Download An Overview of The New Regime for Foreign Investment In France

A n
O v e r v i e w
o f
The New Regime for
Foreign Investments in France
SUMMARY
Pursuant to the new regime, direct as well as indirect investment in France, i.e.
investment in or acquisition of foreign companies holding interests in French
companies, is now subject to an administrative declaration. New filing requirements
of certain investments for statistical purposes have been created. The prior
authorization formerly required for the sale in France of securities issued by foreign
companies has been suppressed1 (thus facilitating private placement in France). The
main categories of foreign investment covered by the new regulation are:
Statistical declaration
Any transaction between a resident and a non resident concerning more than
10% of the equity or the voting rights of a French or foreign target, any real
estate transaction by a non resident in France or by a resident outside of
France, any acquisition or sale of a non resident company by a resident, and
any cross border intragroup transaction must be declared to the Banque de
France for statistical purposes, if in excess of 15 million euros.
In addition, French financial intermediaries, groups of companies and
residents are compelled to file statistical declarations with the Banque de
France when they carry out certain transactions or payments in foreign
countries above certain thresholds.
The creation of businesses and the acquisition of real estate properties in
France by foreign investors and the liquidation of direct foreign investments in
France must be declared to the Ministry of Economy for statistical purposes, if
in excess of 1.5 million euros.
Any transaction leading to the creation or the acquisition of a French business
or any transaction leading to the taking over of control (i.e. more than 33.1/3%
of the voting rights or equity) of a French target is subject to an administrative
declaration.
Administrative authorization
Any transaction dealing with French public order or security, French national
defense or French public health is subject to an administrative authorization.
The latter category is relatively limited and has been defined in more detail by the new
regulation, making it easier for foreign investors to identify the few cases where such an
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Administrative declaration
1 Under the former regulation, the sale in France of securities issued by companies incorporated in non-OECD or non
European countries had to receive the prior authorization of the French Ministry of Economy.
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authorization has to be obtained. The filing of an administrative declaration is an easily
accomplished formality for information or statistical purposes only. However, noncompliance with the regulation governing foreign investment in France can lead
foreign investors to be liable for criminal sanctions and, as far as prior authorization is
required, to the cancellation of the investment irregularly made. Foreign investors
should thus be informed and take care to comply with the necessary filings.
AN OVERVIEW OF THE NEW REGULATION
To facilitate your reading of this memorandum, an exhaustive list of all the direct and
indirect foreign investments covered by the new regulation is attached as
Appendix A, with, for each one, an indication of the necessary type of filing. The
same information is of course included in the body of this memorandum, in each
section detailing the new requirements regarding the administrative declaration or
authorization (2.), and the statistical declaration (3.).
1.
Definition of French Residents and Non-Residents
The new regulation defines French residents as individuals whose main
center of interest is located in France, French public servants based in foreign
countries and French-based branches of companies of French or foreign
nationality.
Are defined as non residents, individuals whose main center of interest is
located outside of France, foreign public servants based in France and
branches of companies of French or foreign nationality not located in France.
France comprises metropolitan France, its overseas departments and the
collectivities of Mayotte, Saint-Pierre-et-Miquelon, Wallis and Futuna, and
Monaco.
2.
Foreign Investment Subject to the Filing of an Administrative
Declaration or the Request for an Administrative Authorization
2.1
Foreign investment subject to the filing of an administrative
declaration:
a) The creation of a new business by a foreign company or a non
resident individual;
b) The acquisition of all or part of a business (wherever situated) from a
French company by a foreign company or a non resident individual;
c) Any transaction on the equity of a French company by a foreign
company or a non resident individual if, after such transaction, the
aggregate amount of voting rights or equity share held by all foreign
companies or non resident individuals exceeds 33.1/3% of the equity
or voting rights of the French target company; or
d) The above transactions (a, b or c) if carried out by a French company,
when more than 33.1/3% of its voting rights or equity share is held by
one or several non resident individuals or foreign companies.
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Direct Foreign Investment, defined as:
2
Other types of foreign investment:
Any transactions, such as the granting of loans or substantial
guarantees, the purchase of patents or licenses, the acquisition of
commercial contracts or the provision of technical assistance, leading to
the de facto takeover of the control of a French company by a foreign
company or a non resident individual.
