France operates under a civil law system. This means that greater emphasis is placed on codes and statutes rather than on case law and practices, as is the case in common-law jurisdictions. The exception is French administrative law, which is primarily created by the French administrative courts.

France has a written constitution (Constitution de la Cinquième République, or the “French Constitution”), which forms the basis of the French legal system and uses a system of legal codification (notably including the Civil Code, the Commercial Code, the Criminal Code and the Tax Code). French law has a dual system comprising:

• judicial/private law (droit privé), including civil and criminal law, in particular; and
• public law (droit public), including administrative and constitutional law, in particular.

In addition to the French Constitution and international treaties, there are different domestic sources of laws and regulations in France. French laws (lois) are adopted by the French Parliament, which is made up of the National Assembly (Assemblée Nationale) and the Senate (Sénat), whereas ordinances (ordonnances) and regulations (réglements being décrets or arrêtés) are issued by the French government.

The court system in France is divided into two parts:

• judicial courts (dealing with civil and criminal laws), comprising courts of first instance(ie, civil, commercial, labour and criminal courts), courts of appeal and the Supreme Court of Appeal (Cour de Cassation); and
• administrative courts (dealing with public laws), comprising courts of first instance, courts of appeal and the Council of State (Conseil d’Etat).

In addition, there is a Constitutional Council (Conseil Constitutionnel), which is in charge of controlling the compliance of the new laws/statutes with the French Constitution, as well as the regularity/validity of the political elections. Finally, there are also various independent regulatory authorities, such as the Autorité des marchés financiers (AMF), which regulates the French financial markets, and the Autorité de la concurrence (AC), which oversees all antitrust, competition and merger control matters in France.

France has a foreign direct investment (FDI) review/approval process in place. The Direction General du Trésor within the Ministry of Economy and Finance is in charge of such review.

French FDI regulations apply when a foreign investor proceeds with the following types of investments in a French company or a French business engaging in activities deemed sensitive per French FDI regulations:

• the acquisition of the control, as defined by Article L. 233-3 of the French Commercial Code, of an entity governed by French law or an establishment registered with the Trade and Companies Registry in France;
• the purchase, in whole or in part, of a business (branche d’activité) of an entity governed by French law;
• for non-EU investors, the crossing – by the investor, directly or indirectly, acting alone or in concert – of the 25% threshold of the voting rights of an entity governed by French law; and
• for non-EU investors, the crossing – by the investor, directly or indirectly, acting alone or in concert – of the 10% threshold of the voting rights of an entity governed by French law whose shares are listed on a regulated market.

The main sectors/industries relevant to such control are those related to defence and, more broadly, all activities likely to jeopardise French national interests with regard to critical infrastructures (eg, energy, transportation, public health, electronic communications, space operations, public health, and critical raw materials). R&D relating to critical technologies such as cybersecurity, AI, robotics, additive manufacturing, semiconductors, quantum technology, energy storage, and biotechnologies and technologies relating to the production of low-carbon energy and photonics can also be considered sensitive activities.

The position of French FDI regulations – and, more generally, the French authorities – regarding foreign investment control follows the European and, more broadly, global trend of reinforcement and heightened protection of sovereignty and national interests.

France has a very mature set of FDI regulations that has been regularly reinforced, mainly in 2014 and then in 2020 following the COVID-19 crisis. Initially covering the defence sector primarily, the FDI regulations were then extended notably to the protection of other critical sectors and infrastructures, such as public health, energy, transportation and telecommunications. The scope of protected critical technologies is also regularly enriched, with the most recent addition being AI, biotechnologies, and technologies relating to the production of low-carbon energy or photonics.

The types of transactions covered are also regularly extended. By way of example, the acquisition of French branches of foreign companies has been added to the in-scope operations, and the threshold of voting rights acquired directly or indirectly in a French company was lowered several times – from 33% to 25% for non-EU investors and even 10% specifically for French listed companies.

