The Foreign Investment Regulation Review: France
French foreign investment controls are on the whole fairly lenient, as financial relations between France and other countries are unrestricted, in principle.2 This freedom is subject to certain safeguards intended to protect national interests,3 which allow the government to require notification or prior authorisation of capital flows and foreign investments.
The rules on foreign investments evolve regularly, as the government may promulgate and modify legislation in the field with relative ease.4 The first law on foreign investment, Law No. 66-1008, was adopted on 28 December 1966. It has been supplemented by other laws, including recently the PACTE Law, enacted in May 2019,5 and several successive decrees6 and orders,7 all codified in the Monetary and Financial Code. The foreign investment regime has also been widely modified recently by the Decree8 and the Ministerial Order of 31 December 2019 relating to foreign investments in France.9
According to the latest reports, the foreign direct investment inflows into France have increased (from US$37 billion in 2018 to US$44 billion).10 The year 2019 was also marked by a significant increase in projects announced by foreign investors in France: plus 17 per cent compared with 2018 (a total of 1,197 projects), with an average creation of 43 jobs per project. France became the first European destination for foreign investments in 2019.11
Foreign investment regime
With freedom as the guiding principle, foreign investments in France will not, as a rule, need to be authorised.12 However, the sensitive nature of certain investments justifies a departure from this principle. Thus, prior authorisation from the Ministry of Economy (the Ministry) will be required for all foreign investments that affect the exercise of public authority or that involve an activity that may affect public policy, public safety or national defence, or an activity involving research into, or production or trading of, arms, munitions or explosive powders or substances.13
This rather catch-all provision is detailed in regulatory provisions that, until May 2014, limited the scope of the Ministry's authority to 11 specific business sectors. Since the Decree of 16 May 2014, six new sectors have been added to this list and the Decree of 29 November 2018 supplemented it with five new sectors. Moreover, the Decree of 31 December 2019 has expanded its scope to another four new sectors.
Authorisation is required for any foreign investment (in the meaning of the regulatory provisions of the Monetary and Financial Code, for which see Section IV.iii) made by foreign investors (in the meaning of the regulatory provisions of the Monetary and Financial Code, for which see Section IV.ii) with regard to the following strategic sectors:14
- Activities likely to jeopardise the interests of national defence in relation to the exercise of public authority or likely to jeopardise public policy and public safety, including:
- activities of research, production or trade in arms, ammunitions, explosive powders and substances intended for military purposes or war and related materials;
- activities relating to dual-use items and technology;
- activities carried out by entities authorised to access to national defence secrets;
- activities carried out in the sector of information systems security, including those carried as subcontractor, linked by contract with a public or private entity operating infrastructure of vital importance for France;
- activities carried out by entities that have entered into a contract, either directly or through a subcontractor, to provide goods or services for the Ministry of Defence;
- activities relating to cryptology resources and services;
- activities relating to hardware designed to intercept correspondence and remote sensing of conversations or collection of computer data;
- service activities for assessment centres authorised for the evaluation of the security of information technology product systems;
- gambling activities, except for casinos;
- activities relating to the means intended to tackle illegal use of pathogenic or toxic agents and to prevent the health consequences of such use; and
- data processing, transmission or storage activities where their compromise or disclosure is likely to interfere with the exercise of another strategic activity.
- Activities likely to jeopardise the interests of national defence in relation to the exercise of public authority or likely to jeopardise public policy and public safety when they concern infrastructure, goods or services essential to guarantee:
- integrity, security and continuity of supply of energy;
- integrity, security and continuity of supply of water;
- integrity, security and continuity of operation of transport services and networks;
- integrity, security and continuity of space operations;
- integrity, security and continuity of operation of electronic communications networks and services;
- exercise of the mission of the national police and civil security services, as well as the public security mission of the customs service and that of accredited private security entities;
- integrity, security and continuity of operation of an establishment, facility or infrastructure of vital importance for France within the meaning of the French Defence Code;
- protection of public health;
- production, processing or distribution of agricultural products; and
- publishing, printing or distribution of political and general press and of political and general online press services.
