Foreign Investment in Sweden 2024

Foreign Investment in Sweden 2024

FOREIGN INVESTMENT 2024

SWEDEN

Omar El Khatib

(Bokwall Rislund Advokatbyrå)

LAW AND POLICY

Policies and practices

1. What, in general terms, are your government’s policies and practices regarding oversight and review of foreign investment?

The main legislations in force involving a regulatory procedure to review foreign investments in Sweden are the Screening of Foreign Direct Investments Act (2023:560) and the Protective Security Act (2018:585). In addition, under the Military Equipment Act (1992:1300) the relevant authority may indirectly control foreign ownership by the review of a license application, but does not have a specific procedure to review acquisitions and investments by foreign nationals and investors.

• The Screening of Foreign Direct Investments Act is the national Swedish legislation based on Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union. The legislation entered into force on 1 December 2023. The purpose of the legislation is to screen foreign direct investments in certain areas to prevent investments that could affect Sweden’s national security as well as public order and security in Sweden. The scope of the legislation is broad and includes a mandatory notification obligation for investments in a wide range of sensitive activities. The legislation applies to investments made in Swedish entities or assets carrying out these activities where the investor, through the investment, acquires a certain level of influence. The notification obligation applies to investors from third countries and EU member states (including Swedish investors).
• The Swedish Protective Security Act aims at protecting security-sensitive activities and information of importance to Sweden’s security as well as other activities and information covered by a binding international commitment. Under the act, there is an obligation to notify and go through a consultation procedure when transferring security-sensitive activities or information. The law applies to companies (both private and public), public authorities and municipalities or regions that carry out security-sensitive activities. The Act is not limited to activities related to military or police operations, but rather to all activities that are of strategic importance for Sweden’s security, including the protection of water, electricity and heating plants, IT-facilities, healthcare, transport infrastructure and surveillance of important buildings.
• The Military Equipment Act aims at controlling the export of military equipment. The Act covers the manufacture, supply and export of military equipment, as well as certain agreements on cooperation and rights to manufacture such equipment. The Act applies both to equipment that is designed for military use and technical support for the equipment. Under the law, a license is required for all relevant activities. Such a license may be granted on the condition that only a certain percentage of the shares in the applying entity may be owned by foreign investors. A license may also be granted on the condition that the board and CEO of the applying entity are Swedish citizens residing in Sweden. In addition, a license-holder must report any changes surrounding the circumstances raised in the license This may include a change of ownership or control of the entity, as well as any investments made by foreign investors in the entity.

Main laws

2. What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?

The Screening of Foreign Direct Investments Act (2023:560) and the Protective Security Act (2018:585) are the main legislations in force to screen acquisitions and investments for national interest reasons.

Scope of application

3. Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?

The Screening of Foreign Direct Investments Act

The legislation applies to investments in existing Swedish entities, the creation of new Swedish entities and Swedish assets active in certain sensitive areas. The legislation requires that the investment results in some influence for the investor. The influence requirements differ depending on the type of legal entity, but minority interests may be sufficient. For example, limited liability companies (Sw. Aktiebolag, AB), the notification obligation is triggered each time the investment results in the acquisition of a 10, 20, 30, 50, 65, or 90 percent of the voting rights in the entity.

The areas covered by the legislation include:

• essential services;
• security-sensitive activities;
• the exploration, extraction, enrichment or sale of critical raw materials or of metals or minerals that are strategically important for Sweden;
• the processing of sensitive personal data or of location data on a large-scale;
• the manufacturing, development, R&D or provision of military equipment and technical assistance as defined in the Military Equipment Act (1992:1300);
• the manufacturing, development, R&D or provision of dual use products as defined in Annex I of Regulation (EU) 2021/821 setting up a Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items; and
• the research on and the provision of products or technology within emerging technologies or other strategically protected technologies or businesses with the ability to manufacture or develop such products or technology.

The Protective Security Act

The Protective Security Act applies to all transactions that involve the transfer of security-sensitive activities. There are no qualifying conditions or thresholds to determine the transactions covered by the legislation. Instead, all transfers, regardless of their structure or size, need to be notified to the relevant authority. The legislation also applies to the transfer of certain products or innovations. Transfers of shares in public undertakings or transfers of real estate are not covered by the Act.

The notification obligation falls primarily on the entity operating the security-sensitive activities. The law also provides that shareholders of such entities have a duty to notify transfers of shares in them.