The past few years have seen a growing incidence of highly “publicised” use of the French FDI regulations by the French authorities, such as the early prohibition by the Ministry of Economy of the acquisition by the Canadian company Couche-Tard of the French food retailing group Carrefour in 2021 on the grounds of “national food security concerns”. More recently, at the end of 2024, stringent commitments were imposed on the US fund CD&R for its acquisition of a stake in Sanofi’s subsidiary Opella, mainly producing the Doliprane medicine.

In the defence sector, the French government objected to the acquisition by the American group Teledyne in 2020 of Photonis, a French company specialising in photo-sensor imaging technologies and supplying night vision devices to the French Army. Finally, the US group Flowserve was prohibited from acquiring two French subsidiaries of the Canadian group Velan, which manufactures industrial valves used in French nuclear submarines, aircraft carriers and nuclear power plants.

Yet France remains attractive to foreign investors, with a record 56 projects announced totaling EUR15 billion in foreign investment (Choose France summit 2024 edition). In 2023, 255 requests for clearance were filed with the FDI authorities, which authorised 135 transactions within the scope of the FDI regulations (including 44% subject to investor commitments). Nearly half of the other requests were deemed out of scope of French FDI; a limited number were rejected.

Filtering measures on inbound FDI could also soon work in tandem with the potential adoption of an outbound investment mechanism, currently in the hands of European legislators who are considering adding other tools to the range of economic defence instruments to counter the transfer of key technologies (European Commission communication, 24 January 2024).

There are three main structures used for transactions in France, which are:

• through a sale and purchase of shares;
• through a sale and purchase of assets/business (ie, a business as a going concern); or
• through a merger (consisting of the automatic transfer of all the assets and liabilities, by operation of law, of the absorbed company to the absorbing company) or a contribution of assets/shares (consisting of the contribution of assets/shares in exchange for shares issued by the receiving company).

Public company transactions are similarly structured through purchase of shares, but subject to specific procedures under the supervision of the AMF. The acquisition of a public company can be structured either as a voluntary takeover bid on all outstanding shares of the target company or as the acquisition of a block of shares followed by a mandatory takeover bid on all remaining outstanding shares if the bidder crosses the threshold of 30% (assuming a listing on Euronext Paris), either in shares or voting rights or a voluntary takeover bid. Under certain circumstances (notably, if the public company is distressed), the AMF may grant an exemption to the mandatory tender offer requirement. The AMF’s decision will be made on a case-by-case basis. The squeeze-out of the minority shareholders and the delisting is subject to the crossing of the 90% threshold both in shares and voting rights.

The legal and tax frameworks significantly differ depending on how the transaction is structured. From a legal perspective, in the context of a purchase of shares, the purchaser steps into the shoes of the seller and acquires the company with all of its assets and liabilities. In a purchase of assets/business, however, certain assets and contracts are deemed part of the transferred business (which essentially involves clientele, other intangible assets, tangible assets, employment contracts, insurance contracts and commercial leases). Any other assets or contracts must be specifically identified to also transfer and all liabilities remain with the seller, except certain liabilities subject to specific regulation (eg, employee-related, social contributions, or environmental) or if expressly provided otherwise in the transfer agreement. Purchases of shares and assets/business are also not subject to same transfer taxes.

Transaction structures for minority investments are partly similar, given that they can be mainly structured through:

• a purchase of shares representing a minority equity stake in the target company;
• a contribution of assets/shares in exchange for shares issued by the target company representing a minority equity stake;
• the issuance by the target company of financial instruments convertible into a minority equity stake; or
• the set-up of a joint venture.

Aside from foreign investment regulations (please refer to 7. Foreign Investment/National Security), merger control (please refer to 6. Antitrust/Competition), and EU foreign subsidies regulations (please refer to 6. Antitrust/Competition), other regulatory or governmental approvals might be required on a case-by-case basis – depending upon, notably, the relevant industry and the deal structure (eg, transfer of operational permits). In addition, the management of a company with a works council (Comité Social et Ecomomique, or CSE) (mandatory if the number employees exceeds 50) and whose shares are sold or which sells it assets/business must consult its works council on the proposed transaction, which may have an impact on the overall timing.

