Attitude toward Foreign Direct Investment
France is committed to encouraging foreign investment within its borders. In the current economic climate, the French government sees foreign investment as a way to create jobs and stimulate growth. Investment regulations are simple, and a range of financial incentives are available to foreign investors. A public agency named “Business France” resulted from the 2015 merger of UbiFrance (the trade promotion agency) and Agence Francaise pour les Investissements Internationaux (French Agency for International Investment or AFII, which promoted inward foreign investment in France). Business France has a staff of 1,500 in 70 countries. See http://invest.businessfrance.fr or http://invest.businessfrance.fr/?lang=en and the “Invest in France” smartphone application, through which users can “pinpoint every foreign investment location in France.”
Foreign investors say they find France’s skilled and productive labor force, good infrastructure, technology, and central location in Europe attractive. France’s membership in the European Union (EU) and the Eurozone (as the 19 countries that use the Euro currency are known) facilitates the movement of people, services, capital, and goods. However, notwithstanding French efforts at economic reform, market liberalization, and attracting foreign investment, perceived disincentives to investing in France include the tax environment, the high cost of labor (with the minimum wage, called the SMIC for Salaire Minimum Interprofessionnel de Croissance, at EUR 1,466 per month), rigid labor markets, and occasional strong negative reactions toward foreign investors planning to restructure, downsize or close. The 2015 AmCham-Bain Barometer details U.S. businesses’ concerns about some of France’s economic policies under President François Hollande (in office since May 2012), notably the lack of predictability in economic and budget policy and increased complexity of the tax and labor regimes. The AmCham France recommends changes to France’s labor regulations to boost employment, providing more legal stability and predictability to international investors in France, continuing to improve France’s cost competitiveness to catch up with competitors, attracting and retaining strategic functions and international talent in France, and accelerating administrative simplification without creating new complexities. See http://www.amchamfrance.org/assets/news_last_white_papers/845_barometre-amcham-bain-2015.pdf to download the 2015 AmCham-Bain Barometer study in French.
The Ministry of Foreign Affairs has a webpage devoted to economic diplomacy (http://www.diplomatie.gouv.fr/en/french-foreign-policy/economic-diplomacy-foreign-trade) that lists attracting foreign investment to France as a top focus. Websites with a broader focus include: http://m.invest-in-france.org/media/Doing-Business-in-France-2015.pdf and http://www.amchamfrance.org/en/special_business_reports/DOING-BUSINESS-IN-FRANCE/1.
No laws or practices discriminate against foreign investors by prohibiting, limiting or conditioning foreign investment except in a few specified sectors (refer to the section titled Limits on Foreign Control).
English summaries of regulations including labor and tax regulations applicable to foreign companies in France are available at the Business France website (http://sayouitofrance-innovation.com/wp-content/uploads/2015/09/DB_BUSINESS_UK_2015_BD_2708.pdf). French summaries are available at the Paris Chamber of Commerce and Industries' website (http://www.inforeg.ccip.fr).
Other Investment Policy Reviews
Given the relative stability of the investment climate, France is not the subject of international organizations’ investment policy reviews. For example, the Organization for Economic Cooperation and Development (OECD) has not conducted a review of the French investment climate since 1996. The World Trade Organization (WTO) does not provide trade policy reviews for the individual member states of the European Union, but does provide one for the European Union as a whole (2013): http://www.wto.org/english/tratop_e/tpr_e/tp384_e.htm. The United Nations Committee on Trade and Development (UNCTAD) does not have a public report on the investment climate in France, though UNCTAD provides a statistical fact sheet on French FDI (inward and outward) at http://unctad.org/sections/dite_dir/docs/wir2015/wir15_fs_fr_en.pdf and a country profile at http://unctadstat.unctad.org/CountryProfile/GeneralProfile/en-GB/251/index.html.
