France: Restrictions On Foreign Investment And Investors

Last Updated: 16 May 1995
Investor considerations

Relaxation of exchange controls.
Less rigid application of direct investment controls.
Prior declaration and authorisation of foreign investment is often required.
One hundred percent foreign ownership is permitted.
Capital and earnings may be repatriated.
The opening of a foreign bank account is permitted.

Regulatory climate

Regulatory authorities

Several authorities control and oversee foreign investment in France. In particular, the Ministry of Economy, Finance and Budget promulgates and delegates responsibilities to the other authorities. The Treasury Department within the Ministry of Economy, Finance and Budget is responsible for the elaboration of exchange control regulations and all the questions concerning direct investment of foreign investors. The General Department of Customs controls the application of regulations and transfers of a commercial nature. The Bank of France and its delegated banking intermediaries ("etablissements bancaires") oversee the technical problems posed by the application of exchange control regulations, foreign exchange transactions, international capital transfers, and payments between residents and non-residents of France (except the commercial transactions).

Regulatory legislation

Since their introduction in 1966, France's direct investment and exchange control regulations have been used to control foreign investment and international financial transactions. As discussed below, at present, control has diminished but has not been totally eliminated.

France maintains privileged relations with its former colonies, which are excluded from all French investment regulations. These countries are the Central African Republic, Congo, Ivory Coast, Benin, Cameroon, Gabon, Burkina Faso (formerly Upper Volta), Niger, Senegal, Chad, Mali, Togo, and the DOM-TOM (Overseas Departments and Territories).

Exchange controls

Inward investment

Current inward investment regulations establish distinctions based on where the investor is resident, i.e., where the investor has a principal centre of interest, regardless of nationality. In general, inward direct investments are defined in France as the purchase, creation or extension of a company, partnership, going concern, branch, or sole proprietorship; loans by residents to foreign companies under their control; and loans by non-residents to French companies under their control.

A distinction must be drawn between EU and non-EU investments as they are governed by somewhat different regulations.

EU investors

Investors from another EU country are entitled to make direct investments in France without obtaining prior authorisation. The Treasury Department reserves the right to verify that the investor is an EU resident. A company is deemed to be an EU investor when it has both its registered office and its head office in an EU country and when 50 percent of the shareholders are EU residents.

The Treasury has 15 days from the filing of the direct investment declaration to make this determination. In cases where the file is considered incomplete by the Treasury, it generally interrupts the running of this period and requests additional information. The 15-day period starts running again once the information is furnished. When an investor cannot prove its EU origin to the satisfaction of the Treasury, the file will be reviewed as a non-EU application.

Because most investments require express written approval rather than tacit approval by virtue of the expiration of the review period, the Treasury may delay issuing such written notification and thereby extend the above-mentioned periods. This sometimes occurs when there is a French candidate also negotiating for the same acquisition.

Non-EU investors

For non-EU investors and EU investors not proving their EU origin, some investments require prior declaration and/or authorisation, while a limited category of investments require only an after-the-fact report.

Investments exempt from both prior authorisation and declaration include the following:

  • 1. Formation of new companies or branches by foreign investors.
  • 2. Subscriptions to increase capital in a French company under foreign control in the following two cases. (A French company is deemed to be under foreign control when foreign investors hold at least 20 percent of share capital of a company listed on the stock exchange or at least 33.33 percent of a nonlisted company.)
  • a. Subscriptions do not increase the relative participation of the foreign shareholders;
  • b. Foreign participation in the share capital is already at least 66.66 percent.
  • 3. Subsidies from non-residents to a French company under their control.
  • 4. Loans to French companies under foreign control of the same group.
  • 5. Reorganisations of French companies under foreign control of the same group.

Direct investments in France are not subject to prior authorisation, but must still file a prior declaration, if the following criteria are met:

  • 1. The investment is less than FF50 million.
  • 2. The investment is in an existing company the turnover of which, added to the turnover of the companies it controls, does not exceed FF500 million.

The prior declaration should be filed with the French Treasury, which will have 15 days from this filing to notify the investor that it may freely proceed with its investment.

Prior declaration and authorisation procedures

Except for the above, foreign investments must be declared to and approved by the Ministry of Economy, Finance and Budget. The Treasury has announced broad outlines for the examination of direct investment applications. From an economic viewpoint, an investment is considered on the basis of the number of jobs it will create or maintain, the contribution of new technology, the development of exports, and the re-establishment of declining industries. From a financial viewpoint, an investment is considered on the basis of its profitability, its financing mix and the dictates of the international and domestic monetary situation.

For direct investment requiring prior authorisation, the Treasury has three alternatives: acceptance, rejection or postponement. It has 30 days from the filing of the prior declaration to provide notice of its acceptance or rejection. As postponement can be for an indefinite period, it may serve as a disguised rejection. Moreover, postponement is often used to find a "French solution" for acquisitions of leading companies. Where the Treasury expressly approves a direct investment, this decision generally specifies how the investment must be financed. In general, the acquisition or creation of a business must be fully financed in foreign currency. An after-the-fact report must be filed within 20 days for most foreign investments.