French Hamon law requires that any SME – where at least 50% of the shares are sold or which sells its assets/business individually – must notify each of its employees of such sale, allowing the employees to submit a purchase offer on the shares or the assets/business.

For public companies, French regulation requires any investor contemplating a transaction on the share capital of a public company that may have a substantial impact on the stock price to disclose the contemplated transaction promptly unless it can keep it confidential. In addition, the crossing of the 10%, 15%, 20% or 25% thresholds – either in shares or in voting rights in a public company – triggers the obligation to notify to the AMF and the target company a description of the objectives intended to be pursued by the investor with regard to the listed company for the subsequent six months. Such notification is made public by the AMF.

Rules on corporate governance are primarily codified in the French Commercial Code (Code de Commerce) and the French Monetary and Financial Code (Code Monétaire et Financier). Listed companies are also subject to the rules set forth by the General Regulation of the AMF (Règlement Général de l’AMF) and must adhere to a corporate governance code such as that of the French Association of Private Enterprises (Association Française des Entreprises Privées, or AFEP) and the Movement of the Enterprises of France (Mouvement des Entreprises de France, or MEDEF) (the “AFEP/MEDEF Code”).

The most common corporate form for limited liability companies in France is the simplified stock corporation (société par actions simplifiée, or SAS), whichi is known for its flexibility. Small businesses often use the limited liability partnership (société à responsabilité limitée, or SARL). Public companies are usually incorporated as public limited companies (société anonymes, or SAs), with either a one-tier (ie, board of directors and chief executive officer) or a two-tier structure (ie, supervisory board and management board).

French law and regulations grant several rights and remedies to minority shareholders, particularly in listed companies, as follows.

• Right to information – before any annual shareholders’ meeting, shareholders may consult the report of the executive corporate body, the standalone and consolidated financial statements (if any), the report of the statutory auditors on the financial statements, the report of the statutory auditors on the related-party transactions, and the draft resolutions.
• Right to ask written questions – prior to the shareholders’ meeting, shareholders may submit written questions to the management for additional information on specific matters. Shareholders, if holding a certain number of shares, can also propose draft resolutions to be included in the agenda.
• Right to vote at any shareholders’ meeting – shareholders are entitled to vote on the approval of the annual accounts, the appointment and removal of the directors, the approval of the related-party transactions and, in public companies, the remuneration of the corporate officers (directors and CEO) through ordinary shareholders’ meetings that approve resolutions subject to simple majority vote of the shares present or represented. Shareholders are also entitled to vote on amendments to the by-laws and on capital increases, mergers and demergers through extraordinary shareholders’ meetings that approve resolutions subject to a two-thirds’ majority vote of the shares present or represented.
• Right to distribution – once the annual accounts are approved and if the ordinary shareholders’ meeting has approved the distribution of the annual profit (if any), the shareholders are entitled to receive a portion of the annual profit in the form of dividends pro rata their percentage of the share capital (unless the by-laws provide otherwise).

French law and regulations provide that any person, acting alone or in concert, whose ownership of outstanding shares or voting rights in an issuer listed on Euronext Paris crosses upwards or downwards the threshold of 5%, 10%, 15%, 20%, 25%, 30%, 33.1/3%, 50%, 66.2/3%, 90% or 95% of the total number of shares and voting rights of a public company must notify both the public company and the AMF, specifying the number of shares it holds and the number of corresponding voting rights. Disclosures are made public by the AMF by publication on its website.

An issuer may also impose more stringent notification requirements in its by-laws for holdings of less than 5%, in increments as small as 0.5%. In practice, the by-laws of many French issuers impose disclosure requirements set at small increments, generally from 0.5% to 2% of the capital or voting rights. These threshold crossing disclosure requirements apply in addition to those mentioned in 3.2 Regulation of Domestic M&A Transactions.