Laws/Regulations on Foreign Direct Investment
There is strong respect for the rule of law in France. Whereas the United States uses a “common law” system, French law is codified. Private law governs interactions between individuals (e.g., civil, commercial, and employment law) and public law governs the relationship between the government and the people (e.g., criminal, administrative, and constitutional law). Foreign investment in France can take many forms: acquisition, merger, takeover, purchase of securities and other financial contracts, greenfield investments, etc.
The formal French investment regime is said to be among the least restrictive in the world. For a description of the French legal system applicable to foreign investment refer to http://sayouitofrance-innovation.com/wp-content/uploads/2015/07/DB_BUSINESS_UK_2015_BD.pdf (English). For a brief introduction, see the video called “The A-Z of investing in France with the IFA” (http://www.dailymotion.com/video/xmmknp_the-a-z-of-investing-in-france-with-the-ifa_news).
The French government has a website called “Guichet Entreprises” (Business Window) that aims to be a one-stop shop for creating a business: https://www.guichet-entreprises.fr/article/10-etapes-de-la-creation-dentreprise/ and a similar one (in French) at https://www.cfe.urssaf.fr, Centre de Formalités des Entreprises, for registering.
Questions about foreign investment operations that require notification to the Banque de France (the French central bank) should be addressed to the bank:
Banque de France (http://www.banque-france.fr)
Service de la Balance des Paiements
31, rue Croix-des-Petits Champs
A. Companies, including foreign companies, may use the online business process which has been created to simplify formalities: https://www.guichet-entreprises.fr. A government organ formerly known as “Agence pour la Création d’Entreprises” (Business Creation Agency), but now called “Agence France Entrepreneur” (France Business Agency) also has information on creating a business: https://www.apce.com/pid224/8-les-formalites-de-creation.html. The World Bank’s “Investing Across Borders” webpage on France (http://iab.worldbank.org/data/exploreeconomies/france) provides quantitative indicators on the country’s laws, regulations and practices affecting how foreign companies invest across sectors, start businesses, access industrial land, and arbitrate disputes. “Centre de formalités des entreprises” (CFE or “business formalities center”), which are generally Chambers of Commerce and similar organizations located throughout France, are equipped to accept registration applications. Note some required formalities are not handled by a CFE, notably related to the domiciliation of business, the protection of the name of the business, and business insurance. In the best case, registration may take only a week. For further explanation on business registration, foreign investors may also refer to Chapter 1 “Setting up in France successfully” in http://sayouitofrance-innovation.com/wp-content/uploads/2015/07/DB_BUSINESS_UK_2015_BD.pdf (also available in French).
B. France’s investment promotion agency is named “Business France.” The agency is open to foreign investors (http://en.businessfrance.fr/our-services/invest/). Services are open to all businesses, regardless of size.
C. In France, companies are categorized by size. No specific legal structure exists for micro-enterprises but they do benefit from a specific tax status and accounting rules. (The French term “micro-entreprise” has replaced “auto-entrepreneur,” as self-employed small business owner or sole proprietorships were previously known in France). Small and medium enterprises (SMEs) are businesses with fewer than 250 employees and sales lower than €50 million or balance sheets not exceeding €43 million. In 2015 and 2016 the French government announced a number of measures in favor of very small enterprises (VSEs, or TPEs in French) and SMEs (PMEs in French) to encourage them to hire and invest. Benefits may apply to foreign-owned businesses. VSEs and SMEs are the back bone of the French economy, accounting for 99.8% of French businesses and employing 50% of workers.
The World Bank webpage on starting a business in France provides information on the ease of starting a limited liability company (http://www.doingbusiness.org/data/exploreeconomies/france/starting-a-business/).
