Key insights from the first year of the Swedish FDI Act

In 2019, EU Regulation 2019/452 established a framework for the right of Member States to impose national screening systems for foreign direct investment. Upon the regulation's entry into force, the majority of the Member States, including Sweden, swiftly adopted FDI screening systems.

The Swedish FDI Act imposes a duty to notify investments above certain thresholds in Swedish protection-worthy activities. While only "foreign" (i.e. non-EU) investments can be prohibited or subject to conditions, Swedish and EU investors are also required to notify investments in such activities and await approval prior to implementation. The following activities are covered: 
 

1. Essential services: Activities, services or infrastructure that maintain or ensure societal functions that are essential for society's basic needs, values or security, as set out in the Swedish Civil Contingencies Agency's regulations, MSBFS 2024:9.
    
2. Security-sensitive activities: Activities that are considered security-sensitive activities under the Protective Security Act (2018:585).
    
3. Critical raw materials and minerals: Exploration, extraction, enrichment or sale of critical raw materials or metals or minerals of strategic importance for Sweden's supply, as set out in regulations from the Geological Survey of Sweden.
    
4. Sensitive personal data or localization data: Large-scale processing of sensitive personal data or location data in or through a product or service, as defined in Article 9(1) of Regulation (EU) 2016/679 and Directive 95/46/EC.
    
5. Military equipment: Manufacture or development of, research on or provision of military equipment in accordance with the Military Equipment Act (1992:1300), or the provision of technical support for such military equipment.
    
6. Dual-use products: Manufacture, development, research or provision of dual-use items, as well as the provision of technical assistance for such products, as set out in Annex I to Regulation (EU) 2021/821).
    
7. Strategic or emerging technologies: Research on or supply of products or technologies in emerging technologies and other strategic protection-worthy technologies, as set out in Annex 2 to the Ordinance on Screening of Foreign Direct Investments (2023:624). 
    

A duty to notify and await approval before implementation is triggered if the investment results in control of more than 10, 20, 30, 50, 65 and 90 percent of the votes in the company, or of the investor in any other way obtains direct or indirect influence on the management of the company, e.g. by way of a right to appoint a board member or influence the general direction of the business. The notification is made on a specific form providing information on the investor's ownership structure and the deal. Once the notification is complete, the Inspectorate of Strategic Products ("ISP") must within 25 working days (Phase 1) decide whether to approve the investment or open an in-depth review (Phase 2). If the authority decides to initiate an in-depth review, it must complete the screening and adopt a decision within three months (or, if special grounds exist, within six months).

Investors failing to comply with the Act, e.g. by implementing the investment before approval or by providing incorrect information, may be sanctioned with fines of up to 100,000,000 SEK. 

• The case flow has been significant. By 22 November 2024, 1,177 notifications have been submitted. By comparison, EU Member States received a total of 1,808 notifications under national FDI regimes in 2023. Although the number is likely to be higher in 2024, there is no doubt that the Swedish notifications represent a significant share of all FDI notifications in the EU.
   
• The overwhelming majority of notifications, around 82 %, were approved without conditions, demonstrating the wide scope of the notification requirements. In fact, more than half of the notifications (around 65 %) concerned Swedish or EU investments and only 35 % concerned "foreign" (i.e. non-EU) investments. In other words, the large majority of the notifications concern investments that cannot be prohibited or subject to conditions, but which are nevertheless subject to mandatory notification requirements under the threat of fines. 
   
• Only 24 cases (2 %) were subject to in-depth review (Phase 2 investigations). Of these, 11 cases (1 %) were approved unconditionally. 
   
• No prohibitions have been imposed. This does not mean that none of the notified investments were deemed sufficiently problematic to warrant such action. Several notifications have been withdrawn. When investors learn that the authorities are considering a ban, they tend to abandon their investments.
   
• 5 cases (0.4 %) were subject to conditions. The conditions relate to the target company's activities or governance, or other circumstances related to the investor.

• The Act differs from EU Regulation 2019/452 in that it does not restrict itself to investments which are made with the intention of establishing or maintaining a "lasting" link with the investment object. As a result, even temporary investments appear to trigger notification requirements under the Swedish regime. 
   
• In addition to the broad scope of the scheme, the vague wording of the Act and related regulations also contributes to the significant number of notifications. In particular, the Swedish Civil Contingencies Agency's regulations, MSBFS 2024:9, use vague, undefined terms (e.g. "large-scale" production), making it difficult to exclude notification requirements even when the potential discontinuation of the activities clearly do not pose a threat to Swedish security, public order or public safety. Given the risk of fines for non-compliance, investors are often advised to notify to be on the safe side.              
   
• Not surprisingly, most notifications (about 70 – 80 %) concern investments in essential activities, i.e. activities that are listed in the Swedish Civil Contingencies Agency's regulations, MSBFS 2024:9, which cover a wide range of activities. 
   
• ISP's decision-making practice does not provide further guidance on the scope of activities covered by the Act. In general, ISP presumes that all notified investments are notifiable and does not question or investigate whether the activities of the target company fall within the Act's scope. Therefore, a clearance decision does not necessarily mean that ISP has taken a position on whether the activities are covered by the Act. However, the investor may explicitly request ISP to assess whether the notified activities fall within the Act's scope, in which case ISP will reject the notification if it considers that the activities are not covered. 
   
• While most notifications concern Swedish or EU investments, which may not be prohibited or subject to conditions, the authority has informed that it has no plans to introduce simplified or fast-track procedures for such investments.
   
• In some cases, investors may wish to submit a notification before the final transaction documents are signed or a public offer is made in order to start the review period. This raises the question of whether the investment is sufficiently imminent to be notified. According to the preparatory work, the investor should be able to demonstrate that the investor and the investee or the individual seller agree that the investment will be realised in the near future, e.g. through a signed letter of intent. ISP has also accepted notifications based on underwriting commitments in rights issues, even if the outcome of the rights issue and number of shares to be subscribed for by the guarantor are not clear at the time of notification.
   
• The notification must include information about all entities that will directly or indirectly own 10% or more of the voting rights following the investment. When investments are made by funds with many unitholders who cannot control the fund's holdings, the unitholders are generally not considered investors. Instead, the obligation to notify lies with the fund manager. However, according to the preparatory works, it cannot be ruled out that investments by foreign funds or fund managers operating under foreign law may result in increased influence and thus trigger notification requirements for individual unitholders. 
   
• For transactions involving multiple investors, ISP considers that a separate notification should be submitted for each investor.
   
• Since there are no exemptions for intra-group transactions, even minor adjustments to the group structure after notification may trigger a new notification and an additional review period of 25 working days. However, if adjustments are marginal and do not affect the substantive assessment, the authority may accept supplements to the original notification without restarting the deadline. 
   
• We are not familiar with any cases in which ISP has imposed fines on the investor for non-compliance with the Act. Fine decisions may be appealed to the Administrative Court in Sweden, but to date, no such appeals have been filed. 
   

The Swedish FDI regime is remarkably comprehensive and represents a major change in the investment landscape in Sweden. An incorrect assessment of the notification requirements or the risks of intervention can result in substantial fines, damages for breach of contract and, in the worst case, a prohibition of the investment after it has been implemented. Both the investor and the seller should make an early assessment of the notification requirements and risks and ensure that the risks are properly addressed in the transaction documents.