Where FDI regulations apply, a mandatory request for clearance must be filed by the foreign investor with the French FDI authorities and must include comprehensive information and documentation regarding:

• the foreign investor and its group, its management, shareholders, activities, markets, competitors and links with foreign states;
• the French target company or business, its activities, products and services markets, competitors, employees, customers, involvement in EU projects and programmes and IP rights; and
• the transaction itself, including its amount, modalities, transaction documents, and the investor’s rationale for proceeding with it.

The foreign investor may have specific obligations with regard to the holding or disposing of an acquired French company or business further to an FDI process. The French FDI authorities can condition their clearance on commitments from the investor in order to ensure that the clearance does not create risks for French national interests. The range and scope can vary depending upon the sensitivity of the acquired activities.

France has the largest capital market in the EU and hosts Euronext Paris, one of the largest stock exchanges in the world. The French financial system is well-regulated and mature, offering a wide range of financial instruments, including equities, bonds and derivatives.

The main platforms of trading are Euronext Paris (a stock exchange qualifying as a regulated market) and Euronext Growth Paris (a multilateral trading facility qualifying as an SME growth market). The French markets are part of a pan-European stock exchange, which includes the principal stock markets of Belgium, the Netherlands, Italy, Portugal and Ireland.

While France’s business continues to rely significantly on bank financing, capital markets play an increasingly fundamental role in the financing of the French business, aligning with the ongoing efforts of the EU authorities to facilitate access of EU businesses to capital markets through enhanced financial markets integration and regulatory reforms.

The regulations of French capital markets are significantly influenced by EU laws, including EU regulations, which are directly applicable in France, and EU directives, which are implemented into French law by laws enacted by the French Parliament. French capital markets are also governed by the French Monetary and Financial Code and the General Regulation of the AMF. The AMF is the independent French public authority that supervises the French financial markets and the market participants.

The main requirements for listing a company on Euronext Paris are:

• the publication of a prospectus approved by the AMF;
• a free float of at least 25%; and
• audited financial statements for at least three financial years prepared in accordance with the International Financial Reporting Standards (subject in each case to certain exemptions).

As mentioned in 3.1 Transaction Structures and 3.2 Regulation of Domestic M&A Transactions, investment in public companies may trigger major holding notification obligations and, in certain cases, a mandatory offer requirement.

Ongoing French and EU regulatory efforts seek to make listing in France more efficient and accessible. Recent French law amendments have, for example, rendered optional the previously mandatory 10% retail-reserved tranche for IPOs, which was not applicable in other key EU jurisdictions. French companies going public have also been allowed to issue preferred shares with multiple voting rights at the time of the IPO to a specific list of beneficiaries and for a duration of ten years following the IPO in order to align with the regulations in force in the other key EU jurisdictions.

Foreign investors structured as investment funds are not subject to any specific regulatory review. Rules set out in 3. Mergers and Acquisitions apply in the same way as for corporate entities.

Transactions that constitute a concentration and meet the French thresholds must be notified to the French Competition Authority (FCA) prior to their implementation.

Types of Transactions Covered

A concentration occurs when:

• two or more independent undertakings merge; or
• one or more persons or undertakings already controlling at least one undertaking acquire control of the whole or parts of one or more other undertakings.

Following a concentration, an undertaking may exercise decisive influence alone – in which case, it will be deemed to have exclusive control. An undertaking may also exercise decisive influence jointly with another undertaking(s) – in which case, they will together be deemed to have joint control. Joint control over an undertaking results either from parity in the voting rights or the ability for a minority shareholder to block certain strategic decisions (such as the adoption of the budget or business plan or the appointment of top management).

The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity also constitutes a concentration.

Thresholds

Concentrations must be notified to the FCA when the following three thresholds are cumulatively met:

• the combined worldwide turnover exceeds EUR150 million;
• the domestic turnover of each of at least two parties exceeds EUR50 million; and
• the transaction does not fall within the jurisdiction of the EC.