Indirect Foreign Investment, defined as:
Any transaction not carried out in France, resulting in the change in
control of a non resident company holding an interest in a French
company, provided that more than 33.1/3% of the equity or voting rights
of the French company are held by foreign companies or non resident
individuals.
2.2
Foreign investment exempt from administrative declaration:
The creation or development of the business2 of an existing
French company held directly or indirectly by foreign companies
or non resident individuals (a "Foreign Held French
Company")3;
The increase of interest in a Foreign Held French Company if
the shareholder increasing its or their interest was already
holding at least 50% of the equity or voting rights of the Foreign
Held French Company;
The subscription to an increase in share capital of a Foreign
Held French Company, provided that the foreign company
shareholders or non resident individual shareholders do not
increase their percentage of interest (i.e. no dilution of the
aggregate portion of shares or voting rights held by the French
shareholders);
1.5 million euros (see 3.2.1 below).
3 Although the terms are not defined by the legislator, we believe that when more than 33.1/3% of a French
company's equity or voting rights are held directly or indirectly by foreign companies or non resident individuals,
such company will be deemed by the French administration to be a Foreign Held French Company since this is the
threshold above which a foreign investment in the equity or voting rights of a French company has to be declared,
pursuant to the new decree. However, the French administration may consider that a French company is a Foreign
Held French Company even when such threshold is not reached, on the basis of the factual control exerted over
the French company (i.e. the French administration may take into account options held by the foreign shareholder
on the remaining share of equity or voting rights of the French company, the existence of a shareholders'
agreement, the business relationship between the foreign shareholder and the French company, etc.).
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2 Subject, however, to a filing with the Ministry of Economy for statistical purposes if the investment exceeds
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Direct Foreign Investment made between companies belonging
to the same group, i.e. companies having more than 50% of the
equity or voting rights of which are held directly or indirectly by
the same shareholders4;
Any transactions regarding loans, guarantees, cancellation of
debt or subventions, or subsidies to branches, granted to a
Foreign Held French Company by its foreign company
shareholders or non resident individual shareholders;
Direct Foreign Investment made in French companies having a
real estate activity, not being that of the construction of buildings
for sale or rent;
Direct Foreign Investment of less than 1.5 million euros made in
French companies conducting their activities in the craft, hotel
or restaurant, neighborhood shopping or exploitation of quarries
businesses; and
Acquisition of agricultural land5.
2.3
Foreign investment subject to prior administrative
authorization:
Direct Foreign investment that could possibly have an impact
on French public order or security:
a) Investment made by a person who has or has had during the
previous 10 years, or is seriously suspected of having, an illicit
activity in connection with drugs, fraud, procuring, money laundering,
terrorism, bribery, criminal organization;
b) Investment made in the gambling business, including casinos, or
private business subject to specific regulations in France;
Direct Foreign Investment that could cause serious risk to
public health in France.
4 See Section 3.1.4 hereunder: a declaration for statistical purposes is required if the direct foreign investment
exceeds 15 million euros.
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Direct and Indirect Foreign Investment made in France in
connection with national defense, weapons or explosives;
and
5 Subject, however, to the filing of a declaration with the Ministry of Economy for statistical purposes if the
agricultural land is for the production of wine (see 3.2.1 below).
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2.4.
The Administrative Declaration or Request For Administrative
Authorization
2.4.1
Content
The administrative declaration or the request for administrative authorization
to be sent to the Ministry of Economy6 takes the form of a letter providing
the following information regarding:
The investors and the ultimate individual shareholders of the
investors (i.e. if the non resident investor is a foreign private
company, the identity of the individuals or government
entities ultimately controlling such investor. If the non
resident investor is a foreign listed company, the identity and
location of residence of board members of the company and
the identity of the individual shareholders ultimately holding
an interest representing 5% or more of the holding company.
If the investor is a UCIT, the identity of its managers);
The target company
information); and
(basic
corporate
and
financial
The investment (equity share of the target before and after
the investment, possible options on the remaining share of
equity, total amount of the investment, means of payment).
