By Olivia Lê Horovitz

1. What is the control of foreign investments in France?

Foreign investment control is a system of prior authorization of certain investments strictly defined by law, implemented by the Ministry of the Economy. This mechanism has been in force in France since 1966.

To carry out this control, the Ministry of the Economy, to which the Secretary of the General Directorate of the Treasury (“DGT“) reports, is responsible for examining certain investment transactions involving French entities to determine whether such transactions could be detrimental to public security, public order or the national defense interests of France.

2. Which foreign investments are subject to the control of the Ministry of Economy?

In France, the principle is that foreign investments are free. Only in exceptional cases are certain operations subject to prior authorization by the Ministry of the Economy. In 2023, 309 applications were examined by the DGT.

Thus, the Ministry in charge of the economy will only proceed with an audit if three cumulative criteria are met:

• The presence of a foreign investor;
• An investment operation as defined in article R 151-2 of the Monetary and Financial Code;
• Intervening in a sensitive sector.

The definition of a foreign investor is broad. It includes individuals of foreign nationality or tax residence, as well as entities incorporated under foreign law, but also entities incorporated under French law that are controlled by one or more of the above-mentioned persons or entities.

The concept of an investment transaction varies according to the origin of the investor. Regardless of the nationality of the foreign investor, acquisitions of control or of all or part of a branch of activity of an entity governed by French law are subject to authorization. In addition, for investors from outside the European Union, prior authorization is also required to cross the threshold of 25% of the voting rights in a French-law entity. A temporary measure lowering the threshold for holding voting rights (10%) in listed French companies triggering foreign investment control^[1] has been extended until December 31, 2023^[2].

Since January 2024, the scope of foreign investments subject to authorization has been extended. Decree no. 2023-1293 of December 28, 2023, consolidates the system for monitoring the crossing of the 10% voting rights threshold in companies listed on a regulated market by non-European investors, introduced by Decree no. 2020-892 of July 22, 2020.

Finally, and this is the most delicate criterion to handle, the operation must take place in a sensitive sector. These are activities set out by regulation, which fall within the sectors of defense and security, the press, energy or critical technologies.

3. Are intra-group transactions subject to foreign investment control?

When the investment is made between companies all belonging to the same group (i.e., held more than 50% of the capital or voting rights, directly or indirectly by the same shareholder), the authorization is deemed to have been granted.^[3]

Similarly, there is no need to file an application for authorization when the foreign Investor crosses the 25% threshold of an entity over which it has previously acquired control following the issuance of an authorization, or when the foreign investor acquires control of a company and has already received authorization in connection with the previous crossing of the 25% threshold of the capital or voting rights.

Article R.151-7 I has been rewritten since the Decree of December 28, 2023, on foreign investment in France, and now states, more concisely, that: “The investor is exempt from the authorization requirement […] when the investor of last resort in the chain of control, […], had, prior to the investment, already acquired control within the meaning of Article L.233-3 of the French Commercial Code.” This amendment, introduced by the Decree of December 28, 2023, is a legislative change designed to simplify the exemptions applicable to intra-group reorganizations.

There are two exceptions to these exemptions: where the investment results in the violation of a condition that had been accepted by the investor in a previous authorization procedure, or where the purpose of the investment is to transfer abroad all or part of a branch of a sensitive activity.^[4]

4. What are the “sensitive” sectors of activity, requiring investment control?

Sensitive sectors are sectors affecting national defense interests or likely to affect public order, public safety and activities essential to guaranteeing the country’s interests.

A decree of the Council of State (“Conseil d’Etat”) sets the restrictive list of sectors and activities presenting such challenges. The list of these sectors was supplemented in 2014 to cover, in particular, critical infrastructure operation activities (“Montebourg” extension), by the decree of November 28, 2018, which came into force on January 1, 2019, to cover future technologies, aerospace, hosting of certain data, and by the decree of December 31, 2019, which came into force on April 1, 2020, which includes new sectors, in particular to take into account developments in the European regulation of March 19, 2019 establishing a framework for the screening of foreign direct investment in the Union, such as print media and online press services for political and general information, food safety, energy storage and critical technologies.

An order dated September 10, 2021 (the Order) has made several changes to the current regulations relating to the control of foreign investments, applicable since January 1, 2022. The Order extends the definition of critical technologies mentioned in 1° of III of Article R. 151-3 of the Monetary and Financial Code to include cybersecurity, artificial intelligence, robotics, additive manufacturing, semiconductors, quantum technologies, energy storage, biotechnologies and technologies involved in the production of renewable energy (solar, wind, hydraulic, biomass or geothermal energy), considering current developments and challenges in this sector. Henceforth, foreign investments in research and development activities involving such technologies will be subject to the prior control procedure.

