New Swedish FDI Act – Three Questions

Background

The Swedish Parliament passed a new legislative act on 13 September 2023 regarding screening of foreign direct investments in Swedish entities (the “FDI Act”). The FDI Act provides a supervisory screening authority the power to screen foreign direct investments and, if necessary, issue prohibition on an investment. The purpose of such screening is to examine whether the foreign investment at hand may harm national security or public order. The FDI Act will enter into force on 1 December 2023 and will have a significant impact on M&A-transactions in Sweden including mergers, acquisitions and investments.

In this article, Deloitte Legal will answer three questions regarding the Swedish FDI Act. *

1. What will the new FDI Act protect?

The FDI Act will protect interests related to national security and public order from potentially harmful foreign investments in Swedish entities engaged in protected activities. Direct and indirect investments by investors from all countries are covered by the rules of the FDI Act (including investors from Sweden and EU member states), however only investments of foreign investors domiciled outside of the European Union will be subject to the extended examination by the screening authority and any restricted decision on how to proceed by the screening authority.  

Investments subject to the regulation are investments in Swedish entities operating in the following activities or sectors:

• Security sensitive activities, i.e. activities covered by the Swedish Protective Security Act (Sw. Säkerhetsskyddslagen). Such activities can be operated in the military sector and the civilian sector including for instance airports, energy facilities and information systems for electronic communications.
• Essential social services, including companies that maintain particularly important social functions such as infrastructure for energy, transport, healthcare and communication.
• Military equipment, such as weapons, ammunitions, chemicals, robots, ground vehicles designed for military use, radioactive material and other equipment and components for production of military products and software specifically developed for military use.
• Dual use items, such as manufacturing of items listed in Appendix 1 of the Regulation (EU) 2021/821. Such items include for instance information systems or robots which can be transformed for military use and development.
• Emerging technologies and strategic protected technologies, such as artificial intelligence (AI), quantum computers and biotechnology, or other technology which may have future or current significance for essential social services.
• Critical raw materials, e.g. operations that extract, enrich or sell raw materials such as metals or minerals which are critical for Sweden. 
• Personal data and location data, e.g. operations that process sensitive personal data (as defined in the General Data Protection Regulation, GDPR) or location data as part of their core business such as data brokers, cloud service providers and mobile application providers that process sensitive personal data or location data on a large scale. 

2. When and how will the new FDI Act be applicable? 

The FDI Act will apply to any investor who intends to, directly or indirectly, invest in a Swedish business operating in a protected activity according to the FDI Act. Such foreign investor must notify the screening supervisory authority prior to the closing of the contemplated investment.

It is not finally decided which Swedish authority that will be the designated supervisory screening authority. Pursuant to the FDI Act, it will be decided by the Swedish government. The notification requirement will apply to any investment where the investor will hold an ownership of at least ten percent of the votes in the Swedish entity post-closing. If the foreign investor subsequently acquires a greater ownership, a new notification requirement will apply. The notification requirement applies to any investment that result in an ownership of the investor equal to or exceeding 10, 20, 30, 50, 65 or 90 percent of the votes in the Swedish entity. 

The screening authority has 25 working days from the complete filing date to leave the notification without further action or decide to initiate a review of the investment. After initiating a review, the screening authority has three months to either approve or prohibit the contemplated investment by the foreign investor. The investor is responsible to file the contemplated investment to the screening authority and the target company must inform the investor that the investment is subject to the regulations and the filing requirement of the FDI Act.

3. What impact will the FDI Act have on foreign investors in Sweden? 

Any investment that falls within the scope of the FDI Act must prior to closing be approved, or subject to a decision of not taking any further actions, by the screening authority. The investor must consequently consider the filing requirement when drafting and negotiating the contractual regulation of the investment, standstill periods and any effects of the outcome of the screening authority’s assessment.

There may be uncertainty in some cases when determining if a target company is covered by the term “protected activities” or not, and consequently if a notification will be required. This will imply further analysis of the investor in an initial phase of the investment. 

A non-compliance of the FDI Act may lead to significant fees amounting up to SEK 100 million and prohibitions of already closed investments. 

*The information should neither be seen as advisory nor exhaustive. For advice on the matters presented above, please contact Deloitte Legal via the contact details below.

Contact us

Peter Gotthardsson
Director
pgotthardsson@deloitte.se
+46 70 080 27 38

Jacob Ossmark
Associate
jossmark@deloitte.se
+46 70 080 33 96