In September 2013, President Hollande unveiled a EUR 35 billion plan to finance an “Investments for the Future” (Investissements d’Avenir) program targeting 34 priority industrial sectors. In 2014, he added another EUR 12 billion, bringing the total to EUR 47 billion. That same year, newly-appointed Minister of Economy, Industry and Digital Affairs Emmanuel Macron focused the program on six “strategic priorities”: Excellence in Higher Education, Training, and Research; Commercializing Research; Health and Biotech; the Digital Economy; Innovative Industry and Transport; and Sustainable Development. Unlike past government-led industrial policies, these plans were developed by the private sector up to EUR 22.5 billion, with the government merely “leveraging the funds to be invested by companies taking part in these initiatives,” which are also open to foreign investors. In 2015, Minister Macron launched Phase 2 of the “Investments for the Future” program, targeting the digital sector (onboard software and connected objects, digital security and high-end computing and digital simulation). More information on these initiatives is available at: http://www.gouvernement.fr/investissements-d-avenir-cgi or http://www.economie.gouv.fr/vous-orienter/industrie/nouvelle-france-industrielle.
President Hollande also launched an Innovation 2030 program in 2013 via a global contest called the “Worldwide Innovation Challenge,” open to all entrepreneurs investing in France regardless of nationality. In March 2014, the Innovation 2030 Commission selected 58 preliminary stage winners who received an initial EUR 200,000 to get their ventures going. The French government earmarked EUR 300 million to co-finance innovative entrepreneurs between now and 2030 in the following sectors: energy storage, the recycling of metals, the development of marine resources, plant proteins and plant chemistry, personalized medicine, the silver economy (products and services for older people), big data, and public security and threat protection. The first round of applications closed in March 2015; a second call for proposals ran through December 2015. Other details are available on the “Worldwide Innovation Challenge” website: http://www.entreprises.gouv.fr/innovation-2030/ (in French and English).
In the same vein, the French government inaugurated the French Tech initiative in 2014 to promote the development of France’s tech brand, and promote France as a location for start-ups and high-growth digital companies, with the goal of turning France into a “Start-Up Republic.” The French Tech initiative includes an “acceleration” investment by the French government of EUR 200 million to foster start-up ecosystems in and outside France and a EUR 15 million yearly budget to promote French innovation globally. The first two French Tech hubs were set up in the United States in 2014, in San Francisco and Boston. A “French Tech” conference is also organized every June in New York City. As part of the French Tech initiative, the French government launched in 2015 the “Paris French Tech Ticket” package to attract foreign entrepreneurs wishing to create or develop their start-up in Paris. This package includes a work visa, a $14,000-$28,000 grant (€12,500-€25,000) for each team member, free office space in an incubator in Paris, as well as an English-speaking administrative advisor to get through the red tape. Every six months, some 50 people will be awarded this French Tech Ticket. The first group of foreign start-ups was chosen in March 2016, and 23 of them, including 5 Americans, were greeted by President Hollande. See http://www.frenchtechticket.paris/7/faq.
France continues to support innovation in small and medium enterprises (SMEs) via a EUR 400 million national seed fund (Fonds National d'Amorçage or FNA) managed by public financial institution Caisse des Dépots et Consignations (CDC). The FNA fund is part of the French government’s EUR 35 billion ten-year (2010-2020) Investments for the Future program (Investissements d’Avenir). More information is available at: http://www.caissedesdepots.fr/fonds-national-damorcage and http://www.bpifrance.fr/Bpifrance/Nos-metiers/Fonds-propres/Les-fonds-de-fonds/Fonds-national-d-amorcage-FNA.
France’s Public Investment Bank (Banque Publique d’Investissement – Bpifrance) has been described by the French government as its "offensive" industrial policy tool. It also supports innovation in small and medium-sized companies and launched an accelerator for small companies in 2015 and will do the same for medium-sized companies in 2016. In 2014, it disbursed EUR 14 billion in interest-free loans, reimbursable advances, guarantees and equity investment to small and medium-sized companies at every stage of their development. The Public Investment Bank was formed in 2013 by merging a strategic investment fund named the “Directorate for Medium-Sized and Large Companies” (“Direction des ETI et Grandes Entreprises”), the Oséo fund for small business development, and the business lending arm of the government's financial institution (CDC or Caisse des Dépôts et Consignations). The government determines BPI’s broad strategic objectives and offers each French region a partnership setting out its priorities through its 90 regional funds and 38 regional establishments. The bank's management actively searches for companies throughout France needing funding and has begun publishing yearly regional reports. See http://www.diplomatie.gouv.fr/en/french-foreign-policy/economic-diplomacy-foreign-trade/facts-about-france/facts-about-french-economy/article/tailored-funding-with-the-public.
