Foreign investments in France, or relating to companies incorporated under French law do not require any administrative authorization, except when the planned investment (i) relates to certain activities and (ii) is made by certain investors. It should be noted that the procedure, recently amended, raises some questions. And finally, the COVID-19 has led to serious changes in the control of foreign investment. This new regime is line with the requirements adopted by the EU on 19 March 2019. The applications for administrative authorisations filed from 1st April 2020 are subject to this new legal regime.
1. The investments subject to the Foreign Investment control regime
1.1 Which businesses are submitted to the Foreign Investment control regime?
Pursuant to article L. 151-3 of the French Monetary and Financial Code foreign investments require authorization when they involve activities (i) related to the exercise of public prerogatives (ii) that could be harmful to public order, public security or the interests of national defense, or (iii) activities of research, production or marketing of arms, ammunition, explosives and biotechnology, as these sectors are listed exhaustively in article R. 151-3 of the French Monetary and Financial Code.
1.2 Which investors are subject to the Foreign investment control regime?
In principle, the restrictions apply to Controlled Investments (as defined below) made by any 'Foreign Investor' defined as:
- any foreign citizen;
- any French citizen not having its tax residence in France;
- any entity governed by foreign law; or
- any entity governed by French law but controlled by one or more of the above persons or entities.
Any entity or individual, which are part of a “chain of control” that means controlled by an entity subject to this legal regime, may also be considered as a Foreign Investor subject to this legal regime.
2. The investments concerned by the control regime
Any investment made by any Foreign Investor, shall be subject to a prior administrative authorization when it allows the Foreign Investor to achieve an investment (the 'Controlled Investments'):
- related to the takeover (control within the meaning of article L. 233-3 of the French Commercial Code) of a company governed by French law;
- related to the total or partial acquisition of a branch or business activity of a company governed by French law; or
- which exceed, directly or indirectly, alone or in concert, the threshold of 25% of the share capital or voting rights of a company governed by French law.
It should be noted that the above mentioned 25% threshold condition does not apply to investors with an EU citizenship, or with EFTA citizenship (only if the countries members of the EFA have concluded an administrative assistance agreement with France to prevent tax fraud and tax evasion).
3. Control Procedure of Foreign investment
3.1 Which authority is competent for granting an authorization?
The authority competent to authorize foreign investment is the French Minister of Economy and Finance.
3.2 Application for authorization
In principle, Foreign Investors shall request an approval for a Controlled Investment to the Minister.
Within 30 working days after receipt of the application for authorization, the Minister shall notify the Investor either (i) that the proposed investment falls outside the scope of the authorization procedure, or (ii) that it falls within the scope of the authorization procedure and is authorized without conditions, or (iii) that it falls within the scope of the authorization procedure but that further examination is required to determine whether the protection of national interests can be ensured by setting conditions to the authorization to make the Controlled Investment.
It is important to note that in the absence of a response within this 30 days-period, the application for authorization is deemed to be rejected.
In the event of further examination, the Minister benefits from 45 additional working days to reject or approve the Controlled Investment, subject to conditions if necessary. In the absence of a response within this deadline, the application for authorization shall also be deemed to be rejected.
3.3 Request for ruling to the French Minister of Economy and Finance
It is possible to file a prior request to the Minister for a review to determine whether the activity subject of the concerned investment falls within the scope of 'protected' activities. The target company of the investment or the Foreign Investor (with the agreement of the target) may also file such a request to with the Minister prior to the investment to determine whether the activity of the target falls within the scope of the control regime.
3.4 Exceptions to the prior authorization of the Minister
A prior authorization related to a Foreign Investment is not required: if (i) the Controlled Investment is operated between companies of the same company group, (ii) the Foreign Investor exceeds the 25% threshold and has already been approved by the Minister, or (iii) the Foreign Investor takes control of a company and has already exceeded the 25% threshold, after receiving approval to do so.
3.5 Certificate of investment achievement
Once the Controlled Investment is completed, the Foreign Investor shall declare the completion of the investment operation to the Minister within two months following the completion of the Controlled Investment.
4. FDI restrictions in light of the COVID-19 pandemic
Temporary strengthening of restrictions
The EU Commission favors the use of appropriate filtering tools by Member States and urges them to be vigilant in order to avoid the COVID-19 crisis leading to massive divestments of European companies and industries, especially in the health sector or predatory acquisitions in a context of significant falls in stock market valuations.
Furthermore, on April 29, 2020 the French Minister of Economy and Finance has now announced two measures related to the control of investments: (i) the biotechnology sector is now subject to control (ministerial decree of 27 April 2020 with immediate application), and (ii) the 25% threshold condition has been decreased to a 10% threshold condition for listed companies, this second measure shall come into force in the second semester of this year and shall end on 31 December 2020.