Security-sensitive activities relate to any activities or information that are of importance to Sweden’s security, as well as other activities and information covered by a binding international commitment. This includes activities in many areas, including the protection of water, electricity and heating plants, IT facilities, healthcare, transport infrastructure and surveillance of important buildings. The company itself must assess whether it carries out security-sensitive activities and whether the Protective Security Act applies to its business. To determine if this is the case, the company must undertake a ‘Protective Security Assessment’. The purpose of such an analysis is to determine whether the company has information, personnel or assets that require specific protection. The sector specific supervisory authorities are expected to provide further guidance but have provided limited guidance at this stage.

Definitions

4. How is a foreign investor or foreign investment defined in the applicable law?

The Screening of Foreign Direct Investments Act

A foreign investment is defined as an investment made by:

1. a natural person with citizenship outside of the EU;
2. a legal person established in a state outside of the EU;
3. a legal person owned or controlled, directly or indirectly, by a state outside of the EU; and
4. a legal person who is owned or controlled, directly or indirectly, by a legal person established in a state outside of the EU or a natural person with citizenship outside of the EU.

An investment made to benefit a natural person or legal entity listed above is also considered a foreign investment.

The term investment is broadly defined and includes all type of investments that result in the acquisition of influence over the investment object.

The Protective Security Act

The Protective Security Act does not target foreign investors specifically, but rather applies to all acquirers of security-sensitive activities. As such, there is no definition of a foreign investor or foreign investment in the Act. The nationality of the acquirer may, however, be relevant for the substantive assessment.

Special rules for SOEs and SWFs

5. Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

The Screening of Foreign Direct Investments Act

There are no special rules applicable to SOEs and SWFs, and the legislation does not contain definitions of these entities. SOEs and SWFs will be subject to the legislation as long as the other requirements in the Legislation Act are fulfilled.

The Protective Security Act

There are no special rules applicable to SOEs and SWFs, and the Act does not contain definitions of these entities. SOEs and SWFs will be subject to the legislation as long as they transfer Swedish security-sensitive activities.

Relevant authorities

6. Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?

The Screening of Foreign Direct Investments Act

The Inspectorate of Strategic Products (ISP) has been designated to be the screening authority for purposes of the Act.

ISP must notify the Swedish Armed Forces and the Swedish Security Service of investments notified under the Act. If an in-depth investigation is initiated, ISP must also notify the Swedish defense Materiel Administration, the National Board of Trade Sweden, and the Swedish Civil Contingencies Agency.

The Protective Security Act

As of 1 December 2021, transfers must be notified to sector-specific authorities. These authorities need to give the Swedish Security Service or the Swedish Armed Forces an opportunity to provide views on the transfer in certain situations.

The relevant sector-specific authorities are listed below.

7. Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?

The Screening of Foreign Direct Investments Act

ISP has full discretion under the Act to approve and prohibit investments. ISP may also approve investments under certain conditions.

The Protective Security Act

The relevant authorities have full discretion under the law to approve and reject transactions. The relevant authority may also order the seller to implement certain measures prior to the transfer of the security-sensitive activities.

PROCEDURE

Jurisdictional thresholds

8. What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?

The Screening of Foreign Direct Investments Act

Filing is mandatory. The Swedish notification obligation applies if it is (1) an investment with Swedish nexus, (2) certain influence requirements are fulfilled and (3) it is an investment in an area covered by the law.

An investment has Swedish nexus in the following three situations:

The influence requirements differ depending on the type of legal entity.

Several areas are covered by the Act.

The Protective Security Act

Filing is mandatory. The Protective Security Act (2018:585) applies to all transactions that involve the transfer of security-sensitive activities. There are no qualifying conditions or thresholds to determine the transactions covered by the legislation. Instead, all transfers, regardless of their structure or size, need to be notified to the relevant authority. The legislation also applies to the transfer of certain products or innovations. At present, however, transfers of shares in public undertakings or transfers of real estate are not covered by the Act.

The notification obligation falls primarily on the entity operating the security-sensitive activities. The law also provides that shareholders of such entities have a duty to notify the transfer of shares in them.

Security-sensitive activities relate to any activities or information that are of importance to Sweden’s security, as well as other activities and information covered by a binding international commitment. This includes activities in many areas, including the protection of water, electricity and heating plants, IT facilities, healthcare, transport infrastructure and surveillance of important buildings. The company itself must assess whether it carries out security-sensitive activities and whether the Protective Security Act applies to its business. To determine if this is the case, the company must undertake a ‘security self-assessment’. The purpose of such an analysis is to determine whether the company has information, personnel or assets that require specific protection. The sector-specific supervisory authorities are expected to provide further guidance, but have provided limited guidance at this stage.

