By:
Geoffroy Lyonnet
Paris
On February 14, 1996, France liberalized foreign direct investment control and simplified related administrative formalities. The new regulation, however, maintains control over foreign investments in certain sensitive areas. That reform, the latest step in a recent trend toward encouraging foreign investment in France, also harmonizes French regulation with the European Union.
The notion of foreign direct investment covers virtually all significant investment operations which can be traced back, directly or indirectly, to nonresidents of France. For instance, French branches and subsidiaries which are directly or indirectly controlled by nonresidents are considered foreign investors. The definition also includes, among other operations, the acquisition, creation and extension of branches as well as the acquisition or increase in control of companies. In this respect, a direct or indirect participation of more than 33.33% in the capital or voting rights of a nonlisted company is considered as constituting control. The level is 20% for listed companies.
As a general rule, pursuant to the new regulation, foreign direct investments in France may now be made freely, regardless of the size of the investment or the domicile of the investors. Foreign investors are now simply required to declare their direct investment to the French Minister of Economy. The declaration must be filed upon the "carrying out" of the investment, which is defined as "any operation which materializes the agreement of the contracting parties" such as, for instance, the signature of an agreement or the publication of an offering.
Moreover, many categories of investment are even exempt from that declaration requirement, including:
creations or extensions of companies, branches or undertakings;
increases in participation in a French company by a foreign investor who already controls more than 66.66% of its capital or voting rights;
subscriptions to a capital increase of a French company, provided, however, that the foreign investor does not thereby increase its participation;
transactions among companies of the same group;
loans, guaranties, consolidations or cancellation of debts, subsidies or contributions to branches granted by a controlling investor to a French entity;
investments in certain real estate companies;
investments equal to or less than 10 million French Francs in certain activities, such as, arts and crafts, retail businesses, hotels and restaurants;
acquisitions of farm land.
Certain of the exempted transactions are subject to the filing of a very simple report after the investment has been made.
Under the new regulation, however, foreign direct investments in the following areas (the "Sensitive Areas") are still subject to the prior authorization of the Minister of Economy:
investments in activities which are connected, even occasionally, with the exercise of official authority;
investments that could affect public policy, health or security and;
investments in research, manufacture or trade with respect to arms, munitions, powders and explosive substances for military usage or war equipment.
As can be seen, these categories are somewhat vague and perhaps overlapping. Presumably in time, the scope of these categories will be clarified. In any event, an investment in a Sensitive Area is deemed authorized if the Minister has not enjoined the investment within one month of the filing of a request for authorization.
In the absence of prior authorization, any commitment, agreement or contractual provision which carries out a foreign direct investment in a Sensitive Area is deemed null and void. Moreover, the Minister of Economy may require a foreign investor not to proceed with a direct investment in a Sensitive Area if the investment was not authorized or if it does not meet the conditions provided for in the authorization. The noncompliance with such an injunction is subject to fines of up to twice the amount of the investment.
Other infringements of the regulation are also subject to various criminal sanctions such as fines, confiscation and imprisonment.
France's liberalization of foreign investment, insofar as it actually maintains a control over Sensitive Areas only, brings France's regulation closer to systems which may be found in various other industrialized countries, such as the United States under the Exxon- Florio Act.
