Foreign direct investment in France

The FDI 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); most recently law no 2019-486 dated 22 May 2019, décret no 2019-1590 dated 31 December 2019 and arrêté dated 31 December 2019 (such arrêté being amended by arrêté dated 27 April 2020). Both décret no 2019-1590 dated 31 December 2019 and arrêté dated 31 December 2019, which were passed in order to simplify FDI regulation, became effective as of 1 April 2020. An arrêté dated 10 September 2021, effective as of 1 January 2022, amended provisions in the December 2019 arrêté regarding the list of documents and information to be provided in the authorisation application.

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

France's FDI rules

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

• the investment is carried out in France by a 'foreign investor', as defined below;
• the investment qualifies as a share deal, an asset deal or a threshold crossing ('regulated investments'); and
• the activity of the target of the investment falls into one of the categories of the 'regulated activities', as defined below.

Qualification of foreign investor

Pursuant to articles R. 151-1 of the CMF, the following persons qualify as foreign investors for the application of the French FDI rules:

• a foreign individual;
• a French individual whose tax residence is outside of France;
• a foreign legal entity; or
• a legal entity incorporated under French law controlled by one or several individuals or legal entities listed above.

In the event of a chain of control, all the entities of the chain of control qualify as a foreign investor.

In the event the regulated investment involves an investment fund, the foreign investor shall be deemed to be the management company, which manages that investment fund, and the persons that control that management company.

The FDI regulation applicable as of 1 April 2020 no longer distinguishes whether the foreign investor is or is not an EU-based investor.

Regulated investments

Pursuant to article R. 151-2 of the CMF, an investment shall be deemed to qualify as a regulated investment in the event the 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 25% of the voting rights of a company having its registered office located in France ('threshold crossing'). A threshold crossing will not qualify as a regulated investment in the event the foreign investor is an individual that is a citizen of an EU or EEA member state that entered into a convention to fight against fraud and to deal with tax avoidance with France and residing in such EU or EEA member state, or an entity of which all the members of the chain of control, within the meaning of article R. 151-1 II of the CMF, are governed by the law of an EU or EEA member state or possess an EU or EEA member state nationality and are residing in an EU or EEA member state.

Pursuant to article R. 151-7 of the CMF, FDI controls do not apply in the following events:

• the regulated investment is carried out between entities that belong to the same group (i.e. entities of which at least 50% of the share capital or the voting rights is directly or indirectly held by the same parent company);
• the foreign investor carries out a threshold crossing on an entity on which it has previously carried out a share deal that was duly authorised by the MoE under the regulation; or
• the foreign investor carries out a share deal on an entity on which it has previously carried out a threshold crossing that was duly authorised by the MoE under the regulation, provided that such share deal is notified by the foreign investor to the MoE. In that case, unless the MoE lodges an objection on that share deal, the MoE shall be deemed to have approved that share deal at the end of a 30-day term as of the notification of that share deal.

In addition, due to the Covid-19 crisis, the MoE adopted décret no 2020-892 dated 22 July 2020 and an arrêté dated 22 July 2020, as amended by décret no 2020-1729 dated 28 December 2020 and décret no 2021-1758 dated 22 December 2021, reducing the threshold crossing condition from 25% to 10% for any regulated investment carried out from 7 August 2020 until 31 December 2022 provided that such regulated investment is not carried out by a EU-based or EEA-based foreign investor or by an entity belonging to a chain of control, the members of which are all EU-based or EEA-based; and is carried out on a listed company.

Pursuant to such temporary measures, any regulated investment qualifying as a threshold crossing under the décret no 2020-892 dated 22 July 2020 (i.e. between 10% and 25%) shall not be subject to prior approval of the MoE provided that the foreign investor notifies the MoE of that regulated investment prior to its completion; and the regulated investment is completed within a six-month term as of this notification to the MoE. Unless the MoE expressly objects to that regulated investment and requires the regulated investment to be subject to the authorisation procedure, the MoE shall be deemed to have approved that regulated investment at the expiry of a 10-business day term as of the notification from the foreign investor to the MoE.