National interest clearance

9. What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?

The Screening of Foreign Direct Investments Act

Filing to the Inspectorate of Strategic Products (ISP) is mandatory. The focus of the examination is the identity and ultimate ownership of the investor and the Investment Object. There is a standard form listing the information required for the examination. This includes information about the investor (including the investor and other relevant entities in the corporate structure), the Investment Object and the investment.

There are no filing fees required.

The Protective Security Act

The operator of the security-sensitive activities (i.e, the seller or target) must prepare a security assessment and a suitability analysis; the operator must also go through a consultation procedure with the relevant authority:

the purpose of the security assessment is to identify the potential security-sensitive activities or information that will be available to the acquirer through the transfer. The assessment should be based on the security self-assessment that companies must carry out under the Protective Security Act;

the suitability analysis should be based on the security assessment and take all relevant circumstances into consideration to determine whether the transaction may result in any damage for Sweden, and whether it is appropriate to transfer the security-sensitive activities. This analysis requires information about the ownership structure and activities of the acquirer; and

if the operator, based on the preparation of these documents, determines that the transfer is appropriate, a consultation procedure needs to be initiated with the relevant authority. The consultation should be initiated by the seller through the submission of a description of the planned transaction, information about the acquirer, and documentation of the security assessment and the suitability analysis as well as the security self-assessment. More documentation may be requested by the relevant authority as part of the consultation procedure.

There are no filing fees required.

10. Which party is responsible for securing approval?

The Screening of Foreign Direct Investments Act

The investor is the notifying party and responsible for securing approval. The Target or the seller must inform the investor about the sensitiveness of their business and the notification obligation that follows.

The Protective Security Act

The operator (i.e, the seller or target) of the security-sensitive activities is the notifying party, and must notify the transfer and go through the consultation procedure.

Review process

11. How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?

The Screening of Foreign Direct Investments Act

The legislation includes a two-stage procedure. The screening authority will have an initial 25 working days after receiving a complete notification to examine an investment and decide either to take no further action on the notification or to initiate an examination. An examination of the investment must be terminated within three months. There is a possibility to extend the deadline to six months if there are particular reasons.

Although there are no exemptions or ‘fast-track’ options at this stage, the relevant screening authority has committed to handle uncomplicated filings in a swifter manner and before the end of the 25 working days deadline.

The Protective Security Act

The Act does not contain any timelines for the authority’s examination. When approving the new legislation, the Swedish parliament required that the government should include a clear time limit for the examination of the transfer. At this stage, no further information has been presented, but we understand that the government is working on the design of a time-limiting rule.

At present, based on the decisions made public, the average time for a procedure is around 30 working days but can vary between the different sector specific authorities. There are no exemptions or ‘fast-track’ options at this stage.

12. Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?

The Screening of Foreign Direct Investments Act

The investor may not implement the investment until the screening authority has formally decided to take no further action or approve the investment with or without conditions.

An investor may be fined if it fails to notify an investment that is subject to a notification requirement, or when the investor implements an investment before or contrary to a final decision or acts contrary to conditions. The administrative fine may be set at no less than 25,000 krona (around €2,100) and no more than 100 million krona (around €8.5 million).

The authority may also initiate an examination of the transaction on their own initiative. If the transaction raises concerns, it may therefore risk a prohibition, meaning that an already transferred business may theoretically need to go back to the seller.

The Protective Security Act

There is a standstill obligation under which the seller may not close the transaction until the consultation procedure has been completed. The relevant authority decides when the seller can proceed with the transfer by formally deciding on the matter.

In the event of a breach of the notification and consultation obligation, the relevant authority may initiate the consultation on its own initiative. Failure to notify a transaction falling under the law may also be sanctioned with a fine. The administrative fine may be set at no less than 25,000 Swedish krona (around €2,100) and no more than 50 million Swedish krona (around €4.4 million). However, the fine for a government authority, municipality or county shall be determined to no more than 10 million Swedish krona (around €1 million).

Involvement of authorities

13. Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?

The Screening of Foreign Direct Investments Act

The legislation does not allow the screening authority to provide formal advance notice of an investments notifiability or comment on the substantive review. The legislation does also not include any rules in relation to informal contacts with the authority. Nevertheless, the screening authority has stated that it is possible to reach out to them and discuss the notification and the information that should be included in the form.