2.4.2
Timeline
The declaration must be submitted at the time of the occurrence of the first
event related to the agreement between the parties, defined as follows:
Signing of a binding agreement; or
Publication of the purchase or exchange offer; or
The failure of the Ministry of Economy to rule within two months of reception
of a complete7 request for authorization is deemed an approval.
6 Ministère de l'Economie, Direction du Trésor, Bureau des investissements étrangers en France
139 rue de Bercy, 75572 Paris Cedex 12, France, Tel +33 (0)1 44 87 72 85 or +33 (0)1 44 87 72 87
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Acquisition of an asset that constitutes a Direct Foreign
Investment.
7 If the initial request is incomplete, the two month period will commence only at the time of receipt by the
authorities of the necessary complementary information.
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3.
The Statistical Declaration
Declaration to the Banque de France8
3.1
3.1.1 Monthly Declaration to be made by French Financial
Intermediaries
French banks, UCITS and financial institutions are compelled to complete
monthly statistical declarations related to any kind of payments made in
France between residents and non residents amounting to more than
12,500 euros, based on information provided by the residents concerned.
3.1.2 Monthly Declaration to be made by French Companies or Groups of
Companies with an ongoing business relationship with Foreign Countries
The companies or groups whose operations with foreign countries exceed
during a calendar year the amount of 30 million euros in at least one of the
following categories of services or revenues of the balance of payments are
compelled to make a monthly declaration of all their operations with non
residents to the Banque de France for statistical purposes:
Services: Transport, insurance, travel, communication and
information systems, construction services, financial services,
license royalties and fees, other services to companies,
personal, cultural and entertainment services;
Revenues: Employees' compensation, investment revenues,
direct investment revenues, portfolio revenues, other
investment revenues.
Companies having crossed this threshold in 2001 have to reach an
agreement with the Banque de France regarding the modalities of their
declaration before January 1, 2004. Those companies which cross this
threshold during any of the subsequent fiscal years must reach an
agreement with the Banque de France within one year from the end of such
fiscal year.
Declarations to be made by Residents
Residents directly carrying out operations (including from bank accounts
opened in foreign countries or by way of offset of receivables) in foreign
countries of 1 million euros or more are compelled to make a monthly
declaration of such operations to the Banque de France for statistical
purposes.
Residents are compelled to declare, for statistical purposes, their assets or
claims located in foreign countries or their debts towards foreign entities or
individuals, in excess of 10 million euros.
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3.1.3
8 Banque de France, Direction générale des études et relations internationales, Direction de la balance des
paiements.
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3.1.4 Information to be provided on a once-only basis in case of
Substantial Investment
The following investments must be declared for statistical purposes when
they amount to at least 15 million euros, within 20 business days of their
payment:
Direct foreign investment is defined differently for statistical
declaration
obligations
("Statistical
Direct
Foreign
Investment"):
a) Any acquisition or sale by a non resident in a resident
company, if as a result of such acquisition, the non
resident holds at least 10% of the equity or voting rights
of the resident company;
b) Any intragroup transaction (loans, etc.) and real estate
investment; and
c) The acquisition or sale of real estate properties in France
by non residents9;
and their liquidation.
Any acquisition or sale by a resident in a non resident
company, if as a result of such acquisition, the resident holds
at least 10% of the equity or voting rights of the non resident
company; and
The acquisition or sale of non resident companies by
residents;
The acquisition or sale of real estate properties in foreign
countries by residents.
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The content of the statistical declaration is almost identical to that
of the administrative declaration (see section 2.4.1 above)
although less comprehensive on certain items. The declaration
must be sent upon closing of the transaction.
9 Also subject to the filing of a declaration with the Ministry of Economy for statistical purposes (see 3.2.1 below).
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3.2
Declaration to and the Informing of the Ministry of
Economy
3.2.1
Statistical Declaration
The creation of business and the acquisition of real estate properties in
France by foreign investors and the liquidation of foreign investments must
be declared for statistical purposes. The exhaustive list has been inserted
in the form of footnotes in this memo as an explanation or as
complementary information to other filing requirements or exemptions.