- Activities likely to jeopardise the interests of national defence in relation to the exercise of public authority or likely to jeopardise public policy and public safety when the following are to be implemented for one of the activities described above:
- research and development activities relating to critical technologies, including: cybersecurity, artificial intelligence, robotics, additive manufacturing, semiconductors, quantum technologies, energy storage and biotechnologies; and
- research and development activities concerning dual-use items and technologies.
Typical transactional structures
There are no specific restrictions on takeover bids by foreign investors in France. However, the French market regulator may make the opening of the acceptance period (that is, the time from which shareholders may tender the offer, not the completion of the offer) subject to the receipt of mandatory regulatory approvals, including ministerial approval for foreign investments in sensitive business sectors.
Foreign investors are free to enter into joint ventures in France, with or without a domestic partner.
i Scope of application
The French authorisation regime initially relied on a very broad definition of investments subject to control, thereby affording the Ministry a wide margin of discretion. This approach was condemned by the European Court of Justice on the grounds that it was incompatible with European Union (EU) treaty rules on the free movement of capital.15 Law No. 2004-134316 and subsequent decrees have addressed this concern by refining the concept of 'foreign investor' and by setting down a precise list of the business sectors that are subject to the regulatory authority of the Ministry.17
ii Categories of foreign investor
The Decree of 2019 has unified the regime applicable to non-EU investors and EU investors. It distinguishes four categories of investors:18
- any natural person of foreign nationality;
- any natural person of French nationality who is not tax resident in France;
- any entity incorporated under the law of a foreign country; or
- any entity incorporated in France controlled by one of the above-mentioned investors.
Moreover, all members of a chain of corporate control are deemed investors, provided that a chain of corporate control is defined as the group constituted by an investor belonging to categories (c) or (d) and the persons or entities controlling it.19
In practice, if only one entity of a chain of corporate control is incorporated abroad, the foreign investment regime shall apply. For instance, the use by a French company of an investment vehicle incorporated abroad for the purpose of a transaction carried out in France may trigger the application of the foreign investment control procedure.
iii Forms of foreign investment subject to authorisation
Investors in all sensitive sectors under the Ministry's authority must seek authorisation prior to any of the following operations:20
- the direct or indirect acquisition of a controlling stake21 in a company that has its registered office in France (stock transfer test);
- the acquisition of all or part of a line of business of a company that has its registered office in France (asset transfer test); or
- the acquisition of more than 25 per cent of the voting rights in a company that has its registered office in France (threshold test). This condition is only applicable to foreign investors from outside the EU.
In the event of uncertainty as to the application of these rules, the Ministry encourages foreign investors to present a written request to the Ministry to determine whether prior notification of a transaction is required. Since 1 January 2019, target companies have also been able to request a preliminary ruling from the Ministry.22 Although the law provides for a two-month delay for the Ministry to respond, a response is usually given within three to four weeks in practice (the absence of a reply does not imply that the transaction is exempt).
iv Safe harbours
Several types of transactions are exempt from the authorisation regime, such as intra-group investments (i.e., between companies where more than 50 per cent of the stock or voting rights are held, directly or indirectly, by a common shareholder).23 This exemption will not apply if the proposed transaction is intended to transfer all or part of a strategic line of business abroad (investment triggering the asset transfer test).24
Investors who have been previously authorised to acquire a controlling stake in a strategic sector company will also be exempt if they increase their ownership interest beyond 25 per cent of the stock or voting rights of that company.25
An investor who, within the meaning of Article L233-3 of the French Commercial Code, acquires control of an entity over which it has previously, either directly or indirectly, alone or in concert, exceeded the voting rights threshold of 25 per cent will also be exempt provided that it has already been authorised. Unless the Ministry objects, a new authorisation shall take effect at the end of a 30-day period starting from the notice date.26
v Contents of the authorisation request
The contents of the request for authorisation are defined in regulatory provisions, most recently in those of the Order of 31 December 2019, to increase the transparency of the authorisation procedure and guarantee equal treatment to all investors. The request for authorisation must contain information about the investor, the recipient of the investment and the investment itself:27
- If the investor is a legal entity, the names, addresses and information about the individuals and public legal entities with ultimate control are required. If the investor is a listed company, it will need to report the identity of the shareholders known to have more than 5 per cent of the stock or voting rights, and the names and addresses of the board members. In the case of a fund, the identity of a fund manager will be required. The request indicates all mentions of any significant capital links or financial support granted to the investor by a non-EU foreign state or foreign public body over the previous five years and a description of the markets on which the investor operates. The application shall also include a dated and signed declaration that the investor has not been convicted of any criminal offences listed in the Monetary and Financial Code or of any equivalent offences in a foreign jurisdiction. If the investor is a legal entity, it shall also certify that, to the best of its knowledge, none of its board members has been convicted of any of such offences in the previous five years.