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 set out under new article R. 151-3 of the CMF.

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;
• 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;
• 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;
• public health;
• written and digital press;
• production, processing and distribution of agricultural products (regarding food safety); and
• R&D activities, in particular, on 'critical technologies', the list of which is defined by arrêté. They include energy storage, biotechnologies (arrêté dated 27 April 2020) and artificial intelligence. The arrêté dated 10 September 2021 (effective as of 1 January 2022) adds to this list technologies involved in the production of renewable energy.

Formal procedure

In the event prior authorisation is required, pursuant to article R. 151-5 of the CMF, the authorisation request should be submitted by either the foreign investor or, in the event the proposed investment involves one or more foreign investors who belong to a chain of control, one of the members of the chain of control.

Pursuant to article R. 151-6 of the CMF, the MoE must respond within a 30-business day term and may either

• indicate that the target company’s activity is not subject to prior authorisation;
• refuse to grant the authorisation;
• grant the authorisation without setting out any conditions to the foreign investor; or
• indicate that the request requires additional examination to grant its authorisation.

In the event the MoE does not answer within the 30-business day term after receiving all information necessary for its review, the request for prior authorisation shall be deemed to be rejected.

According to article R. 151-6 of the CMF, where a further examination is required from the MoE during the initial 30-business day term, the MoE shall answer within a 45-business day term as of the date on which the MoE considers that it has received all the additional information requested in the context of this further examination. The MoE may either:

• refuse to grant the authorisation; or
• grant the authorisation without setting out any conditions to the foreign investor; or
• grant the authorisation subject to conditions to be complied with by the foreign investor.

In the event the MoE does not answer within the 45-business day term, the request for prior authorisation shall be deemed to be rejected.

Pursuant to article R. 151-4 of the CMF, either the target company or the target company and the foreign investor acting jointly 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 2-month term as of its receipt. In the event the MoE fails to reply to this request, the foreign investor shall formally request the prior authorisation of the MoE to complete its investment.

Completion of the regulated investment shall be notified by the foreign investor to the MoE within a 2-month term as of completion of that investment.

In addition to the prior authorisation from the MoE, pursuant to article R. 152-3 of the CMF, any direct investment or divestment in France or acquisition or sale of a company or a real estate property of an amount exceeding €15 million carried out by a foreign investor shall be filed with the Banque de France for statistical purposes within 20 days of completion.

Even if the overall duration of the new procedure appears longer than the procedure applicable before 1 April 2020 (i.e. two months), in practice, the procedure was longer than two months as the MoE required additional information and the negotiation of the undertakings to be taken by the foreign investor extended the overall timeframe. The negotiation of such undertakings or conditions to be complied with by the foreign investor is now limited to the new 45-business day term.

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 foreign 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
• €5m for a legal entity or €1m for an individual.

Pursuant to new article R. 151-14 of the CMF, in the event the foreign investor carries out an investment subject to the prior authorisation of the MoE without such prior authorisation or fails to meet the MoE 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 €50,000 per day (astreinte).

Currently, the FIC procedure is still confidential. The MoE reports that reform of the regulation, effective as of 1 April 2020, does not allow for an effective comparison of 2019 and 2020 data, as this reform led to an extension of the types of regulated activities and redefinition of the notions of foreign investor and regulated investment.

The main regulated activities were related to:

• defence and security (31.5%);
• sectors other than defence (50.5%); and
• a mix of the above (18%).

Foreign investors in France which are not EU-based are mainly American, Canadian and Swiss. The main EU-based foreign investors are British (pre-Brexit), Luxembourgish and German. Non EU-based foreign investment in 2020 accounted for 49.5% of all FDI, versus 50.5% for EU-based FDI.