Chinese Outbound Investment Guide 2018: France

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France is one of the most popular destinations for foreign direct investment (FDI) in Europe, with targets ranging from luxury goods to high tech companies. Chinese FDI in France represented $1 billion in 2017, compared to $2.4 billion in 2016. The decrease in the volume and number of transactions is largely due the recent restrictions imposed by People's Republic of China (PRC) authorities on outbound capital flows. As a result of such restrictions, several transactions are still on hold months after their announcement (e.g., acquisition of Crystal Baccarat by Fortune Fountain Capital).

Chinese investments into France target all kinds of sectors and types of businesses: family businesses as well as listed groups (e.g., Baccarat, Accor Hotels), in industries as diverse as tourism, fashion brands, food and wine, football clubs, automotive or airports, etc.

France traditionally welcomes foreign investment and has a positive and welcoming attitude towards Chinese investment, with various cooperation initiatives, both public and private, designed to promote Chinese investment in France. The recent visit by President Macron to China also illustrates the long term and close relationships between China and France.

A series of political and legal measures have been recently taken to make France more attractive to foreign investors. For instance, the President Macron's government has decided to gradually lower the French corporate income tax rate to 25% by 2022 (from 33.3% today) and to develop tax incentives for innovation (such as a strong R&D tax credit system). Major changes have been decided to make French labour law more flexible, with a simplification of the employees' representation system and the rules for terminating employees (reducing both the severance cost and the risks of litigation).

In principle, there are normally no limitations on foreign investment in France. Chinese investments remain subject, however (but as all other investments from outside the European Union), to certain limitations which are mostly linked to national security (see 2.1/2 below).

The former French Prime Minister declared during a state visit in China in 2017 that French and Chinese relations have gone beyond a straightforward buyer-seller relationship to take the form of solid, long-lasting industrial partnerships based on the complementary nature of businesses of both countries.

Several positive factors should open new perspectives for Chinese investment in France. The election in 2017 of the liberal, business-oriented, President Macron is a positive signal to the business community and foreign investors. Various reforms have already been implemented (such as the tax and labour law reforms discussed above) and more are planned. One of the goals is to take advantage of the Brexit to attract investors who want to establish a hub for their investments and operations in France and in Europe. In that light, Chinese investors, which often used London as an entry point to Europe, are a key target. As a large and politically stable country, centrally located in Europe, France will be even more attractive to Chinese investors thanks to the Macron reforms.

As a principle, foreign investment in France is free and not subject to governmental approval. However, foreign investment in certain industries which are deemed sensitive or related to national defence may require the prior authorization of the French Ministry of Economy and Finance.

French law (section L.151-3 of the French Monetary and Financial Code) provides that foreign investments in activities relating to national security or which may disrupt public safety, or in the research, production or sale of military weapons, are subject to prior approval by the French Ministry of Economy and Finance.

Such restrictions apply to investments from investors registered in jurisdictions outside the European Union or the European Economic Area. The list of the industries which are concerned by the above restrictions includes, for instance, investments in telecom, transportation or public health, or technologies with a dual use (civil and military), certain IT businesses and some telecom areas (cryptology, communications and transportation networks and services).

In this regard, the French government recently announced an extension of the scope of industries considered as of national strategic interest and which, as such, require a prior administrative approval before an intended foreign investment can be completed. The extended list will most notably include key artificial intelligence (AI) technology, the aerospace industry, data storage and semiconductors. Other measures include the creation of golden shares, which would enable the French state to exercise specific rights in companies included in these sensitive industries, in order to prevent their acquisition from foreign investors.

The authorisation process is quite straightforward: the request is submitted to the Ministry of Economy, which has two months to review the investment. If no opposition or request for further information is issued within this timeline, the authorisation is deemed granted.

The French authority overseeing competition clearance is the French Competition Authority (Autorité de la Concurrence), which is an independent administrative agency.

French merger control applies if the turnovers of the parties to a transaction (the acquirer, the target and their subsidiaries) exceeded, in the last financial year, certain (cumulative) thresholds provided in Article L. 430-2, I of the French Commercial Code (worldwide turnover of all parties exceeding €150 million or turnover in France exceeding €50 million for at least two parties). Transactions are not subject to notification in France if they are notified at the European Union level.

Under Article L. 430-3 of the French Commercial Code, a notifiable merger cannot be finalised before its clearance by the French Competition Authority but the French Commercial Code does not provide any specific deadline for the notification. There is no filing fee. Failure to notify a reportable transaction is subject to daily penalties and fines.

The majority of notified transactions are cleared within 25 business days of the filing of their notification. However, certain transactions go through a more in-depth Phase II review which requires an additional 65 business days.

See Section 2.1

French corporate law offers various forms of corporate vehicles that can be used for an acquisition or a joint-venture, including the equivalent of the limited liability company and of the company limited by shares. One of the legal entities most commonly used by Chinese investors for large transactions is the simplified joint stock company (SAS), as it is a very flexible corporate form: it can be established with a single shareholder, with a limited share capital, and the rules governing its functioning are very flexible and can be organised to a large extent freely in the by-laws.

There are no specific requirements that would impact a Chinese investor. It is worth noting that French law does not require the participation of a French citizen or entities in French commercial companies, either as shareholders or as directors or officers

Yes, France and the PRC signed a bilateral investment treaty on November 28 2007, which came into force in France in 2011.