Article R. 151-3 of the Monetary and Financial Code identifies the sectors of activity in which foreign investments are subject to prior authorization. There are three types: activities that are sensitive in nature (R 151-3, I), activities involving infrastructure, goods or services that are essential to guarantee public security and public order (R 151-3, II), and research and development activities involving critical technologies and dual-use goods and technologies intended for implementation in one of the other activities mentioned above (R 151-3, III).

Activities that are sensitive by nature are those that are likely to affect the interests of national defense, participate in the exercise of public authority, or are likely to affect public order and public safety. Without claiming to provide an exhaustive list, we can mention:

• activities related to weapons, ammunition, powders and explosive substances for military purposes;
• activities related to dual-use goods and technologies;
• cryptology or communication interception activities;
• or activities related to the illicit use of pathogens or toxic agents.

Regarding the second category of sensitive sectors: activities involving infrastructure, goods or services that are essential to guarantee public security and public order, the focus is on identifying these infrastructures, goods and services. These include infrastructure, goods or services that are essential to the continuity of water and energy supplies, to the operation of communication and transport networks and services (as well as space operations), to the protection of public health or food safety, or to the dissemination of information.

Finally, the last category, added in 2019, concerns research and development activities involving dual-use goods (listed in Annex I of the Council Regulation (EC) of May 5, 2009), as well as critical technologies (cybersecurity, artificial intelligence, robotics, additive manufacturing, semiconductors, quantum technologies, energy storage), which was extended to biotechnologies by order of April 27, 2020^[5] (in the context of research into an anti-covid vaccine), and completed again by order of September 10, 2021^[6], by adding technologies involved in the production of renewable energy.^[7]

Since the Decree of December 28, 2023, on foreign investment in France, amending Article R151-3 of the CMF^[8] and in order to prevent circumvention attempts, control of foreign investment in France now extends to takeovers of French branches of foreign entities, as well as to the processing and extraction of critical raw materials.

The list of critical technologies has been extended once again to research and development activities in the fields of photonics and low-carbon energy production technologies when they are to be applied in strategic sectors.

In addition, activities essential to prison security are explicitly included in the scope of control.

5. What to do when in doubt about the “sensitivity” of the activity?

The definition of sensitive sectors in the Monetary and Financial Code is broad and relatively unclear. As a result, foreign investors often have doubts about the eligibility of their operations for the foreign investment control process.

To remedy this and to allow the parties to secure the planned transaction, article R. 151-4 of the Monetary and Financial Code provides for a prior application procedure. This allows the investor or the target to obtain a ruling from the administration as to whether the activity of the French entity falls within the scope of foreign investment control.

To initiate this procedure of prior request for examination, it is sufficient to submit a simplified file to the DGT. However, the deadline for a response from the French administration is two calendar months, which is still significant in terms of the timetable for the transaction, and this opinion does not dispense with the need for an application for authorization, if necessary. This is why, in practice, most investors file complete applications for authorization to avoid delays.

6. How does the examination of a request for authorization proceed?

The application for authorization, containing all the information required under Articles L.151-3 and R.151-1 et seq. of the Monetary and Financial Code, as well as the European notification form for the transaction, must be sent to the DGT, which is responsible for examining it on behalf of the Minister of the Economy. To do this, it relies on the Interministerial Committee on Foreign Investment in France (CIIEF). This Committee brings together administrative officials and institutions with expertise in the sectors subject to control. When specific expertise is required, other French government departments may be mobilized.^[9]

The Minister has 30 working days from the date of receipt of a complete application to give his opinion. The period is suspended due to any request for additional information. At the end of this period, he must then indicate to the investor either that:

• the investment is not subject to foreign investment control,
• it is authorized without condition,
• it falls within the scope of the law, but that further examination is necessary to determine whether the preservation of national interests can be guaranteed by attaching conditions to the authorization.^[10]

If there is no response within this timeframe, the request is deemed to be rejected, contrary to the former regulation. It is therefore important to obtain a response before the end of this period.

If, at the end of this first phase of appraisal, the Minister has concluded that further examination is necessary, he must notify the investor of the opening of a second phase of appraisal lasting a maximum of 45 working days. At the end of this second phase, the Minister may authorize the transaction with or without conditions or refuse the transaction. In the absence of a response within this 45-day period, the application is deemed to be rejected.

