French Foreign Direct Investment Rules Set for Overhaul

In Short

The Situation: The French government issued on December 31, 2019, new rules substantially revising the French Foreign Direct Investments ("FDI") regulation. These new provisions mostly implement the recent PACTE law and the new EU FDI regulation which set up an EU screening mechanism. 

The Result: The new rules greatly extend the scope of the (i) covered investments; (ii) investors; (iii) sensitive business; and (iv) government's grounds to refuse authorization. At the same time, the authorization proceeding is clarified and its timeline could, in the simplest cases, be accelerated. 

Looking Ahead: By updating the French FDI regulation, the French government has clearly decided to extend not only its screening of any FDI in France but also its capacity to control and to impose harsh penalties for infringement of this regulation. Investors and companies alike should pay particular attention to foreign investment issues when contemplating an investment in a French company. This new regulation for foreign investments in France will apply to any application filed from April 1, 2020 (pending applications at this date will be regulated by current rules).

New Definitions: Extension of the Scope 

As revised, the following are to be considered "covered investors": (i) any foreign legal entity or natural person; (ii) any French natural person living outside France; or (iii) any French legal entity controlled by any of the previous mentioned investors. Presently, the regulation covers the acquisition of control of French targets or the acquisition of all or part of businesses (asset deals), but the revised regulation will also cover any investment in which the investor will directly or indirectly, alone or jointly, own more than 25% of the French target's voting rights (excepted for EU investors and intragroup investments).

New Sensitive Businesses: Another Extension of the Scope

The amended French FDI names certain "sensitive" business activities and sectors that will trigger the foreign investment approval process. Sensitive activities are now divided into three categories:

  • Sensitive activities relating to national security and national defense (including crypto and data storage and processing);
  • Businesses relating to specific facilities and infrastructure, goods, or services (energy, water, transportation, space, electronic communications, public health, agriculture and food industry, publishing and media); 

·Certain businesses relating to research and development activities focused on critical and dual use technologies. 


A French entity can ask at the Ministry of Economy at any time whether all or part of its activity could be considered sensitive (the answer should be delivered within two months).

Acceleration of the Proceeding

Today, when a transaction is contemplated and an application is filed, the Ministry of Economy has a two-month deadline to grant or deny the authorization (and the Ministry can stop the clock answering additional questions on the deal). In the future, the Ministry will give a first answer within 30 days which could be: (i) authorization without conditions or undertakings (simple cases) or (ii) the need for additional investigation and potential discussions for undertakings (complex cases). In that second case, a new period of 45 days will start at the end of which the Ministry could grant the authorization (possibly with undertakings for the investor) or refuse it.

Clarifications on the Potential Undertakings and Requirements 

The purpose of the undertakings is: (i) to ensure the continuity and the security of the activity of the French target on the French territory; (ii) to protect the knowledge and know-how of the French target company; (iii) to adapt the governance of the French target company; and (iv) to determine the means of posttransaction communication and reporting between the investor and the controlling administrative authority. These undertakings may be revised at any time, on the initiative of either investor or Ministry, in case of certain specific changes in circumstances. Additionally, the Ministry of Economy may condition its authorization based upon the transfer of part of the capital or business lines of the French target to a legal entity different from the investor and agreed by the Ministry. 

New Grounds for Refusal

The authorization may be denied if (i) the undertakings are not sufficient; (ii) the investor has relationships or links with foreign government or foreign public entities; or (iii) the investor committed violations of criminal or social law.

Control and Sanctions

Since the PACTE law increased the supervisory power of the Ministry of Economy, the Ministry could now (i) issue, as an emergency intervention, an order requiring from the company to comply with certain obligations subject to a daily penalty (up to EUR 50,000) and (ii) appoint a substitute within the company in order to protect national interests (including via a veto right on company decisions). In addition to the imposition of criminal and administrative sanctions, any transaction completed in violation of this regulation will be null and void.

Content of the Application to Be Filed With the Ministry

Order n° ECOT193723, dated 31 December 31, 2019, on foreign investments in France describes all the information needed about the investor, the target, and the investment.


As soon as the authorized transaction is completed, a specific declaration to the Ministry of Economy must be filed.

Three Key Takeaways

  1. The new French FDI regulation significantly expands the scope of   investors for which investments may be subject to prior review. In particular, the threshold of acquired voting rights in a French target company is reduced from 33% to 25%.
  2. The definition of sensitive sectors is widened and clarified, notably with regards to the new EU FDI regulation. It will be possible for French companies to ask the French Ministry of Economy at any time to check whether a business falls within the scope of the FDI regulation.
  3. New grounds for refusal of an investment are introduced, including the fact that the investor has any kind of relationship or links with foreign governments or foreign public entities.
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