- The recipient company's corporate name, legal address, Kbis extract (certificate of registration) or registry number (SIREN number), details of the business activity and main customers, and the most recent fiscal year turnover and results are required. As are a list of its French clients and of the activities carried out to their benefit, including a precise description of the services or products provided to them; mention of the markets on which the target operates; mention of any involvement in projects or programme of EU interest or of any financial support from EU funds granted to the target.
- Regarding the investment, the details required are the shareholding structure before and after the contemplated operation, the purchase option on the remaining capital, if any, and the total amount of the operation, with the financial terms and conditions; a copy of any documents proving that the investment project is sufficiently advanced; the rationale behind the transaction in relation to the investor's overall strategy; the timeline set for the transaction and mention of any required filing (antitrust and foreign investment filings in particular).28
The request shall be submitted by email29 to the Ministry.
In practice, if the information provided in the request is not sufficiently precise for the Ministry to carry out an assessment of the transaction, investors are likely to receive requests for additional information. Every supplementary request for information suspends the review period, meaning that, in practice, the authorisation procedure could extend well beyond the statutory time frame.
vi Filing date and review period
The foreign investment regulations do not foresee a specific filing deadline, although the authorisation request must be sent once the investor is firmly committed to carrying out the proposed transaction (in practice, as soon as a put option is signed) and in any case prior to the closing of the proposed transaction (failure to respect the authorisation regime may result in heavy sanctions; see Section IV.vii). Moreover, a copy of documents proving that the investment project is sufficiently advanced has to be provided with the authorisation request.
The Ministry shall inform the investor within 30 working days of the date of receipt of the application for authorisation that either:
- the contemplated foreign investment is outside the scope of the foreign investment regime;
- the investment falls within the scope of the regime and is unconditionally authorised; or,
- the investment falls within the scope of the foreign investment regime but further examination is required.
An additional 45 working-day period runs from the date of receipt by the investor of the Ministry's decision to carry on with the examination of the case.
It is important to note that in the absence of response by the Ministry by the end of either the 30-day review period or the 45-day review period the application is deemed to have been rejected.
vii Clearance test and prerogatives of the Ministry
The Ministry must verify that the investment will not harm national interests.30 Since the introduction of the Decree of 2019, the Ministry has been able to refuse to grant authorisation if there is a threat to the preservation of national interests in the event that the investor has links with a foreign government or foreign public body.31
In addition, the Ministry's review must determine whether there is a 'serious presumption' that the investor is likely to commit any of the following crimes in particular:
- drug trafficking;32
- criminal exploitation of a person's weakness or ignorance;33
- procurement and related crimes;34
- money laundering;35
- acts of terrorism or financing of terrorism;36
- corruption and influence peddling;37
- acting in a conspiracy;38 or
- any damage to the fundamental interests of the nation.39
In the event that such a presumption were established, the Ministry would have to refuse the investor its authorisation.40
Although the Ministry is required to explain such a refusal,41 in practice the courts may accept that the reasons for the decision should not be disclosed for national security reasons.42 In practice, refusals are very rare and an approval is likely to be granted in almost every case filed with the Ministry. Nonetheless, the Ministry has a long tradition of negotiating with foreign investors before issuing an approval and this remained an informal practice until 2004.