Registration of foreign capital and technology

Other than obtaining direct investment authorisation (see above), there is no registration requirement for foreign capital and loans.

Any agreement or amendment thereto whereby rights to intangible industrial property (patents, trademarks, models, technical assistance, know-how) are purchased, licensed, or sold by French companies or residents to foreign companies or residents, as well as management assistance agreements, must be filed within one month of conclusion with the National Institute of Industrial Property (Institut National de la Propriete Industrielle--INPI), which sends copies to the tax and exchange control authorities. Banks generally require proof of filing with INPI before transferring payments.

Foreign currency controls

Foreign currency transactions are subject to control by the Bank of France. All inward and outward payments must be made through approved banking intermediaries by bank transfer. These "etablissements bancaires" have general authorisation to make normal and current payments to meet expenses provided they are supplied with a copy of the underlying agreement and other supporting documents.

When necessary, the Bank of France revises its regulations. Therefore, advice on the current measures should be obtained.

Currency accounts


Foreign-controlled French businesses are considered to be resident and, therefore, are required to have a resident French bank account and are subject to the same regulations as other French legal entities. The use of foreign bank accounts by residents is permitted. Foreign companies that are not resident in France may have non-resident accounts and these accounts are not subject to French regulations.


The exchange control regulations applicable to both French citizens and foreigners have been relaxed significantly since the beginning of 1990.

1. For exchange control purposes, foreigners are considered as residents from the time they arrive in France. (Election of this status has been abolished.) French and foreign citizens are subject to the same rules.

2. Residents are entitled to open an account in foreign currency with a bank established in France and to establish accounts abroad. Residents (other than commercial companies) must report the account number for all foreign accounts on their annual income tax returns.

3. French-source earnings may be transferred abroad without limitation if carried out through an approved bank.

Repatriation of capital and earnings


Provided the inward investment was properly authorised, there is no restriction on repatriation of capital, as long as this is carried out through an approved bank. Moreover, in case of liquidation of a direct investment, an after-the-fact report must be filed with the Bank of France within 20 days after the liquidation.


There are no restrictions per se on the remittance abroad of profits, interest, royalties, or service fees, provided the investment was authorised, where required, or the underlying agreement (e.g., license agreement for royalties) was properly concluded and registered, where applicable, with the National Institute of Industrial Property. A copy must be filed with the bank making the transfer. Payment must be made in accordance with exchange control regulations.

There is no restriction on the payment of dividends abroad, but they must be made through approved banks.

Guarantees against inconvertibility

The French government does not issue guarantees against inconvertibility of French francs into other currencies.

Restrictions on foreign investment

Industries closed to private enterprise

Foreigners are not permitted to invest in the following economic sectors: industries competing with the state energy monopolies (EDF-GDF); industries harmful to public order, health or safety; and national defence industries. Special regulations and/or formalities are applicable in certain industry sectors, such as banking, insurance, media, oil and gas, and pharmaceuticals, as well as to privatised companies.

Restrictions on foreign ownership

Other than in the defence sector, there are basically no restrictions in the private sector and companies may be wholly owned. There is no local partner or joint venture requirement.

Bilateral investment treaties

France has entered into treaties covering personal, corporate and wealth tax with over 80 countries. It also has reciprocal social security agreements with the EU and a number of other countries. In 1987 France concluded a social security treaty with the United States; this treaty became effective on July 1, 1988. The purpose of the treaty is to eliminate double contributions and to totalise credits for retirement benefits from one or both countries.

Policy trends

Effect on foreign investment

The government is progressively deregulating the economy and many French businessmen consider that they now have the freedom to make business decisions without much state interference. Although direct investment controls and exchange controls still exist, their application is generally less rigid than in the past. The French clearly prefer that foreign companies establish themselves in France through subsidiaries, branches and joint ventures rather than simply exporting to France.

Acquiring shares or incorporating

Given a tradition of having both hidden assets and liabilities, it is generally advisable to incorporate a new company, or, if the existing business cannot be otherwise acquired, to purchase the shares through a well-drafted contract containing extensive and bank-guaranteed indemnifications, or even purchase the assets, in which case a French company or branch will have to be formed. Capital and loans must be declared to ensure repatriation rights.

Management and technical assistance agreements

For agreements between related parties, either the arm's-length principle applies or the principle is effectively replaced by the allocation formula in a group cost sharing agreement. For inter-company charges to be tax deductible, the expense has to be incurred in furtherance of the French subsidiary's, not the group's, interest. Between unrelated parties, the objective is to avoid costly litigation or arbitration. These types of agreements must be registered and yearly reports made to the authorities.

Local partners

Unless "recommended" during negotiations with the government, foreign companies can and probably should establish "wholly owned" subsidiaries, in which local partners can subsequently become shareholders or can form joint ventures with local venturers.

For additional information, please contact Gilles Herreman, Price Waterhouse Paris, (33)(1)41-26-40-22.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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