The Protective Security Act

There is a standard procedure for application and notification. The authorities do not seem to expect pre-filing dialogue or meetings. The legislation is relatively new, and the relevant authorities have not traditionally handled the review of mergers and acquisitions transactions. Therefore, although it is possible to contact the relevant authorities, they do not invite the parties for informal dialogue at the moment.

14. When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?

Government relations, public affairs, lobbying and other activities can be considered, as is the case in any other approval process, where the approval process is likely to have a political dimension. Whether the efforts of such activities are successful or not depends on the specific circumstances.

15. What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?

The Screening of Foreign Direct Investments Act

The authority may decide to initiate an examination of an investment that is not subject to a notification obligation, if there is reason to assume that the investment may harm Sweden’s security or on public order or public safety in Sweden. The legislator has stated that this possibility should be used restrictively by the authority and primarily in situations where investors try to circumvent the rules.

The Protective Security Act

The Act only allows for review of notifiable transactions.

SUBSTANTIVE ASSESSMENT

Substantive test

16. What is the substantive test for clearance and on whom is the onus for showing the transaction does or does not satisfy the test?

The Screening of Foreign Direct Investments Act

The authority is required to assess whether the investor;

• is directly or indirectly, in whole or in part, controlled by the government of a country outside of the EU through its ownership structure or substantial financing or in some other way,
• has previously been involved in activities that have or could have adversely affected Sweden’s security or public order or security in Sweden, or
• if there are other circumstances surrounding the investor that could pose a risk to Sweden’s security or public order or security in Sweden.

The Act provides that a notification should be approved if there is no reason to assume that it is a foreign direct investment that could harm Sweden’s security or on public order or public safety in Sweden. There is no additional guidance at this stage, but the guidance provided in relation to the Protective Security Act should be relevant for the screening of foreign direct investments.

The Protective Security Act

When assessing whether or not a transfer is in the interests of Sweden, the relevant authorities will consider all material circumstances. This includes the following:

• whether the transferred property or activities could be used in a manner that could damage Sweden’s security;
• whether the property or activities have such significance to Sweden’ security that a transfer would not be appropriate;
• whether the acquirer cannot be considered to be loyal and reliable from a security point of view; and
• whether the acquirer may be presumed to represent the interests of a foreign power or other antagonistic interests.

For further guidance, the Swedish Security Service refers to its own publications as well as publications from the Swedish Armed Forces and the Swedish National defense Radio Establishment. The Swedish Security Service has identified Russia, China and Iran as the largest threats to Swedish security-sensitive activities. Further guidance is provided by certain sector-specific authorities.

17. To what extent will the authorities consult or cooperate with officials in other countries during the substantive assessment?

The Screening of Foreign Direct Investments Act

The authority may consult with officials in other countries or with the EU Commission within the framework of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union if it is found necessary.

In addition, the authority must notify the Swedish Armed Forces and the Swedish Security Service of investments notified under the Act. If an in-depth investigation is initiated, ISP must also notify the Swedish defense Materiel Administration, the National Board of Trade Sweden, and the Swedish Civil Contingencies Agency. These Swedish authorities cooperate closely with corresponding authorities in other countries, and would likely use information received to assess the investment.

The Protective Security Act

The relevant authorities have not released any information about whether they consult or cooperate with officials in other countries during the substantive assessment. However, the sector-specific authorities – as well as the Swedish Security Service and the Swedish Armed Forces – cooperate closely with corresponding authorities in other countries, and would likely use information received to assess the suitability of a transaction.

Other relevant parties

18. What other parties may become involved in the review process? What rights and standing do complainants have?

The Screening of Foreign Direct Investments Act

The investor is the notifying party and therefore the party involved in the review process. Nevertheless, the Target will need to be involved to complete the notification form and may received questions directly from the authority.

Complainants do not have any formal status and do not therefore have any rights or formal standing. All citizens may, however, share information with the relevant authorities, making it possible for complainants to share any material information directly with the authority.

The Protective Security Act

The operator of the security-sensitive activities (i.e, the seller or target) is the only party involved in the review process. The acquirer will, however, need to be involved in the preparation of the filing to ensure that it is complete.

Complainants do not have any formal status and do not therefore have any rights or formal standing. All citizens may, however, share information with the relevant authorities, making it possible for complainants to share any material information directly with the relevant authority.