In 2004, Law No. 2004-134343 gave the Ministry authority to subject the implementation of an investment to conditions to safeguard national interests. In particular, on the basis of the Law's provisions, which have been implemented in the Monetary and Financial Code, the Ministry may impose the following conditions on an investment:
- to preserve the continuity and security of the target's strategic activities, in particular by ensuring that the business will not be subject to the law of a foreign state (in practice, this may imply the obligation to keep the strategic activity incorporated within a French company);
- to preserve the target's knowledge and know-how (in practice, this may imply the obligation to protect sensitive information held by the company and to file patents in France);
- to adapt the target's internal organisation and governance procedures, as well as the terms and conditions for exercising vested rights in the target; and
- to set reporting duties.44
Furthermore, the Ministry may order the divestment of any activity falling within the scope of the strategic sectors. However, the conditions imposed must be proportional to the protection of the national interest being safeguarded.45
It is also possible that additional conditions may not suffice to remedy concerns, in which case the Ministry must refuse to grant authorisation.
viii Review of the authorisation and conditions attached to it
Following the grant of the authorisation, investors may require a review of their undertakings in the event of a change, unforeseeable at the date of completion of the transaction, in the economic and regulatory conditions under which the French entity carries out its sensitive activities; in the event of an evolution in the shareholding structure of the French entity covered by the authorisation or a change among the members of its chain of corporate control; or pursuant to one of the conditions laid down in the authorisation.
For its part, the Ministry is also likely to review the investor's commitments in the event of an evolution in the shareholding structure of the French entity covered by the authorisation or a change among the members of its chain of corporate control; or pursuant to one of the conditions laid down in the authorisation.
In this situation, the Ministry can only impose new commitments in cases where the investor acquires, post-transaction, control over a company that has been subject to a previous authorised foreign investment (for example, where a non-EU investor already holding 25 per cent of the share capital and voting rights of a French company comes to acquire control over it or a foreign investor co-controlling a French company comes to acquire exclusive control over it).
Failure to respect the authorisation regime comes at a potentially heavy price. At the very least, any agreement, understanding or contractual provision purporting to effectuate a foreign investment in one of the sectors identified by the regulatory provisions, without due authorisation, will be considered null and void.46
The PACTE Law enacted in May 2019 has clarified and, at the same time, expanded the Ministry's sanction powers.
First, if the investment is carried out without any authorisation, the Ministry can either:
- order the investor to file an application;
- order the investor to return to the status quo ante at its own expense; or
- order the investor to modify the investment.47
Second, if an investment is in contravention of the agreed conditions, the Ministry can either:
- order the investor to comply with the unfulfilled condition;
- order the investor to apply remedy actions, including a return to the status quo ante, in substitution for the unfulfilled condition; or
- revoke the authorisation.48
In any case, the Ministry can attach an interlocutory penalty to the above-mentioned injunction. Moreover, it can take protective measures if it considers the national interests to be at risk: it has the authority, inter alia, to suspend the voting rights, the distribution of dividends or the free disposal of the assets related to the sensitive activities and to appoint within the company an agent entitled to obstruct any decision likely to affect the protection of national interests.49
Moreover, in any event, infringement of the foreign investment regulatory regime may be punished by a civil fine capped at the highest of the following amounts:50
- twice the amount of the non-complying investment;
- 10 per cent of the annual turnover (excluding tax) of the company carrying out the sensitive activities; and
- €5 million for legal entities and €1 million for natural persons.
However, a fine must be proportional to the gravity of the offence.
Investors also face possible criminal sanctions, including imprisonment for up to five years. Legal entities face the imposition of various prohibitions (carrying out certain activities, participating in public tendering procedure, receiving government subsidies, etc.), either definitively or for a limited period, and a fine of up to five times the amount of the investment.51
x Right of recourse
The decisions of the Ministry are subject to full review by an administrative judge.52 Under this procedure, the judge is given broad powers to control the Ministry's decision to submit an investment to prior authorisation53 and to overrule the Ministry's authorisations or rejections. The judge may hold the government liable for damages in respect of the investor; although, in practice, it is extremely difficult to establish the state's liability.