The purpose of these instruction phases is to allow the DGT to analyze the impact of the investment operation on public security, public order, and national defense interests. To this end, and during these two instruction phases, the Minister may communicate with the investor and the target to obtain any document or information necessary for the execution of his mission, without being able to oppose legally protected secrets.^[11] 

As a result of the above, the maximum statutory period for obtaining a decision from the Minister is 75 working days.^[12]

The control procedure is protected by strict confidentiality rules. The transmission of documents within the framework of the investigation can only be communicated to the agents of the administration in charge of investigating the files. The decision is not made public.

7. What are the consequences of the Minister’s decision?

Whatever the Minister’s decision, it can be appealed before the Administrative Court of Paris within 2 months.

If the Minister has authorized the transaction, with or without conditions, the investor must make a declaration within two months of the completion of its investment, in accordance with Article 3 of the Decree of December 31, 2019, on foreign investments in France. Such a declaration is not required when the Minister has concluded that the investment does not fall within the scope of foreign investment control. However, all FDI transactions must be reported to the Banque de France within 20 working days from the date of actual completion, provided that the transaction is worth more than EUR 15 million.

If the transaction has been authorized with conditions, compliance with these conditions will be monitored by the competent ministerial departments throughout the period of their application.

8. What are the sanctions when an operation falling within the scope of the control is carried out without authorization?

The penalty for failure to obtain authorization is severe: any commitment, agreement or contractual clause that directly or indirectly makes an investment subject to the control of the Minister of the Economy without the required authorization having first been obtained is null and void.^[13]

In addition, the Minister of Economy may also order the investor to:

• to file an application for a regularization permit;
• to restore the previous situation at its own expense, and/or;
• to modify the investment. ^[14]

These injunctions may be accompanied by a penalty payment and/or protective measures (suspension of voting rights attached to the investor’s shares, prohibition on the distribution of dividends, suspension of the free disposal of assets, appointment of a trustee to ensure the protection of national interests, etc.), in order to prevent risks of harm to public order, public security or national defense.^[15]

These decisions or injunctions can only be made after the investor has been given formal notice, except in urgent or exceptional circumstances.^[16]

The Minister of the Economy may also impose a fine in proportion to the seriousness of the breach, which may not exceed the highest of the following amounts:

• double the amount of the irregular investment;
• 10% of the amount of the annual turnover (excluding tax) of the target company of the irregular investment;
• 1 million euros for individuals;
• 5 million for legal entities.^[17]

These financial penalties are also applicable in the event of fraudulent obtaining of authorization, or failure to comply with injunctions issued by the Minister of the Economy.^[18]

Finally, the making of a foreign investment without prior authorization is subject to criminal sanctions. Thus, the investor is liable to five years’ imprisonment, confiscation of the property and assets resulting from the offence, a fine equal to at least the amount and at most twice the amount of the offence, as well as a ban on carrying out a commercial activity or a public function.^[19]

9. What happens when the conditions of the authorization are not respected?

If the investor has not complied with one or more conditions attached to the authorization of the Minister in charge of the Economy, the Minister shall take one or more of the following measures:

• He may withdraw the authorization issued;
• require the investor to comply with initial conditions within a specified period; and/or
• impose compliance with newly established conditions.

10. What are the European regulations on screening foreign investments?

Given the proximity and degree of interconnectedness between different European Union (“EU”) member states, making a foreign investment within one member state has the potential to pose a risk to the security or public order of one or more other member states. To limit this risk, Regulation 2019/453 establishing a framework for screening foreign direct investment (“FDI”) in the EU was adopted in March 2019, and entered into force on October 11, 2020. This regulation does not create a mechanism for screening FDI at the EU level, but it establishes a framework for the screening by member states of FDI occurring on their territory, as well as a mechanism for cooperation between those member states and the European Commission regarding FDI that may undermine security or public order.

Within the framework of this cooperation mechanism, Member States must notify the European Commission and other Member States of any investment subject to screening on their territory and transmit to them certain information (identity of the parties, sectors of operation, amount of the operation, location of the operation, etc.) by secure means. In practice, this translates into the communication of a form entitled “Request for information from the investor” which must be annexed to the request for authorization of the operation addressed to the Minister of the Economy. The Member States and the Commission study this information and may request additional information and issue comments or opinions on the proposed transaction. The DGT is not bound by these opinions but must “duly take them into account” by considering the measures available in its national law. In the case of investments considered to affect projects or programs of interest to the EU (listed in an annex to the Regulation), the member state hosting the planned investment must take “the utmost account” of the Commission’s opinions and justify any non-compliant decision. 

