The new measures, which entered into force on 1 January 2024, comprise two texts: the decree No 2023-1293, which provides most of the new measures, in particular those amending the scope of FDI screenings regime, and the order dated 28 December 2023, which addresses certain issues related to the new 10% voting rights threshold (the “Bill”).

Under the current French FDI screening regime, EU and non-EU foreign investors must obtain an authorisation from the government, or notify it, when they (a) acquire control, (b) acquire all or part of a business in France, or (c) obtain more than a specific threshold of voting rights in a French legal entity (or in a branch of a foreign entity that is located in France) that (d) carries out activities in a sensitive sector.

Extension of the scope of sensitive sectors

The French FDI screening regime applies to investment in sectors qualified as “sensitive sectors”.

The Bill amends Article R151-3 of the French Monetary and Financial Code, which lists these sensitive sectors:

• The list of activities relating to infrastructure, goods and services that are essential to safeguard public order and public security is extended to include:
  • Activities relating to the integrity, safety or continuity of the extraction, processing, and recycling of critical raw materials. This extension comes in the context of new lithium mining projects in France and efforts by various countries, in particular China, to restrict exports of critical materials.
  • The public security sector definition is amended to cover prison security services.
• Controlled R&D activities now include R&D activities relating to photonics and low-carbon energy production technologies when they are intended to be implemented in sector listed in Article R151-3.

In sum, there are three categories of sensitive sectors: (i) defence and security sectors (public order, public health, military-related activities, dual-use items, national security etc); (ii) activities relating to infrastructure, goods and services that are essential to safeguard public order and public security, including but not limited to, the integrity, security and continuity of energy and water supplies, transportation networks and services, food security; encryption services, space operations; and (iii) R&D activities relating to critical or dual-use technologies (i.e. semiconductors, AI, biotechnology etc).

Addition to the scope of covered transactions

The Bill clarifies that the French FDI regime applies to the acquisition of a French branch by a foreign entity. A branch is defined as “a branch registered in a French corporation registry”.

Previously, the regime covered transactions relating to entities incorporated or constituted under the law of France, which also included the acquisition of a part of a business (“une branche d’activités”).

Permanent lowering of the voting rights threshold for non EU/EEA investors from 25% to 10%

An interim rule temporarily introduced in response to the COVID-19 pandemic had lowered the voting rights threshold triggering the application of the French FDI screening regime to an investment made by non-EU/EEA investors. The threshold has now permanently been lowered from 25% down to 10%, and applies to an investment in French-listed companies.

Such investment was subject to a fast-track review process.

This has now also been made permanent.

Other measures

The Bill also:

• Clarifies the information that must be provided to the government when submitting an authorisation request or a notification;
• Simplifies certain exemptions for intra-group restructurings; and
• Provides that authorisation requests must now be submitted via the Treasury’s online platform.

Background information regarding the French FDI screening regime

The unit in charge of FDI screenings within the French Treasury is the “MULTICOM 4” unit. The team is composed of 6-8 case handlers, each overseeing a specific sector of activity (e.g. defence, pharmaceutics etc), who liaise from other relevant departments of the Government as required.

It is worth noting that the French government is allocating more resources to the FDI team so that they have appropriate expertise to understand the target’s activities, and what is at stake. The case handlers will now be assisted by several expert groups from cross-government department teams, which means additional stakeholders will be involved in the decision-making process.

Foreign investors may find useful facts, information, annual reports, and FAQs in English and French on the French government’s website.

The 2022 “Foreign Investment Screening in France” report highlights that (available in English here, and in French here):

• The number of notifications to the French government remained stable in 2022 compared with previous years (325 cases notified in 2022, as against 328 in 2021). However, the total value of foreign investments in France decreased in 2022 compared with 2021, which means proportionally fewer notifications were made in respect of investments in 2022 compared with 2021. A similar trend can be observed in other EU countries.
• FDI notification very often results in conditions being imposed by the government. In 2022, 50% of the 131 transactions which were authorised were subject to conditions.

Practical takeaways for foreign investors

• More than ever, investors should adopt an FDI screening strategy and assess where the target’s activities are exposed to political considerations. This strategy should include, among other things:

  • Including an FDI review in the target due diligence; and

  • Including FDI clauses in transaction documents.

• Investors should pay particular attention to the sensitive nature of the activities of the target’s subsidiaries from the perspective of local governments. Even a small subsidiary may be viewed as critical by a government, which could cause conditions to be imposed on the transaction.

• Generally, it is recommended for foreign investors to engage with MULTICOM4 ahead of submitting an authorisation request, as it gives the opportunity for some potential issues to be waived.

  • MULTICOM4 welcomes questions from investors and their advisers at all stages of the screening procedure. Given that the MULTICOM4 is keen to impose conditions, stakeholder management is key.

Authored by Aline Doussin, Pierre Estrabaud, Eric Paroche, Louis-Nicolas Ricard, and Thomas Allinson.