In addition, the liquidation of a Statistical Direct Foreign Investment in France has
to be declared to the Ministry of Economy for statistical purposes.
The Ministry of Economy must also be informed of the implementation of
any authorized transactions (even if only partially or not implemented at all).
3.2.2
Information
In addition, and even though such transactions are not considered as
investment, French companies held directly or indirectly by foreign
shareholders10 or their liquidators are compelled to inform the Ministry of
Economy of the following events:
The decrease of any foreign interest in their equity, even if
such decrease is not a disinvestment (for instance, following
an increase in capital not subscribed to by a foreign
shareholder);
Any substantial modification regarding their existence or
activity: termination of an activity, change in their corporate
name or registered office, liquidation, etc.; and
4.
Sanctions in case of Non-Compliance with the Obligation to File a
Declaration or Request for Authorization
Non-compliance with the obligation to make a statistical declaration can be
sanctioned by a maximum of five years' imprisonment, confiscation of the fraudulent
investment and a fine of up to an amount equal to twice the amount of the
investment irregularly made.
Non-compliance with the obligation to make an administrative declaration should be
subject to identical sanctions11 , although the new decree only refers to a fine of up
10 Which probably means that more than 33.1/3% of the equity or voting rights of such companies are held by
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Any transaction made outside of France indirectly modifying
the holding of their equity (giving the identity of and the
interest held by the new shareholder), except for transactions
leading to an administrative declaration.
foreign shareholders (see previous footnote 3).
11 Section 459 of the Code des douanes.
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to 750 euros. This is due to an inaccuracy in the drafting, and will probably be
amended by a complementary legislative text.
Non-compliance with the obligation to file a request for administrative authorization
can be sanctioned by injunction of the Ministry of Economy to modify or cancel the
investment made in violation of the regulation, nullification of the investment made
and a fine of up to an amount equal to twice the amount of the investment
irregularly made.
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Appendix A
Investment covered by the Regulation
Any acquisition by a non resident in a resident
company, if as a result of such acquisition, the
non resident holds at least 10% of the equity or
voting rights of the resident company;
Obligation
Statistical declaration
Any acquisition by a resident in a non resident
company, if as a result of such acquisition, the
resident holds at least 10% of the equity or voting
rights of the non resident company;
Any cross-border intragroup transaction (loans,
etc.) and real estate investment;
The acquisition or sale
companies by residents.
of
non
resident
Direct foreign investment, defined as:
a)
The creation of a new business by a foreign
company or a non resident individual;
b)
The acquisition of all or part of a business
(wherever situated) from a French company by a
foreign company or a non resident individual;
c)
Any transaction on the equity of a French
company by a foreign company or a non resident
individual if, after such transaction, the aggregate
amount of voting rights or equity share held by all
foreign companies or non resident individuals
exceeds 33.1/3% of the equity or voting rights of
the French target company; or
d)
The above transactions (a, b and c) if carried out
by a French company, when more than 33.1/3%
of its voting rights or equity share is held by one
or several non resident individuals or foreign
companies.
Administrative declaration
Any transactions, such as the granting of loans or
substantial guarantees, the purchase of patents or licenses,
the acquisition of commercial contracts or the provision of
technical assistance leading to the de facto takeover of the
control of a French company by a foreign company or a non
resident individual.
Indirect foreign investment, defined as:
Administrative declaration
Any transaction not carried out in France, resulting in the
change in control of a non resident company holding an
interest in a French company, provided than more than
33.1/3% of the equity or voting rights of the French
company are held at more than by foreign companies or
non resident individuals.
Direct foreign investment that could possibly
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Other types of foreign investment:
Administrative declaration
Prior administrative authorization
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have an impact on French public order or
security:
a)
Investment made by a person who has or has
had during the previous 10 years, or is seriously
suspected of having, an illicit activity in
connection with drugs, fraud, procuring, money
laundering,
terrorism,
bribery,
criminal
organization;
b)
Investment made in the gambling business,
including casinos, or a private business subject to
specific regulations in France.
Direct and indirect foreign investment made in
France in connection with national defense,
weapons or explosives.
Prior administrative authorization
Direct foreign investment that could cause
serious risk to public health in France.
Prior administrative authorization
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