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France: strengthening of the foreign investment control mechanisms, in line with a general international trend

  • France
  • Corporate
  • Aerospace, defence and security
  • Industrials


New regulations on foreign investment in France were published on January 1, 2020. These texts make numerous changes to the legal framework for investment control in France.

Financial relations between France and foreign countries are, in principle, free. As an exception, foreign investment in France is subject to a prior authorization procedure in certain sectors that are listed exhaustively and that may concern national defense, public order or activities that are deemed to be essential to safeguarding the country's vital interests.

Partly enshrined in the so-called “Pacte” Act, published on May 23, 2019, this prior authorization system has been reformed in order to maintain France's attractiveness to foreign investors, while improving the means of safeguarding the country's strategic interests.

As we shall see, this reform is part of a general trend towards strengthening the foreign investment control mechanisms throughout the world by partner countries (notably the United States and Germany). This trend led, in the United States, to the publication in August 2018 of the Foreign Investment Risk Review Modernization Act, or FIRRMA, and, at the European level, to the adoption of the European Regulation of 19 March 2019 establishing a framework for the screening of foreign investment in Europe.

If we look at this reform with even more hindsight, we can see that this general trend is not limited to the protection of activities considered sensitive or essential to the national interests, but also extends to the protection of commercial information having the nature of trade secret - even if it is a question here of protecting the private interests of the companies concerned and no longer directly the public interest - as shown by the adoption, at the European level, of the directive of 8 June 2016 on the protection of trade secret and the law of 30 July 2018 which transposed this directive into French law.

The three pillars of the reform relating to foreign investment in France

Preventing or punishing breaches better: The legislator has given the Minister for the Economy new police and sanctioning powers, which can be exercised when an investment has been made without prior authorization or when the conditions set for making it have not been respected by the investor concerned.

Protecting the sectors of the future: In order to adapt the French system to the contemporary challenges that certain foreign investments may represent, the list of sectors concerned by government control has been further extended. Thus, new sectors are now protected, in accordance with European Union standards: the written and digital press, the food supply chain, and the research and development concerning (i) critical technologies (e.g. artificial intelligence, energy storage, quantum technologies, etc.) used in activities considered sensitive or essential or (ii) dual-use goods and technologies according to the European nomenclature.

In addition, when the investments come from entities that are not governed by the law of Member States of the European Union or States party to the Agreement on the European Economic Area that have concluded an administrative assistance agreement with France to combat tax fraud and tax evasion, the threshold for control of such investments by the French Ministry of the Economy, which was previously set, for this category of investors, at 33% of the capital or voting rights of the French company, has been lowered to 25% of the voting rights only.

Finally, any foreign investor which is not governed by the law of a European Union Member State must, as soon as it applies for authorization to invest in France, disclose its links with a foreign State or governmental agency. These links may participate in the refusal to grant an investment authorization.

Simplifying the procedure and increasing transparency: In order to preserve the attractiveness of the French economy for foreign investors, the strengthening of the investment control procedure and of the Ministry of the Economy' powers to impose sanctions is accompanied by new measures to simplify and speed up the processing of authorization applications.

First of all, it should be recalled that any French company was recently offered the option of asking the Ministry of the Economy whether its activity constitutes a sensitive or essential activity falling within the scope of the regulations on foreign investment in France. The Ministry of the Economy' response then enables the company's shareholders to initiate a disposal process with full knowledge of the facts.

In order to speed up the divestiture process, in the event of a request for authorization by a foreign investor, it is now provided that the French Ministry of the Economy will have to take a position within 30 business days on the application of foreign investment regulations to the transaction in question. If the Ministry of the Economy wishes to consider the possibility of authorizing the transaction subject to certain conditions, an additional 45 business day period will apply.

Lastly, since the entry into force of the Pacte Act, the main statistics relating to the supervision of foreign investment in France (number of cases handled by the Ministry of the Economy, origin of investors, sectors targeted) have to be made public and also communicated to Parliament.

The measures of the new regulations implementing the Pacte Act entered into force immediately, while the measures applicable to applications for authorization will come into force on April 1, 2020.