French courts are independent, commercial matters are judged by courts composed of professional judges, with an appeal process in front of professional judges. There are various summary proceedings that can allow an investor to efficiently enforce its rights.

French courts duly deliver the exequatur allowing foreign judgments and international arbitration awards and deeds received by foreign officers when such judgments and awards have complied with basic principles designed to ensure the fairness of the trial and rights of the defendant.

France is also a party to multiple European and international conventions as well as bilateral treaties (including with the PRC), which provide simplified legal frameworks for the recognition and the enforcement of foreign judgments and judicial cooperation.

French judgments and arbitration awards rendered in France (for instance under the ICC Arbitration Rules) are generally enforceable in other jurisdictions.

There are no foreign currency or foreign exchange restrictions in France.

See Section 6.3

The standard rate of corporate income tax is 33.33% (article 219-I of the French Tax Code). This rate will be progressively reduced to 25% by 2022.

Small companies (i.e., enterprises owned for at least 75% by individuals or by other small enterprises and with a turnover of €7,630,000 or less) are taxed at a reduced rate of 15% on the first €38,120 of profits and at the standard corporate income tax rate on any excess (article 219-I-b of the CGI).

Gross dividends distributed to corporate shareholders outside France are subject to a final withholding tax of 30% subject to the application of a tax treaty between France and a foreign country providing for reduced withholding tax rates (as explained in section 6.3 below, China and France have signed a treaty providing for a favourable tax treatment). However, no withholding tax is levied on dividends paid by a French company to a qualifying parent company resident in the European Economic Area (EEA) if certain conditions are met.

Foreign companies established in France enjoy the same government aid or incentives as French companies (aid for productive investment, R&D, professional training, job creation, etc.).

France offers a comprehensive system of tax and non-tax incentives to French and foreign businesses creating new, or expanding existing, businesses in certain French regions, acquiring declining industries and decentralising their activities out of the Paris and Lyon regions.

In addition, taxpayers in France (including foreign investors having established a business in France) may benefit from the attractive R&D tax credit. The R&D credit, which takes into account the annual volume of expenditure, amounts to 30% of the expenses related to operations of research and development up to e100 million, and 5% for the excess. Higher rates apply to companies that never benefited from the credit and those that did not benefit from the credit for a five-year period. Certain conditions must be met.

France and China signed a revised Double Taxation Agreement on November 26 2013. This agreement reduces the withholding tax rates applicable to dividends, royalties and interests. A Chinese investor will be taxed only 5% on the repatriation of dividends from France if such investor holds 25% of the shares or voting rights in the French company (the withholding tax rate will be at 10% in all other cases). Withholding taxes on royalties and interests paid to investors resident in China are also reduced to 10%. The Double Taxation Agreement also helps to eliminate any double taxation arising from cross-border transactions and to secure the tax position of Chinese investors.

About the author
		Raphaël Chantelot Partner, LPA-CGR avocats Paris, France T: +33 (0)1 53 93 30 00 E: rchantelot@lpalaw.com W: www.lpalaw.com Raphaël Chantelot is a partner focusing on M&A transactions and joint-ventures. He is admitted to the Paris Bar and to the New York Bar, with more than 15 years of experience in the fields of corporate transactions and international business law. Before joining the firm as a partner in 2011, Chantelot spent five years in Shanghai working for French firm Gide and, before that, five years in the corporate and M&A department of the Paris office of US firm Cleary Gottlieb. Based in the corporate and M&A department in Paris, Chantelot advises French and foreign clients on corporate and financial matters, including cross-border mergers and acquisitions, project finance and capital market transactions, in deals involving listed and unlisted companies, in Europe and in Asia. Chantelot received an LLM degree from Georgetown University (Washington DC), a master in business law from the Sorbonne University, and he graduated from the Paris Institute for Political Studies.

About the author
		Nicolas Vanderchmitt Partner, LPA-CGR avocats Hong Kong, China T: +852 2907 7882 E: nvanderchmitt@lpalaw.com.hk W: www.lpalaw.com Nicolas Vanderchmitt is a partner and head of LPA-CGR's Hong Kong office. Vanderchmitt advises European companies through all stages of their investment or industrial projects in the Greater China Region, including cross-border legal and tax structuring, foreign direct investment, acquisitions and regional joint-venture/shareholders' agreements. He also advises Chinese companies through their expansion plan in Europe and Africa. Vanderchmitt plays an active role in the French business community in Hong Kong in his capacity as Secretary General and member of the Executive Committee of the French Chamber of Commerce in Hong Kong since 2011.

About the author
		Fanny Nguyen Partner, LPA-CGR avocats Shanghai, China T: +86 21 6135 9966 E: fnguyen@lpalaw.com W: www.lpalaw.com Fanny Nguyen is a partner advising European companies in China. Nguyen is an acclaimed expert in China in corporate Law, M&A and international taxation. She counsels international clients on issues involving establishment, cross border transactions, and negotiations with the Chinese authorities. With wealth of experience from over 10 years' experience in business and law, she advises her clients in China on local regulations while taking into consideration the needs of European companies. She is thus highly knowledgeable in tax matters, advising clients on taxation issues in cross border transactions, transfer price and tax optimisation (for employees and businesses) as well as fiscal restructuring. She also lectures on Chinese taxation at Sciences Po Lyon.