had received 176 notifications that were either incomplete or in the first examination phase as of 1 December 2024. In eight cases, the ISP decided to proceed to phase 2 for further screening. Of the 1,206 notifications submitted to the ISP between 1 December 2023 and 29 November 2024, an overwhelming majority, nearly 870 of the submitted notifications, referred to the category of essential services. None of the other subcategories of protection-worthy activity reached even 100 notifications.
Experiences
The effects of the FDI-Act have been several to the transaction market. What has perhaps been most noticeable is extended timetables and a protracted transaction process with additional steps and transaction costs. In some share issues allotment has had to await the ISP's processing and the completion of M&A transactions has been contingent on the ISP approving the notification and leaving it without action.
Many have experienced difficulties in obtaining guidance from both the Swedish Civil Contingencies Agency (“MSB”) and the ISP, which probably has resulted in a large number of “play it safe”-notifications.
It is our experience that the notifications are regarded complete on the same day they are submitted to the ISP. However, the reviewing authority does not automatically communicate its decision and the investor, or its representative usually request a confirmation.
Furthermore, the ISP almost always uses the 25 business days available at its disposal to assess the completeness of a notification. We find that this has been the case regardless of whether the investor concerned by the notification is non-European (i.e. it is a foreign direct investment), domestic or originating within the EU (i.e. it is not a foreign direct investment, and the investment cannot be prohibited or conditioned).
Lastly, we have found that the ISP has been very thorough and careful with confidentiality, and it has not disclosed information about either party concerned by notifications or the information disclosed in the notification.
Future Prospects
After a year with the FDI-Act, it is clear that the rules can be perceived as complex and sometimes unclear. Most notifications concerned investments in essential services and the regulation listing such activity has been updated more than once, both regarding content and due to editorial reasons. Given the extent of the regulation on essential services, the number of notifications concerning this category and the fact that the regulation is not entirely clear, it may need to be further revised.
Furthermore, it is currently voluntary for EU Member States to establish screening systems for the screening of foreign investments. However, the European Commission has submitted a proposal that screening systems should become mandatory and include additional requirements for the existing cooperation function between Member States. If this takes place, it means that the current Regulation (EU) 2019/452 will be replaced by new EU legislation in this area, which may also affect the recently adopted Swedish FDI-Act.
An additional update concerns the scope of application of the FDI-Act, or rather what falls outside it, namely real property. In December 2024, the report Enhanced Control of Foreign Real Property Acquisitions (sw. Skärpt kontroll av utländska fastighetsförvärv, SOU 2024:84) was presented. The inquiry finds that control over real property needs to be strengthened by giving the state increased possibility to review and, when necessary, prevent transfers and grants of real property that may harm the Swedish total defence. Consequently, the inquiry proposes new rules for real property acquisitions in transfers and grants of real property. Although the legislative proposal as formulated in the inquiry does not specifically necessitate changes to the FDI-Act, it is clear that Swedish national security interests are leading to additional regulations for protection from certain foreign investments. Furthermore, amendments to the FDI-Act should not be ruled out against this information.
The FDI-Act
The Swedish act regulating foreign direct investments (sw. lagen (2023:560) om granskning av utländska direktinvesteringar) applies to investments in protection-worthy activity in limited liability companies, European companies, trading partnerships, limited partnerships, economic associations, foundations, unincorporated companies and individual businesses that has its registered office or is conducted in Sweden.
The concept of protection-worthy activity is divided into the following seven subcategories: (i) Essential services, (ii) Security-Sensitive Activities, (iii) Critical raw Materials, Metals or Minerals, (iv) Sensitive Data of Location and Personal Data, (v) Military Equipment, (vi) Dual-use Products, and (vii) Emerging Technologies or other Strategically Protected Technologies.
An investor who intends to invest directly or indirectly in an protection-worthy activity must notify the ISP of the investment if the investment gives the investor a certain influence of the activity of the target company, for instance by obtaining a board position or provisions in shareholder agreements. The notification obligation also arises if the investor, after the investment, directly or indirectly, through the investments, receive voting rights equal to or exceeding the thresholds of 10, 20, 30, 50, 65 or 90 percent.
The ISP’s screening process
1. The investment notification is submitted to the ISP.
2. The ISP first assesses whether the notification is complete. If necessary, the investor is asked to supplement the notification.
3. When the notification is complete, a period of 25 working days (“phase 1”) is initiated. During phase 1, ISP shall either decide to leave the notification without action or announce a decision on further screening.
4. When phase 1 is completed and the ISP has given its decision, the investment can be carried out if the notification has been left without action, i.e. the investment is approved. If the ISP instead decides on further screening of the investment, the next phase (“phase 2”) begins.
5. In phase 2, an in-depth investigation is conducted by the ISP, which may ask several in-depth questions to both the investor and the target company. As a general rule, this screening is carried out for three months. Phase 2 may although, if special reasons occur, be extended to six months at a maximum.
Should you have any questions related to the FDI-Act, are about to make an investment, or would like to know if your business is affected by the FDI Act, please contact one of our FDI specialists here at Synch.
