Navigating the Swedish M&A Process - The Swedish FDI Act

1. Introduction

The Swedish FDI Act  aims to prevent foreign direct investments (FDI) that could negatively impact Sweden’s security, public order or safety. A “foreign direct investment” (Sw. utländsk direktinvestering) is defined as an investment made by (or for the benefit of) an investor from a country outside of the European Union. Investments within scope cannot close prior to approval or a decision to leave a notification without action from the Swedish screening authority, the Inspectorate of Strategic Products (Sw. Inspektionen för strategiska produkter), (ISP). Non-compliance can result in significant penalties of up to SEK 100 million and prohibition of already closed investments, making it crucial for investors to conduct thorough due diligence at the early stage of a planned transaction. 

All investors, regardless of nationality, must file a notification with ISP if the investment falls within the scope of the FDI-Act. It should be noted that the filing requirement includes not only transactions involving new foreign owners but also intra-group restructurings and investments exceeding certain thresholds. In the beginning of 2025, the first penalty of SEK 200,000 was issued to a Swedish investor for failing to notify its investment in a Swedish defence technology company. The penalty was appealed to the Administrative Court (Sw. Förvaltningsrätten) but the court confirmed ISP’s decision, emphasizing the importance of obtaining approval from ISP before executing an investment. This article outlines the main considerations to be taken into account before carrying out a new investment. 

2. Business activities in scope of the FDI Act

The FDI Act applies to protection worthy activities (Sw. skyddsvärd verksamhet), including a broad range of activities:

• Essential services (Sw. samhällsviktig verksamhet).
• Security-sensitive activities (Sw. säkerhetskänslig verksamhet) under the Swedish Protective Security Act (PSA) .
• Activities related to critical raw materials, metals or minerals.
• Large-scale processing of sensitive personal data or location data.
• Manufacturing, development, research into or supply of military equipment or dual-use items and certain thereto related activities.
• Research into or supply of certain protection-worthy products or technologies relating to emerging or strategic technologies.

The term “essential services” is further defined in a regulation issued by the Swedish Civil Contingencies Agency (Sw. Myndigheten för samhällsskydd och beredskap), (MSB) . This regulation sometimes includes unexpected activities, for example, wholesale of food and manufacturing labels for the transport of goods are both in scope. According to statistics published by ISP, a clear majority of submitted notifications concern investments in businesses conducting essential services.

Regarding security-sensitive activities, it is important to note that a sale of such business is subject to a consultation obligation with relevant supervisory authorities under the PSA. However, the notification obligation under the FDI Act applies concurrently. 

If the investor concludes that the target’s business is deemed to be protection worthy, the next step is to assess whether the relevant investment triggers a notification. 

3. Investments triggering notification under the FDI Act

The FDI Act applies to investments in inter alia a Swedish limited liability company, partnership, business or a business line (Sw. verksamhetsgren). 

If the target is a limited liability company, a notification obligation is triggered if the investor, after the investment, would hold (directly or indirectly) voting rights equal to or exceeding 10, 20, 30, 50, 65 or 90 per cent. As indirect investments are covered, an investment in a foreign parent company with a Swedish subsidiary conducting protection worthy activities triggers the notification obligation.

A notification must also be made if the investor otherwise would obtain direct or indirect influence over the management of the target, such as the right to appoint board members or extensive veto rights under a shareholders’ agreement.

Share issues where existing shareholders subscribe for new shares pro rata to their existing shareholding are excluded from the scope, whereas private placements (Sw. riktade emissioner) are in scope.

4. Process for the notification

If an investment falls within the scope of the FDI Act, the investor must submit a filing to ISP for review. The notification form requires certain information, including inter alia the ownership of the investor, the target, and the purpose of the investment.

Once ISP deems the filing complete, the authority will review the notification and, within 25 business days, either leave the notification without action or initiate a screening of the investment. If a screening is initiated, ISP must within three months either prohibit or approve the investment. ISP may extend the screening to six months if special grounds exist. Approval of a foreign direct investment in protection worthy activities may be subject to conditions, if that is deemed necessary to safeguard Sweden’s security, public order or safety.

As noted above, the notification obligation applies to all investors regardless of nationality (i.e. also Swedish entities). However, only foreign direct investment as defined under the FDI-Act can be prohibited or subject to conditions for approval by ISP. 

During 2024, ISP initiated screening in 26 cases (of a total of 1,263 notifications), prohibited only one investment, approved 12 investments without conditions and five investments with conditions. During the first quarter of 2025, ISP initiated screening in seven cases (of a total of 365 notifications) and did not approve or prohibit any investment.

5. Consequences of non-compliance

If an investor fails to notify an investment when required to do so under the FDI Act, ISP can decide to impose a penalty of up to SEK 100 million. 

If the relevant transaction constitutes a foreign direct investment, ISP has the authority to prohibit the investment. If an investment is prohibited, the transaction will be null and void. This means that if the investment has already been carried out, the relevant parties’ performances shall be reversed. However, there is an exemption for investments that has been made on a regulated market or MTF. In such cases, ISP may instead order the investor to divest the investment object combined with a penalty of a fine.

6. Our key takeaways

Following more than one year’s experience of the FDI Act, here are some key takeaways:

• The investor has no possibility to request an advance ruling or preliminary decision from ISP. We have experienced difficulties in getting answers from the authority also on more general questions, leaving the investor to rely solely on its own and its advisor’s analysis (with the result of notifications being filed in cases of uncertainty).
• The definition of essential services sometimes includes unexpected business activities. MSB’s regulation also includes definitions open to interpretation, complicating the analysis.
• It should be noted that the target company has an obligation to inform the investor that its activities are within scope of the FDI Act.
• Intra-group transactions are not excluded from the notification obligation and must be considered in internal restructurings, such as asset transfers between group companies. Investments in a business or a separate business line that conducts protection worthy activities are subject to the notification obligation.
• In addition to the necessity to include FDI filing as a closing condition in share purchase agreements and investment agreements, the potential notification obligation should also be considered in shareholders’ agreements (especially since it is triggered each time an investor reaches a new voting threshold).

In summary, the FDI Act covers a broad range of businesses and types of investments. Planning for the analysis, resources and potential effects on timing for closing of an investment well in advance is therefore essential to avoid surprises. 

Author: Karl-Johan Holmér