Setting up in France: key checks and prior approvals

In France, foreign investment is based on the principle of freedom of financial relations with other countries. This allows international investors to create, acquire or develop a business in France within a stable and predictable framework.

However, certain transactions may be subject to prior authorisation when they involve:

• Sensitive sectors, such as defence, energy, public health or the press.
• Structuring transactions that may have a significant impact on national interests.

An upstream analysis of the nature of the activity, the proposed structure and the applicable thresholds helps secure the project from the preparatory stage.

Before finalizing a transaction or launching an activity, certain regulatory checks are required.

For regulated professions, foreign investments in certain sensitive sectors or merger operations, depending on the nature of the project, prior authorizations or notifications to the competent authorities may be required.

This preliminary analysis step enables us to anticipate applicable obligations and to legally secure the approach and the project.

Some activities are subject to conditions of access or practice. Depending on the sector, profession or position held, it may be necessary to have:

• A professional title.
• A recognized qualification.
• Prior administrative authorization.
• Registration with, or membership of, a professional body.

Upstream verification helps to secure the project and avoid any blockage during registration or start of business.

In order to preserve security and public order, as well as national defence interests, foreign investments made in France, when they fall within specific sectors and meet defined conditions, may be subject to a prior control procedure known as Foreign Direct Investment screening (i.e. “Contrôle des Investissements Étrangers en France” IEF).
This regime constitutes a derogation from the principle of freedom of investment and is strictly governed by law and regulation.
When three cumulative conditions are met, prior authorization request may be required:

1. The investor is foreign or controlled by a foreign entity,
   or is French but not tax resident in France.
2. The operation consists of :
   • a takeover.
   • the acquisition of all or part of a business line.
   • the crossing, by an investor from a country outside the EU or EEA, of the threshold of 25% of voting rights in a French legal entity;
   • the crossing, by an investor from a country outside the EU or EEA, of the threshold of 10% of voting rights in a listed French company.
3. The target company operates in a sensitive sector listed by regulation.

It should be noted that an initial review request (a separate procedure, distinct from and not interchangeable with the prior authorisation procedure) may be submitted where there is a proposed investment or where the target entity planning to open its capital is in negotiations with one or more investors.

Such a request may be submitted either by the French target entity or by the investor. The Minister for the Economy then has a period of two months to issue a decision. The opinion specifies whether the activities of the entity concerned by the investment are considered sensitive under the applicable regulations at the time of the request, and therefore whether prior authorisation is required.

The procedure follows several steps:

Some activities require prior administrative authorizations.

Mergers, acquisitions or joint ventures may also be subject to merger control when certain revenue thresholds are exceeded. This control aims to ensure the maintenance of effective competition in the French or European market.

In France, the operation is examined by the Competition Authority when three cumulative conditions are met:

1. The total worldwide revenues excluding taxes of all the businesses or groups concerned exceeds €150 million.
2. The revenues excluding taxes generated in France by at least two of the businesses concerned exceeds €50 million each.
3. The operation does not fall within the competence of the European institutions or the European Union decides to invite the examination of the Directorate-General for Competition.

When these three thresholds are crossed, prior notification is mandatory before carrying out the operation.

Once the main points of vigilance have been identified, it is necessary to determine the most suitable establishment method for the project, according to the level of commitment, the degree of autonomy sought and the development strategy.

Several solutions exist for entering the French market, including:

• Creating a subsidiary or branch of the foreign company
• Acquiring a French company or a business in France
• Creating a joint venture
• Taking over an ailing French business.

The choice depends on:

• The desired level of commitment.
• The accepted level of risk.
• Medium- or long-term strategy.

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