France welcomes foreign investment and has a stable business climate that attracts investors from around the world. The French government devotes significant resources to attracting foreign investment through policy incentives, marketing, overseas trade promotion offices, and investor support mechanisms. France has an educated population, first-rate universities, and a talented workforce. It has a modern business culture, sophisticated financial markets, a strong intellectual property rights regime, and innovative business leaders. The country is known for its world-class infrastructure, including high-speed passenger rail, maritime ports, extensive roadway networks, public transportation, and efficient intermodal connections. High-speed (3G/4G) telephony is nearly ubiquitous, and France has begun its 5G roll-out in key metropolitan cities.
In 2020, despite the global economic crisis caused by the COVID-19 pandemic, the United States retained its position as the leading foreign investor in France. U.S. firms completed 204 investments in France in 2020, creating 8,286 jobs, five percent more than in 2019. The total stock of U.S. foreign direct investment in France reached nearly $84 billion. More than 4,600 U.S. firms operate in France, supporting nearly 500,000 jobs.
Following the election of French President Emmanuel Macron in May 2017, the French government implemented significant labor market and tax reforms. By relaxing the rules on companies to hire and fire employees and by offering investment incentives, Macron has improved the operating environment in France, based on surveys of U.S. investors. In late 2018, France’s Yellow Vest movement, a populist, grassroots protest movement for economic justice, rekindled class warfare and exemplified the existence of two Frances, putting on hold ongoing economic and labor reforms, such as cuts to unemployment benefits and pensions.
The onset of the pandemic in 2020 delayed these reforms indefinitely, as Macron shifted focus to mitigating France’s most severe economic crisis in the post-war era. The economy shrank 8.3 percent in 2020 compared to the year prior. In response, the government implemented unprecedented fiscal support for businesses and households that reached 25 percent of GDP as of March 2021. The government’s centerpiece fiscal package was the €100 billion ($118 billion) France Relance plan, of which over half is dedicated to supporting businesses, most of which is accessible to U.S. firms operating in France. This includes access to unemployment schemes that support workers’ wages, subsidies to vulnerable sectors, investment in green and developing technologies, production tax cuts and other tax benefits, and expanded funding for research and development. The government’s agenda aims to bolster competitiveness, increase productivity, and accelerate the ecological transition.
Also in 2020, France increased its protection against foreign direct investment that may pose a threat to national security. In the wake of the crisis, France’s investment screening body expanded the scope of sensitive sectors to include biotechnology companies and lowered the threshold to review an acquisition from a 25 percent ownership stake by the acquiring firm to 10 percent, a temporary provision set to expire at the end of 2021. In 2020, the government blocked at least one transaction, which included the attempted acquisition of a French firm by a U.S. company in the defense sector.
The 2021 finance law continues to reduce corporate tax from its current level of 28 percent. Firms with revenues above €250 million ($295 million) will be taxed 26.5 percent on profits in 2021, and 25 percent in 2022. Firms with revenues at or below €250 million ($295 million) will be taxed 27.5 percent on profits in 2021, and 25 percent in 2022. The OECD average rate is 21.5 percent.
Although France’s fiscal package is unprecedented at nearly 25 percent of GDP, it is not sufficient to fully absorb the economic impact of the pandemic. Key issues to watch in 2021 are: 1) the degree to which COVID-19 continues to agitate the macroeconomic environment in France and across Europe; 2) the extent of the government’s continued support for the economy; 3) the speed at which EU member states, including France, can draw down on the Next Generation EU package to support the broader European recovery; and 4) how the green transition impacts the business environment, including the possible implementation of an EU carbon border adjustment mechanism, which could impact firms’ ability to import and export.
|TI Corruption Perceptions Index||2020||23 of 179||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2020||32 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||12 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||USD83.826||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||USD 42.450||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|