Moreover, an EU investor may challenge the Ministry's decision under EU law in the French courts if it can demonstrate that the French regulatory framework creates an unjustified restriction of the free movement of capital or that it lacks proportionality with regard to the public policy objectives at issue.
xi Declaration of the completed investment
The completion of an authorised investment gives rise to a notification in accordance with the conditions laid down by a forthcoming order of the Ministry.54
Foreign investor protection
France has signed and ratified bilateral investment treaties with 104 countries, as well being a signatory to the multilateral International Centre for Settlement of Investment Disputes Convention on the settlement of investment disputes between states and nationals of other states. These treaties offer foreign investors broad guarantees in terms of protection of their investment, resolution of disputes (such as access to arbitration, and the recognition and enforcement of awards) and compensation.
There have been no significant enforcement issues to report.
Strong guarantees exist at the domestic level: for instance, the right to property is constitutionally protected in France.55 Investors may seek protection of their rights before any judge and, at the highest level, before the Constitutional Council.
Other strategic considerations
It is recommended that foreign investors establish informal contacts with the Ministry prior to filing an official request. The monitoring and control of foreign investments in sensitive business sectors is a highly political process and it would be impossible to overcome opposition from the government. Additionally, if the Ministry were to deny authorisation on grounds of national interest, it is hard to imagine that administrative courts or eventually the Council of State would overrule this decision.
Certain targets may use regulatory consent for a change of control as an effective means of defence against unsolicited offers and especially when the offeror is a foreign company. In light of this, it is helpful to secure political approval at an early stage.
The covid-19 crisis initiated some changes in the foreign investment regime. The Order of 27 April 2020 has added biotechnologies to the list of sensitive sectors.56 Furthermore, the Decree and the Order both of 22 July 2020 have lowered the acquisition threshold triggering the approval proceeding, from 25 per cent of the voting rights to 10 per cent, for companies of publicly traded companies active in sensitive sectors. This change will be applicable only in the second half of the year, with the threshold reverting after 31 December 2020.57
The Decree and the Order establish a simplified authorisation procedure for the approval of foreign investment, whereby the foreign investor shall submit to the Ministry of Economy and Finance a notification stating relevant information.58 The authorisation is deemed granted 10 business days after receipt of the notification unless the Ministry objects to the granting under the simplified procedure.59 Should the Ministry oppose the authorisation under the simplified procedure, the foreign investor shall not proceed with the transaction without subsequently having submitted a complete approval request and following the standard authorisation procedure.60
Since the adoption of EU Regulation 2019/452, coordination of the authorities in charge of foreign investment control in the EU Member States has become commonplace in the context of multi-jurisdictional proceedings.
1 Didier Théophile is a partner and Olivia Chriqui-Guiot and Guillaume Griffart are associates at Darrois Villey Maillot Brochier.
2 Article L151-1 of the Monetary and Financial Code.
3 Article L151-2 of the Monetary and Financial Code.
5 Law No. 2019-486 of 22 May 2019 (the PACTE Law).
6 Decree No. 67-78 of 27 January 1967, Decree No. 89-938 of 29 December 1989, Decree No. 2003-196 of 7 March 2003, Decree No. 2005-1739 of 30 December 2005, Decree No. 2012-691 of 7 May 2012, Decree No. 2014-479 of 14 May 2014, Decree No. 2016-1663 of 5 December 2016, Decree No. 2017-932 of 10 May 2017 and Decree No. 2018-1057 of 29 November 2018..
7 Order of 14 February 1996 and Order of 7 March 2003.
8 Decree No. 2019-1590 of 31 December 2019.
9 Order of 31 December 2019.
10 OECD, latest foreign direct investment (April 2020), available at http://www.oecd.org/investment/FDI-in-Figures-April-2020.pdf .
11 According to the report for the year 2020 prepared by Ernst & Young on investment attractiveness in France, available at https://www.ey.com/fr_fr/attractiveness/quand-la-crise-rebat-les-cartes-de-l-attractivite (Ernst & Young, 'La compétition de la relance, Baromètre EY de l'attractivité, France, May 2020').
12 Certain investments that exceed the €15 million threshold must be notified to the French central bank for statistical purposes (Article R152-3 of the Monetary and Financial Code). Decree No. 2017-932 of 10 May 2017, which aims to simplify investments for foreign companies, abolished the administrative declaration to the Directorate General of the Treasury.
