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The new measures, which came into force on January 1, 2024, consist of two documents. One is Decree No. 2023-1293 and Decree dated 28 December 2023, which provides for most of the new measures, in particular those amending the scope of the FDI examination regime. It deals with specific issues related to the new 10% voting rights standard (the “Bill”).
Under the current French FDI review regime, EU and non-EU foreign investors must: (a) acquire a controlling interest; (b) acquire all or part of a French business; or (c) (d ) Obtaining voting rights in excess of a certain threshold in a French legal entity (or a branch of a foreign legal entity located in France) operating in a sensitive field.
Expansion of sensitive sector coverage
The French FDI screening regime applies to investments in sectors identified as “sensitive sectors”.
The bill amends article R151-3 of the French Monetary and Financial Law, which enumerates the following sensitive sectors:
- The list of activities related to infrastructure, goods and services essential to safeguard public order and security has been expanded to include:
- Activities related to the integrity, safety, or continuity of extraction, processing, or recycling of critical raw materials. The extension comes against the backdrop of new lithium mining projects in France and efforts by various countries, particularly China, to restrict exports of the critical material.
- The definition of public security sector has been revised to include prison security services.
- Currently, controlled R&D activities include R&D activities related to photonics and low-carbon energy production technologies, if they are intended to be carried out in the areas listed in Article R151-3.
To summarize, there are three categories of sensitive areas: (i) defense and security sectors (public order, public health, military-related activities, munitions, national security, etc.); (ii) infrastructure and goods essential to protect public order and public safety, including, but not limited to, energy and water supplies, transportation networks and services, and the integrity, safety and continuity of food security; and activities related to the Service. Cryptographic services, space operations. (iii) research and development activities related to critical or dual-use technologies (i.e., semiconductors, AI, biotechnology, etc.);
Addition of target transaction range
The bill makes clear that the French FDI regime applies to acquisitions. French branch by a foreign corporation. A branch is defined as a branch registered in the French corporate register.
Previously, the regime covered transactions involving entities incorporated or established under French law, including the acquisition of parts of a business (‘Branching point of activity”).
Permanently lowering voting rights threshold for non-EU/EEA investors from 25% to 10%
Temporary regulations introduced in response to the COVID-19 pandemic lower voting rights standards and begin applying the French FDI review regime to investments by non-EU/EEA investors. This threshold has now been permanently reduced from 25% to 10% and applies to investments in French listed companies.
Such investments were subject to an expedited review process.
This too has now been made permanent.
Other measures
The bill also:
- Clarifies the information that must be provided to the government when submitting a license application or notification.
- Simplifies certain exemptions for intragroup reorganizations.and
- It stipulates that authorization requests must be submitted via the Ministry of Finance’s online platform.
Background information on the French FDI screening system
The department in charge of FDI screening within the French Ministry of Finance is the “MULTICOM 4” department. This team will consist of his 6-8 case handlers, each of whom will oversee a specific area of activity (e.g. defence, pharmaceuticals, etc.) and liaise with other relevant departments of government as necessary. .
It is noteworthy that the French government has allocated more resources to FDI teams, equipping them with the appropriate expertise to understand the target’s activities and what is at stake. Case managers will now be supported by multiple expert groups from cross-government teams, meaning more stakeholders will be involved in the decision-making process.
Foreign investors can find useful facts, information, annual reports, and FAQs in English and French on the French government website.
The 2022 Foreign Investment Review in France report highlights the following (English version here, French version here):
- The number of notifications to the French government remained stable in 2022 compared to the previous year (325 notifications in 2022 compared to 328 in 2021). However, total foreign investment in France decreased in 2022 compared to 2021. This means that there has been a proportional reduction in notifications made regarding investments in 2022 compared to 2021. Similar trends can be observed in other EU countries.
- FDI notifications often impose conditions by the government. In 2022, conditions were attached to 50% of the 131 approved transactions.
Practical points for foreign investors
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Now more than ever, investors need to adopt FDI screening strategies and assess where the activities in question are exposed to political considerations. This strategy should include, among other things:
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Investors should pay particular attention to the sensitive nature of the target subsidiary’s activities from the local government’s perspective. Even small subsidiaries can be viewed as important by governments and may impose conditions on transactions.
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Generally, foreign investors are encouraged to engage with MULTICOM4 before submitting an application for authorization. This gives you the opportunity to be exempt from some of the potential problems.
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