The Investment Screening Act (ISA) introduces, for the first time, a Swiss legal framework for reviewing certain foreign investments. The article explains that the Act does not constitute a general barrier to foreign investment, but applies only in narrowly defined exceptional cases. For startups and SMEs, it is particularly relevant that private foreign investors and typical financing rounds are generally excluded. At the same time, the article highlights that corporate law and transparency obligations – including share register and beneficial owner requirements – remain applicable irrespective of the ISA.
With the new Investment Screening Act (ISA), Switzerland has introduced for the first time a standalone legal framework for the review of certain foreign investments (Art. 1 ISA). Since its adoption, startups, SMEs and their investors have been faced with a key question: which investments fall within the scope of this new legislation, and are foreign investors still free to invest in Swiss companies?
The answer is nuanced, but overall reassuring. The Investment Screening Act does not establish a general prohibition on foreign investment, nor does it introduce a comprehensive investment control regime. It applies only in clearly defined circumstances and affects a far smaller number of transactions than the title of the Act might suggest.
Table of Contents
– Which investments are subject to the Investment Screening Act?
– Investor and target company: two equally decisive criteria
– The relevance of the target company’s business sector
– Why startups and SMEs are rarely affected in practice
– Legal certainty through preliminary assessment and advance ruling
– Conclusion: clear safeguards with continued openness to investment
Which investments are subject to the Investment Screening Act?
The Investment Screening Act does not cover every foreign investment in Switzerland. Authorisation is required only for acquisitions of Swiss companies that result in a transfer of control to a foreign state-controlled investor and that may pose a threat to Switzerland’s public order or security (Art. 1 para. 1 and Art. 3 ISA).
First, an actual change of control must occur. This includes classic acquisition scenarios such as mergers, the acquisition of a majority shareholding or contractual control rights (Art. 2 lit. a ISA). Minority shareholdings, standard financing rounds, convertible loans or SAFE structures without controlling influence do not fall within the scope of the Act.
Second, the Act applies only where specific conditions relating to both the investor and the target company are cumulatively met. This interaction is decisive for the legal assessment (Art. 3 ISA).
Investor and target company: two equally decisive criteria
Whether an investment is subject to the Act depends not only on who is investing, but also on the characteristics of the target company (Arts. 1 and 3 ISA).
On the investor side, the Act applies exclusively to foreign state-controlled investors, including foreign states, state-controlled enterprises and actors acting on behalf of a foreign state (Art. 2 lit. d ISA). Private foreign investors – such as venture capital funds, business angels, family offices or private industrial companies – are expressly excluded from the scope of the Act (Art. 1 para. 2 ISA).
As regards the target company, it is not sufficient that it is a Swiss entity. The company must also operate in a statutorily defined sensitive sector and exceed certain size thresholds (Art. 3 paras. 1 and 2 ISA).
The relevance of the target company’s business sector
The Act exhaustively lists those sectors deemed to be relevant to security considerations. These include, among others, sensitive goods and technologies, military and dual-use goods, critical energy and water infrastructure, security-critical IT systems for public authorities, telecommunications networks, significant transport and logistics infrastructure, as well as systemically relevant areas of the financial and healthcare sectors (Art. 3 paras. 1 and 2 ISA).
Even within these sectors, the Act does not apply automatically. Additional size thresholds must be met, such as at least 50 full-time equivalent employees or annual turnover of CHF 10 million, and for particularly critical infrastructure, CHF 100 million in turnover or gross revenue (Art. 3 paras. 1 and 2 ISA).
Why startups and SMEs are rarely affected in practice
For startups and smaller SMEs, this combination of sector relevance and size thresholds is decisive. The vast majority of such companies remain well below the statutory thresholds (Art. 3 ISA).
The legislator deliberately chose not to subject small and early-stage companies to the screening regime in order to avoid hindering innovation, growth and early-stage financing through regulatory uncertainty or additional procedures (Art. 1 ISA).
In practice, this means that most Swiss startups and SMEs may continue to accept foreign investors – even in sensitive sectors – provided that no foreign state-controlled investor acquires control and the statutory thresholds are not exceeded (Art. 1 para. 2 and Art. 3 ISA).
Legal certainty through preliminary assessment and advance ruling
For companies facing uncertainty, the Act provides an important instrument: a binding advance ruling. This allows parties to clarify in advance whether a planned transaction is subject to authorisation (Art. 5 ISA). Such rulings are valid for a limited period and provide valuable planning certainty, particularly in the context of larger financing rounds or strategic investments (Art. 5 para. 3 ISA).
Conclusion: clear safeguards with continued openness to investment
The Investment Screening Act does not represent a departure from Switzerland’s traditionally investor-friendly approach. Instead, it introduces targeted safeguards for security-relevant exceptional cases without generally restricting access to foreign capital (Art. 1 ISA).
For startups and SMEs, the key takeaway is clear: in the vast majority of cases, no authorisation is required, even where foreign investors are involved and even in sensitive sectors. Each assessment depends on the interaction between the investor, the target company, the sector, the company’s size and the question of control (Arts. 2 and 3 ISA).
Irrespective of the Investment Screening Act, corporate law and transparency obligations remain fully applicable. Swiss companies are required to maintain a proper share register and to identify their beneficial owners, in particular in the context of share transactions that result in a transfer of control within the meaning of Swiss transparency legislation. This concept of control is not identical to that used under the Investment Screening Act and often applies at significantly lower shareholding thresholds.
Accordingly, particularly in the context of financing rounds, changes in the shareholder structure or other structural transactions, it is essential to properly comply with these obligations – irrespective of whether the Investment Screening Act applies in a given case. Konsento’s free digital share register enables startups and SMEs to meet these requirements efficiently, transparently and in full legal compliance.
Those who are familiar with the different concepts of control and keep track of the relevant register obligations can continue to rely on stable, open and legally secure investment conditions in Switzerland.