The regime for control of foreign direct investment (FDI) in France has recently experienced significant changes, including through guidelines published by the General Directorate of the Treasury, the implementation of an online application platform launched in October 2023, and December 2023 updates to the scope of the FDI screening regulations.
The French Ministry of Economy and Finance, through the intermediary of the General Treasury Department, published a document in September 2022 setting out the main guidelines relating to FDIs in France. (For purposes of this publication, “foreign” herein refers to any non-French entity, individual, or investment, as the case may be.)
The guidelines outline the scope of application for the control of FDIs in France as well as the procedure for the authorization or prior examination of an activity subject to FDI screening. They also specify the monitoring that is carried out by the French State when such authorization is given.
In practice, these guidelines have the merit of clarifying certain complex points of FDI applications, and have been well received by legal professionals for their descriptiveness. For instance, the guidelines provide valuable information on and/or concrete examples of what should be considered as a “business line” (branche d’activité) under the FDI regime and who must be identified in the presence of holding chains within investment funds.
The lowering of the threshold triggering the control of foreign investments in French companies listed on a regulated market to 10%, which was initially intended to be a temporary measure, has now become a permanent requirement through Decree No. 2023-1293 of 28 December 2023, which entered into force on 1 January 2024.
The lowering of the threshold was originally instated during the pandemic, and was later extended due to successive global crises that increased the vulnerability of certain sectors and destabilized several companies, leaving them vulnerable to hostile investments.
As a reminder, Decree No. 2019-1590 of 31 December 2019 defines the rules of control of FDIs through Articles L. 151-1 to L. 151-7 of the Monetary and Financial Code and Articles R. 151-1 to R. 151-17 of the Monetary and Financial Code. In order for these rules to apply (and subject to the derogations set out in the regulation), there are three factors to consider:
The investor must be a foreign individual or a French individual domiciled outside France, but may also be a foreign entity or a French entity controlled by one or more of the persons above (the notion of “control” being given the meaning found in Article L. 233-3 of the French Commercial Code or Article L. 430-1 of the same code).
The investment must be through (1) the acquisition of control of a French entity or the French branch of a foreign entity, (2) the acquisition of all or part of a business line (branche d’activité), or (3) the crossing of the threshold of 25% of the voting rights, directly or indirectly, of the French entity or the crossing of 10% of the voting rights of a French company listed on a regulated market.
Finally, it is worth noting that investors from a country in the European Union or a country in the European Economic Area having an administrative assistance convention against fraud and tax evasion with France are excluded from the scope of application of this provision.
Activities targeted by these texts are, in principle, those that may “undermine public order, public security or the interests of national defense,” but also encompasses activities involving “research, production or marketing of arms, ammunition, gunpowder and explosive substances.” There is an exhaustive list provided for in Article R 151-3 of the Commercial Code, which list of activities has grown over time. The newest addition was introduced by Decree No. 2023-1293 of 28 December 2023 with the extension of the regime to the processing and extraction of critical raw materials.
The FDI screening procedure takes place in two phases:
Phase I Review: For All Applications
The French Ministry of the Economy has 30 business days following the date of receipt of the application for approval confirmed complete to decide that (1) the transaction does not fall within the scope of the French FDI screening regime, (2) the transaction is authorized unconditionally, or (3) the application requires further in-depth examination in a so-called “Phase II.”
Phase II Review: For Applications in Which an In-Depth Examination Is Required
If further in-depth examination is required, the French Ministry of the Economy has an additional 45 business days to provide the investor with its final decision, i.e., (1) approval of the transaction without conditions, (2) refusal of the transaction, or (3) clearance subject to conditions or the giving of undertakings by the foreign investor to ensure that the contemplated transaction will not adversely affect public policy (ordre public), public safety, or national security.
It should be noted that, before any investment transaction starts, a French target company subject to a potential foreign investment (or the investor, with the agreement of the French target company) can also seek an opinion from the Ministry of Economy and Finance in order to confirm if the activities of the target company fall within the scope of foreign investment control. In such a case, an opinion will be issued within two calendar months.
The General Directorate of the Treasury also recently set up a new online platform for submitting FDI applications, which has been operational since 2 October 2023.
The platform was presented as a simple, secure, and pedagogical tool that would enable investors to submit and follow the step-by-step processing of their applications for authorization relating to FDI.
This new procedure is also part of the broader attempt to modernize and clarify the rules applicable to FDI applications in the same vein as the guidelines mentioned above.
It remains to be seen whether this platform will in reality simplify submissions, as some legal counsel have indicated that they have found the platform more constraining in the information that can be provided. We understand that the platform has been a work in progress since its launch and that it will be improved as feedback from practitioners is taken into consideration by the French Ministry of Finance.
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