13 Article L151-3 of the Monetary and Financial Code.
14 Article R153-5 of the Monetary and Financial Code.
15 European Court of Justice, Association Église de scientologie de Paris and Scientology International Reserves Trust v. The Prime Minister, Case C-54/99, 14 March 2000.
16 Adopted on 9 December 2004.
17 The list of sensitive business sectors remains limited, although it has recently been expanded, which was not the case before 2004.
18 Article R151-1 of the Monetary and Financial Code.
20 Article R151-2 of the Monetary and Financial Code.
21 Within the meaning of Article L233-3 of the Commercial Code. Such a controlling stake results from a situation where (1) the investor holds, either directly or indirectly, a fraction of the share capital of a French company that gives it the majority of the voting rights at the general meetings of the company; (2) the investor holds alone the majority of the voting rights of a French company pursuant to an agreement entered into with other partners or shareholders and that is not contrary to the interests of the company; (3) the investor effectively determines the decisions of a French company's general meetings through the voting rights it holds; or (4) the investor is a partner in, or a shareholder of, a French company and has the power to appoint or dismiss the majority of the members of the company's board.
22 Article R151-4 of the Monetary and Financial Code.
23 Article R151-7, I, 1° of the Monetary and Financial Code.
24 Article R151-7, II, 2° I of the Monetary and Financial Code.
25 Article R151-7, I, 2° of the Monetary and Financial Code.
26 Article R151-7, I, 3° of the Monetary and Financial Code.
27 The information is listed in Article 1 of the Order of 31 December 2019.
28 The request shall indicate whether settlement has been by way of a transfer of funds from abroad to France or by other means.
29 Article 5 of the Order of 31 December 2019.
30 Within the meaning of Article L151-3 of the Monetary and Financial Code (i.e., public policy, public security and national defence).
31 Article R151-10 of the Monetary and Financial Code.
32 Within the meaning of Articles 222-34 to 222-39 of the Criminal Code.
33 Within the meaning of Article 223-15-2 of the Criminal Code.
34 Within the meaning of Articles 225-5, 225-6 and 225-10 of the Criminal Code.
35 Within the meaning of Article 324-1 of the Criminal Code.
36 Within the meaning of Articles 421-1 to 421-2-6 of the Criminal Code.
37 Within the meaning of Article 433-1 and 433-2 of the Criminal Code.
38 Within the meaning of Article 450-1 of the Criminal Code.
39 Within the meaning of Book IV, Title I of the Criminal Code.
40 Article R153-10 of the Monetary and Financial Code.
42 See, for instance, Decision No. 262626 of the French Council of State (the highest administrative court), dated 3 November 2004. The Council found that the Ministry's decision to submit a non-governmental organisation to an authorisation regime on grounds of national security did not need to be justified.
43 Adopted on 9 December 2004.
44 Article R151-8 of the Monetary and Financial Code. The conditions listed in the Monetary Code are not exhaustive.
45 Article R151-8 of the Monetary and Financial Code.
46 Article L151-4 of the Monetary and Financial Code.
47 Article L151-3-1 of the Monetary and Financial Code.
48 Article L151-3-1, II of the Monetary and Financial Code.
49 Article L151-1-3 of the Monetary and Financial Code.
50 Article L151-3-2 of the Monetary and Financial Code.
51 Article 459 of the Customs Code.
52 Article L151-1-3, III of the Monetary and Financial Code.
53 See Decision No. 160550 of the French Council of State, dated 15 April 1996, affirming the power of administrative courts to control the Ministry's decision to submit a foreign investment entity to the authorisation regime.
54 Article R151-11 of the Monetary and Financial Code.
55 It was recognised as a constitutional right by the Constitutional Council on 16 January 1982 (Decision No. 81-132 DC).
56 Order of 27 April 2020.
57 Decree No. 2020-892 of 22 July 2020 and the Ministerial Order of 22 July 2020.
58 Article 2 of Decree No. 2020-892 of 22 July 2020 and Articles 1 and 2 of the Order of 22 July 2020.
60 Article 3 of the Order of 22 July 2020.