Limits on Foreign Control and Right to Private Ownership and Establishment
With a few exceptions in certain specified sectors (see “Screening of FDI” below), there are no statutory limits on foreign ownership of companies. Foreign entities have the right to establish and own business enterprises, and engage in all forms of remunerative activity. However, French government officials occasionally try to insert themselves into merger and acquisition talks or try to exert pressure on executives involved in major cross-border deals.
No laws or practices discriminate against foreign investors by prohibiting, limiting or conditioning foreign investment except in a few specified sectors (see “Limits on Foreign Control below).
France (like many other European governments) undertook a major privatization program in the 1990s. Today, the government owns a minority stake in several companies, listed in the section titled “Competition from State-Owned Enterprises.” The government has not announced plans to completely privatize any of the remaining state-owned enterprises (SOEs), but it has drawn down its shareholdings in several companies, and hopes to earn EUR 5 to 10 billion by selling stakes in regional airports and companies in which it holds double voting rights (e.g., electric utility EDF and national lottery company Française des Jeux). The government plans to sell its 60% stakes in Nice and Lyon airports in 2016.
Foreign investors are allowed to participate in privatizations. The government’s stakes in state-owned companies are sometimes sold through market-based public offerings, but more commonly through an off-market bidding process. In either case, the Ministries of Finance and Economy makes determinations based on bidders’ business plans and with the advice of the quasi-independent “Commission des Participations et des Transferts” (formerly known as the Privatization Commission). The confidential nature of off-market sales can raise suspicions about the equal treatment of foreign and French bidders, cooling interest from foreign investors. In the past, a policy of selling holdings to "core" shareholders to avoid splitting up companies or selling sensitive state assets to foreign investors favored French firms.
A 1993 privatization law gives the government the option to maintain a so-called "golden share" when privatizing national companies in order "to protect national interests." A golden share gives the government the right to: require prior authorization from the Ministries of Finance and Economy for any investors acting in concert to own more than a certain percentage of a firm's capital; name up to two non-voting members to the firm's board of directors; and block the sale of any asset to protect "national interests."
In June 2002, the European Court of Justice reaffirmed the basic principle of free movement of capital in the EU and stated that the use of golden shares was a serious impediment to that principle. Nonetheless, a 2006 French law allowing the government (on energy security grounds) to keep a golden share in Gaz de France (GDF) following its merger with Suez was accepted by the European Commission. As of April 2016, the government now has double voting rights in GDF-Suez, now known as Engie. The French government has likewise reserved the right to retain a golden share in any restructuring of Areva, the French nuclear and renewable energy company.
Screening of FDI
The Business France website’s “Doing Business in France” section explains French regulations on foreign direct investment (see http://invest.businessfrance.fr/mediatheque/doing-business-2015-2/?lang=en). While there is no generalized screening of foreign investment, French law stipulates that acquisitions in certain sectors are subject to prior notification, screening, and approval by the Economy Minister. From 2005 to 2014, the eleven specified sectors were gambling; private security services; research, development and production of certain pathogens or toxic substances; wiretapping and communications interception equipment; testing and certification of security for IT products and systems; goods and services related to the information security systems of companies managing critical infrastructure; dual-use (civil and military) items and technologies; encryption services; the activities of firms entrusted with national defense secrets; research, production or trade of weapons, ammunition, and explosive substances intended for military purposes; and any business supplying the Defense Ministry with any of the above goods or services.