Prohibition and objections to transaction

19. What powers do the authorities have to prohibit or otherwise interfere with a transaction?

The Screening of Foreign Direct Investments Act

The authority must prohibit a foreign direct investment in activities covered by the Act if it is necessary to prevent harm to Sweden’s security or on public order or public safety in Sweden.

The authority may also approve an investment conditionally if it is necessary to prevent harm to Sweden’s security or on public order or public safety in Sweden.

The Protective Security Act

The relevant authority may prohibit a transfer of security-sensitive activities. A proportionality test has been included to ensure that prohibition decisions are the very last resort for the relevant authority. A transaction that has been prohibited becomes automatically null and void.

The relevant authority may also order the seller to implement certain measures prior to the transfer of the security-sensitive activities.

20. Is it possible to remedy or avoid the authorities’ objections to a transaction, for example, by giving undertakings or agreeing to other mitigation arrangements?

The Screening of Foreign Direct Investments Act

The authority may approve an investment conditionally if it is necessary to prevent harm to Sweden’s security or on public order or public safety in Sweden. Therefore, it should be possible to remedy or avoid the authorities’ objections to a transaction by suggesting undertakings or other mitigating arrangements that the relevant authority, if it accepted them, could include in a formal decision.

The Protective Security Act

As an option to a prohibition decision, the relevant authority may order the seller to implement certain measures prior to the transfer of the security-sensitive activities. Therefore, it should be possible to remedy or avoid the authorities’ objections to a transaction by suggesting undertakings or other mitigating arrangements that the relevant authority, if it accepted them, could include in a formal decision.

Challenge and appeal

21. Can a negative decision be challenged or appealed?

The Screening of Foreign Direct Investments Act

A prohibition and an approval under conditions can only be appealed directly to the government, while other order from the authority in relation to, for example, requests for information and sanction decisions can be appealed to Stockholm’s Administrative Court.

The Protective Security Act

A prohibition decision can only be appealed directly to the government, while an order to implement certain measures can be appealed to Stockholm’s Administrative Court.

Confidential information

22. What safeguards are in place to protect confidential information from being disseminated and what are the consequences if confidentiality is breached?

The Screening of Foreign Direct Investments Act

Several provisions in the Swedish Public Access to Information and Secrecy Act (2009:400) may be relevant, depending on the type of information in question (i.e, classified information or business secrets, or both).

The Protective Security Act

Several provisions in the Swedish Public Access to Information and Secrecy Act (2009:400) may be relevant, depending on the type of information in question (i.e, classified information or business secrets, or both).

In general, if classified information is provided to the relevant authorities, the same level of protection will apply as regards the original holder of such information.

RECENT CASES

Relevant recent case law

23. Discuss in detail up to three recent cases that reflect how the foregoing laws and policies were applied and the outcome, including, where possible, examples of rejections.

The Screening of Foreign Direct Investments Act

The legislation enters into force on 1 December 2023.

The Protective Security Act

As far as can be determined from what has been made public, the relevant authorities have neither prohibited any transfers nor decided to conditionally approve a transfer so far. The clearance decisions made available have included limited information about how the Protective Security Act (2018:585) should be applied.

UPDATE AND TRENDS IN FOREIGN INVESTMENT IN SWEDEN

Key developments of the past year

24. Are there any developments, emerging trends or hot topics in foreign investment review regulation in your jurisdiction? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?

The Swedish government published a committee directive to investigate potential changes to the Protective Security Act (2018:585) allowing the relevant authorities to intervene in contractual relationships to prevent situations that may pose a threat to national security.

The Swedish government has also published a committee directive to investigate if new legislation should be introduced or if changes should be made to current legislation to screen transfers of real property that are of essential importance for national defense reasons.

* The information in this chapter was accurate as at October 2023.

If you need more consulting, please Contact Us at TNHH NT International Law Firm (ntpartnerlawfirm.com)

You can also download the .docx version here.

“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”

LEGAL CONSULTING SERVICES

090.252.4567

HÃY CLICK ĐỂ LẠI SĐT CHÚNG TÔI SẼ GỌI NGAY CHO BẠN MIỄN PHÍ

NT INTERNATIONAL LAW FIRM

• Email: info@ntpartnerlawfirm.com – luatsu.toannguyen@gmail.com
• Phone: 090 252 4567
• Address: B23 Nam Long Residential Area, Phu Thuan Ward, District 7, Ho Chi Minh City, Vietnam