France's foreign investment regime

Out-Law Guide | 22 Oct 2019 | 4:28 pm | 5 min. read

The original French regulation relating to foreign investment controls (FIC) was implemented by law no 66-1008 dated 28 December 1966.

The FIC regime is set out in the French 'Code monétaire et financier' (CMF). In the last decade, the rules were largely amended by laws and related decrees continuously specifying the scope of activities which may be subject to a prior authorisation from the French Ministry of Economy (MoE) and lastly amended by law no 2019-486 dated 22 May 2019.

In addition, on 19 March 2019, an EU Regulation establishing a European screening mechanism for foreign direct investments was adopted (Regulation (EU) 2019/452) which will be fully applicable in France from 11 October 2020.

FIC rules

Under the French FIC rules, an investment carried out in France shall be subject to the prior authorisation of the MoE in the event such investment passes the three following tests:

  • the investment is carried out in France by a foreign investor, either a Non EU/EEA Investor or an EU/EEA Investor;
  • the investment qualifies as (i) a Share Deal, an Asset Deal or a Threshold Crossing for Non EU/EEA Investors or (ii) a Share Deal or an Asset Deal for EU/EEA Investors ("Regulated Investments"); and
  • the activity of the target of the investment falls into one of the categories of the Regulated Activities.

Qualification of foreign investor

Pursuant to articles R. 153-2, R. 153-4 and R. 153-5 of the CMF, the following persons qualify as foreign investors for the application of the French FIC rules:

  • (i) an individual that is not a citizen of an EU member state or EEA member state that entered into a convention to fight fraud and to deal with tax avoidance with France, (ii) an individual that is a French citizen not residing in an EU or EEA member state or (iii) a legal entity having its registered office not located in an EU or EEA member state ("Non EU/EEA Investor"); and
  • (i) an individual that is a citizen of an EU or EEA member state other than France, (ii) an individual that is a French citizen residing in an EU or EEA member state other than France or (iii) a legal entity having its registered office located in an EU or EEA member state other than France ("EU/EEA Investor").

The Regulated Investments

Pursuant to article R. 153-1 of the CMF, if the foreign investor is a Non-EU/EEA Investor, an investment shall be deemed to qualify as a Regulated Investment in the event such investment falls into one of the following categories:

  • the direct or indirect acquisition of a controlling stake, within the meaning of article L. 233-3 of the French Code de commerce, of the share capital and voting rights of a company having its registered office located in France ("Share Deal");
  • the acquisition of all or part of a branch of activity (branche d'activité) of a company having its registered office located in France ("Asset Deal"); or
  • the crossing of the threshold of 33.33% of ownership of the share capital or voting rights of a company having its registered office located in France ("Threshold Crossing").

Pursuant to article R. 153-3 of the CMF, if the foreign investor is an EU/EEA Investor, an investment shall be deemed to qualify as a Regulated Investment in the event such investment falls either in the category of Share Deal or Asset Deal.

The Regulated Activities

Pursuant to article L. 151-3 of the CMF, any Regulated Investment is subject to the prior authorisation of the MoE if such investment relates to (i) a public authority activity or (ii) (a) activities that are likely to affect public order, public safety or national defence or (b) activities of research, production or sale of weapons, ammunitions, gunpowder or explosive materials ("Regulated Activities").

The scope of such Regulated Activities is slightly different depending on whether (i) the investor is an EU/EEA Investor or a Non EU/EEA Investor and (ii) as per an EU/EEA Investor, the investment is a Share Deal or an Asset Deal.

For information purposes, the list of the Regulated Activities includes the following main categories of activities, amongst others:

  • gambling activities (except casinos);
  • private security activities;
  • activities deemed to prevent the use of pathogenic or toxic materials in the context of terrorist activities;
  • activities relating to any means of telecommunication detection and interception;
  • activities relating to company's data systems security;
  • cryptology activities;
  • activities carried out by companies holding national defence secrets in custody;
  • production or sale of weapons, ammunitions, gunpowder or explosive materials for military use;
  • activities carried out by companies having entered into a study or supply agreement with the French Ministry of Defence; and
  • ·other activities that are instrumental for the protection of France's interests in relation to (i) energy supply, (ii) water supply, (iii) transport network and services, (iv) telecommunication networks, (v) establishments, facilities or works deemed vital within the meaning of the French 'Code de la défense' or (vi) public health protection.

Formal procedure

In the event prior authorisation is required, an investor must file an application by email and letter with the MoE. Pursuant to article 4 of the French order dated 7 March 2003, such application shall mention sufficient information in relation to (i) the foreign investor, (ii) the investment itself and (iii) the target of the investment.

The MoE must carry out its review of the investment within a two-month term after receiving all information necessary for its review. In the event the MoE does not answer in this timeline, the prior authorisation to complete the investment is deemed to be granted.

A foreign investor may, prior to the completion of an investment in France, file a request to the MoE to obtain confirmation whether the contemplated investment is subject to the prior authorisation of the MoE. The MoE shall answer to this request within a two-month term as of its receipt. In the event the MoE fails to answer to this request, the foreign investor shall formally request the prior authorisation of the MoE to complete its investment.

In addition to the prior authorisation from the MoE, any direct investment or divestment in France or acquisition or sale of a real estate property of an amount exceeding EUR 15,000,000 carried out by a foreign investor shall be filed with the Banque de France for statistical purposes within a 20 day term as of completion.

Legal consequences

At the end of its review, the MoE may either accept or reject said investment or accept the investment subject to the satisfaction by the investor of certain conditions imposed by the MoE.

In the event a foreign investment subject to the prior authorisation of the MoE has been completed without prior authorisation or without complying with the conditions raised by the MoE, the MoE may, subject to a 15 day prior notification sent to the investor to request explanations, require remediation actions from the investor (e.g. requiring the investor to amend its investment or requiring the investor to undo its investment or to comply with the conditions).

In the event the foreign investor (i) carries out an investment subject to the prior authorisation of the MoE without such prior authorisation, (ii) has obtained the prior authorisation of the MoE fraudulently or (iii) fails to meet the MoE's requirements relating to the investment and after the MoE has requested the comments of the foreign investor on such breach within at least 15 days as of said breach has been raised, the MoE may charge that foreign investor with a fine of a maximum amount of the higher of the following amounts:

  • twice the amount of the unauthorised investment;
  • 10% of the annual turnover excluding taxes of the target company of the investment; or
  • EUR 5,000,000 for a legal entity or EUR 1,000,000 for an individual.

Please note that the FIC procedure is confidential. Prospectively, as of the end of 2019, the MoE will publish annual statistics on the FIC.