In May 2014, six new areas were added to the specified sectors list: energy infrastructure; transportation networks; public water supplies; electronic communication networks; public health protection; and installations/works vital to national security. (See http://www.tresor.economie.gouv.fr/4183_Textes-de-reference for the legal text.)
The French government must review any investment (in the aforementioned specified sectors) that acquires control of a French firm, surpasses a 33-percent ownership threshold, or involves any part of such a firm that has established headquarters in France. Some investments in sensitive sectors require the consent of several ministries. The foreign investor submits a formal application for prior authorization to the Minister of the Economy who will make a decision within two months of the date of receipt of a full and complete formal application for authorization. If the Minister of the Economy fails to make a decision, the authorization is deemed granted. The formal review process and communications with the foreign investor are carried out by departments of the Ministry of Economy in relation with other governmental agencies corresponding to the sensitive sector(s) involved.
As a condition of authorization, the French Minister of the Economy may impose certain conditions on the foreign investor to mitigate risks that the contemplated transaction could adversely affect public order, public safety or national security. Foreign investors may contest the conditions imposed for authorization, or the refusal to authorize, before the administrative law courts.
Direct investments in the form of mergers and acquisitions are subject to antitrust review by the French Competition Authority (Autorité de la Concurrence) as provided by the Economic Modernization Law of August 4, 2008. The Competition Authority handles any operation meeting the following three conditions: the pre-tax global revenue of all the combined companies or entities is above EUR 150 million; the pre-tax revenue in France is above EUR 50 million; the operation does not fall within the scope of 2004 EU Regulation 139 on merger regulation. Information in English is available at: http://www.autoritedelaconcurrence.fr/user/standard.php?id_rub=79.
An August 6, 2015 law on economic growth, activity and equal opportunities (known as the "Macron Law") vested the Competition Authority with the power to review concentrations between retailers ex-ante (beforehand). The law provides that all contracts binding a retail business to a distribution network shall expire at the same time. This enables the retailer to switch to another distribution network more easily. Furthermore, distributors are prohibited from restricting a retailer’s commercial activity via post-contract terms. The civil fine incurred for restrictive practices can now amount to up to 5% of the business's revenue earned in France.
The Competition Authority has also played a key consultative role in opening up new sectors to competition. For example, the Authority’s President, Bruno Lasserre, counseled Minister of Economy Emmanuel Macron to liberalize the long-distance, intercity bus market in France as part of the aforementioned "Macron Law." To date, the government estimates that this law has created some 1,000 jobs in five intercity bus companies, including two foreign (British and German) firms.
The Competition Authority is also active in highly regulated industries such as energy. Together with the energy regulator CRE (Commission de Régulation de l’Energie), the Authority submits a report every five years to the government on the implementation and effects of the Regulated Access to Incumbent Nuclear Electricity (ARENH) mechanism, particularly regarding its impact on the wholesale and retail markets, as well as investments in electricity production facilities. The ARENH mechanism entitles suppliers to purchase electricity from EDF at a regulated price, in volumes determined by the CRE. In its opinion published on February 16, 2016, the Authority urged the government to give a clear indication that it would start progressively phasing out this mechanism, which is due to expire on December 31, 2025. The Authority has deemed the current system not conducive to “effective competition in the French basic energy production market.”
In a similar vein, in the rail sector, the government followed the advice of a January 2015 Competition Authority report advising the government to bolster the autonomy of SNCF Réseau (the rail network management company) from its sister company, SNCF Mobilités (the railway operator) in order to promote greater economic efficiency. The Authority judged that keeping railway infrastructure management independent from railway operations was “essential for the development of fair competition,” but had previously been lacking.
A tradition of state intervention in the French economy can pose challenges to both French and foreign investors, as corporate governance and employment decisions occasionally attract political attention. French labor unions tend to see U.S. firms as focused on short-term profits at the expense of employment and not sufficiently committed to social dialogue or respect for their legal obligations to employees when restructuring.