The cooperation mechanism may also be implemented at the initiative of another Member State or the European Commission, even when an FDI project planned or carried out in France is not subject to the control of the Minister of the Economy, if the project is likely to affect the security or public order of more than one Member State, or projects or programs of interest to the Union, and this within 15 months of the completion of the investment. The regulation provides an indicative list of factors to be taken into account in identifying investments likely to affect security or public order. It includes consideration of the effects of the investment on critical infrastructure, critical technologies, energy and raw material supplies, access to or control of sensitive information, or the freedom and pluralism of the media. Member States and the Commission may also consider whether the investor is controlled by the government of a third country, has a history of involvement in activities that undermine security or public order, or whether there are serious risks that the investor may engage in criminal or illegal activities.

Investors can rest assured that the exchanges that take place under this cooperation mechanism are strictly confidential. This mechanism is the only one through which France exchanges information on foreign investments on its territory.

The European Commission, in the fourth edition of its annual report, dated October 17, 2024, on the filtering of foreign investment from third countries, stressed the need for greater collaboration between Member States and called on to oblige all Member States to adopt this instrument at national level.^[20]. According to the report, over 1,500 transactions have been notified by Member States to the EU cooperation mechanism since the EU regulation came into force in 2020, with 85% of notifications coming from just 7 Member States. In January 2024, the Commission therefore tabled a legislative proposal to revise the regulation, which would oblige all EU Member States to set up an FDI screening mechanism to harmonize national rules.

However, the differences in regulations between Member States are significant and the lack of uniformity of law between Member States can make the process cumbersome as a multi-jurisdictional operation may result in different regulations being applied.

In addition, in some areas and depending on the circumstances, it may be difficult for parties to determine whether or not to file a permit application. In many cases, as a matter of prudence and in view of the potential sanctions, it may seem more reasonable to file a clearance application. It is therefore important to anticipate in the timing of an investment transaction the time frame for obtaining a response, which may vary considerably from one jurisdiction to another, and the potential consequences of a refusal or a conditional approval.

As such, understanding these regulations, while recognizing the discretionary power of the State, has become essential in the upstream preparation of an M&A or investment transaction in order to understand the timeframes, the risks and to consider possible remedies.

Attorney Disclaimer

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon Electa Law Selas. or its affiliates. Prior results referred to in these materials do not guarantee or suggest a similar result in other matters.

About the Author

Olivia Lê Horovitz is a founding Partner of Rimôn’s Paris Office. She represents clients during FDI clearance of transactions in France.  Her practice is primarily focused on cross-border mergers and acquisitions as well as private equity transactions. She represents clients in a variety of complex multijurisdictional acquisition transactions, including acquisition or sale of businesses, distressed companies, restructurings, divestitures, spin offs, recapitalizations, joint ventures and complex commercial contracts. Ms. Lê Horovitz regularly advises foreign companies wishing to invest in Europe in the context of private or public acquisitions as well as French companies looking to expand internationally.

If you are looking for advice on foreign direct investment regulation in France or cross border M&A issues, please contact Olivia Lê Horovitz for more information.    

• Olivia Lê Horovitz
• Founding Partner of Paris Office
• RIMÔN ELECTA LAW
• +33 (0) 620802963,
• [email protected]
• 215, Rue du Faubourg Saint-Honoré, 75008, Paris, France

References:

• ^[1] Decree 2021-1758 of 22-12-2021
• ^[2] 12/22/2022 – Extension to 2023 of the temporary lowering of the threshold triggering IEF control in French companies listed on a regulated market – Press – Ministère des Finances (economie.gouv.fr)
• ^[3] R. 151-7,I CMF
• ^[4] R. 151-7,II CMF
• ^[5] Order of April 27, 2020, relating to foreign investment in France.
• ^[6] Order of September 10, 2021, relating to foreign investment in France.
• ^[7] Order of December 31, 2019, relating to foreign investment in France, Article 6.
• ^[8] Article R151-3 of the Monetary and Financial Code, amended by Decree no. 2023-1203 of December 28, 2023 – art. 2
• ^[9] 47b9b032-3d2b-4779-8327-15d3400045ab (economie.gouv.fr)
• ^[10] Article R151-6 CMF
• ^[11] Article L151-5 CMF
• ^[12] Article R. 151-6 CMF
• ^[13] Article L 151-4 CMF
• ^[14] Article L151-3-1, I
• ^[15] Article L151-3-1, I
• ^[16] Article L151-3-1, III
• ^[17] Article L151-3-2
• ^[18] Id.
• ^[19] Article L. 165-1 CMF; Article 459, I Code des Douanes,
• ^[20] https://www.lemoci.com/union-europeenne-montee-en-puissance-du-mecanisme-de-filtrage-des-investissements-etranger/