Further Strengthening of Foreign Investment Controls in France

In accordance with the announcements made by the Minister of the Economy in summer 2023, the French government adopted the French Decree No 2023/1293 of 28 December 2023, along with an administrative order of the same date. Together, these have once again strengthened the control of foreign investments in France.

The scope of transactions covered by the French foreign investment regulation, as well as the range of activities considered sensitive, have been further expanded. Under French foreign investment rules, foreign investment in sensitive sectors falling within the scope of control must be authorised by the Minister of the Economy before its realisation.

Prior to the new rules, foreign investments that were covered by the French control of foreign investments in France concerned the acquisition of control of a French entity, the acquisition of (part or the whole) of a branch of French entity, or – for non-EU or non- European Economic Area (EEA) foreign investors only – the acquisition of more than 25% of voting rights in a French entity.

Additionally, in response to economic issues revealed by the COVID-19 crisis, a temporary protection system was established to protect French companies from foreign investors. Decree No 2020-892, dated 22 July 2020, temporarily lowered the threshold for the acquisition by non-EU and non-EEA companies of voting rights in French listed companies involved in sensitive activities from 25% of 10%.

The notion of investment has also been reshaped by including the acquisition of control of French branches of foreign entities among the investments covered by the French regulation.

The initial wording of Article R.151-2 1° of the French Monetary and Financial Code stated that the acquisition of control of a “French legal entity” was considered an investment covered by the regulation. If this notion was not really defined, the French Treasury explained in its guidelines of September 2022 that a French business unit (succursale) of a foreign company was not considered to be a “French entity”. Therefore, an investment concerning a business unit of a foreign entity was not exposed to Foreign Direct Investment (FDI) control.

However, Decree No 2023-1293 completed Article R.151-2 1° of the French Monetary and Financial Code, which now states that investments may include the acquisition of control of a French entity “or of an establishment registered with the French Commerce and Companies Register”. This reversal of position was justified by the French Treasury as a way of “guarding against possible strategies for circumventing FDI regulations”.

Consequently, from now on, a transaction between two foreign companies falls within the scope of French FDI control if the foreign buyer acquired control of a French establishment owned by a foreign seller carrying out sensitive activities.

Another of Decree No 2023/1293’s major contributions is the perpetuation of the control of the crossing – by a non-EU or non-EEA investor – of the threshold of holding 10% of voting rights in a French listed company.

As previously mentioned, this voting rights threshold has been lowered from 25% to 10% during the COVID-19 pandemic. Presented as a temporary measure that should have ended on 31 December 2020, the 10% threshold has been extended three years in a row and has been fully integrated into the FDI screening since January 2024.

However, transactions falling over this threshold are still subject to a fast-track review process. The investor submits its investment project to the French Minister of the Economy and, unless the Minister of the Economy advises otherwise within 10 working days of notification, the standard review process is then not applied.

Decree No 2023/1293 amended Article R.151-3 of the French Monetary and Financial Code in order to redefine and expand the activities in which foreign investment is subject to prior authorisation. As of 1 January 2024, it now includes three additional sectors:

As regards the last sector, Decree No 2023/1293 did not provide any list of critical raw materials, but it is likely that French authorities will base their control on the EC’s list of critical raw materials (CRMs) drawn up according to the economic importance and supply risk of some materials.

The EU is particularly vigilant regarding CRMs, as they are used in a wide range of daily appliances and products essential to the economy of EU countries, including in strategic sectors such as digital technologies (eg, use of tungsten as a weight in the vibration of mobile phones), renewable energies, defence, and electric vehicles (eg, lithium, cobalt and nickel for batteries). In this context, in December 2023 the EU Parliament adopted the proposal for a Critical Raw Materials Act (designed to ensure the secure and sustainable supply of CRMs to the EU), which extended the previous list of CRMs.

Therefore, FDI control is extended to technologies that are considered crucial for the development of industries in the 21^st century (particularly from the point of view of environmental responsibility, sustainability and digitalisation), where foreign capital could pose a threat to French strategic economic sectors. Endorsing these changes, the French Ministry of Economy Bruno Le Maire declared: “In an international economic context marked by exacerbated competition, I am determined to continue protecting our sovereignty and our fundamental interests in the industrial and technological fields.”

Once again, France is strengthening its foreign investment control mechanism. This trend extends beyond France’s borders, as foreign investment controls are on the rise worldwide. Faced with geopolitical challenges, governments are protecting their national flagships. For investors, however, this kind of control – which can be difficult to grasp – must be carefully monitored in M&A operations.