There are specific thresholds applicable to the retail trade sector when at least two of the parties operate one or more retail outlets in France and to concentrations involving undertakings conducting all or part of their business in the following French overseas territories: Guadeloupe, Martinique, Guyana, La Réunion, Mayotte, Saint-Pierre-et-Miquelon, Saint-Martin and Saint-Barthélemy. French Polynesia and New Caledonia have their own competition authorities.

Exemptions

There are no exemptions under French merger control rules. Filing is mandatory whenever the thresholds are met. However, a simplified procedure is available in certain unproblematic cases – for example, the constitution of an offshore joint venture or a concentration leading to no horizontal overlaps or vertical links.

Filing Process and Timeline

The notification process is divided into the following three phases.

• Pre-notification phase – pre-notification is not compulsory but is encouraged for cases that may raise issues (eg, preliminary questions on the controllability or if it is anticipated that the transaction will raise competition issues). The pre-notification phase takes about one to two weeks and can be longer for complex cases. The FCA indicates in its guidelines that a notification that has undergone an effective pre-notification phase is generally declared complete on the day on which it is submitted. Transactions eligible for the simplified procedure are usually notified directly, without pre-notification.
• Phase I – this phase takes about 25 workings days. If commitments are offered, this phase can be extended by a further 15 working days and an additional 15 working days may be granted at the request of the parties. Following a Phase I review, the FCA can authorise the concentration (either unconditionally or subject to remedies) or, if serious doubts remain as regards anti-competitive effects, initiate an in-depth examination known as Phase II.
• Phase II (for complex cases only where an in-depth analysis in necessary) – Phase II takes about another 65 workings days. If commitments or amendments to commitments are submitted fewer than 20 days before the deadline for a decision, the review period may be extended by 20 working days, with a limit of a total of 85 working days. A further extension of 20 working days can be requested by the parties.

Following a Phase II decision, the Minister of the Economy can take up the case to review the concentration on grounds other than that of maintaining competition – for example, the general interest, industrial development and employment concerns.

Suspensory Filing

Filing is suspensory. Therefore, the transaction cannot be implemented prior to the FCA’s clearance.

Review of Concentrations Under Thresholds

In line with the ECJ’s TowerCast judgment of 16 March 2023 (C-449/21), the FCA can conduct sub-threshold reviews that lead to an abuse of dominant position prohibited by Article 102 of the Treaty on the Functioning of the European Union (TFEU) or constitute an anti-competitive agreement under Article 101 of the TFEU.

The extent of the competitive assessment by the FCA will largely depend on the impact of the concentration on the market. Concentrations that are eligible for a simplified procedure (e, operations that are unlikely to cause any harm to competition) will require significantly less information than standard filings.

In standard filings, the parties are expected to provide market share and competitor information and describe the competitive environment in which the new entity will compete post-concentration, including the existence of barriers to entry, the existence of countervailing buyer power, the potential entry of new players, or the existence of spare capacity.

Commitments

Commitments can be offered by the parties at any time during the procedure and can be either of two types:

• structural (eg, divestiture of assets or transfer of contracts); or
• behavioural (eg, granting of access to networks or infrastructure in a non-discriminatory and transparent manner).

Although this is rarely the case, the FCA can also impose necessary and proportionate remedies when the parties do not propose any commitments or when they are insufficient.

Any operation that qualifies as a concentration operation and meets the thresholds must be notified to the FCA and cannot be implemented before clearance. The FCA can fine the entity responsible for notifying a fine of up to 5% of its French turnover for failure to notify or for early implementation. In the event of failure to notify cases, the party responsible for notifying will be under the obligation to re-notify the transaction.

Following a Phase II review, the FCA may prohibit a concentration. A prohibition decision may be appealed to the Conseil d’Etat, the highest administrative court, within two months from the date on which the decision was notified to the parties.

As mentioned in 1.2 Regulatory Framework for FDI, France has an FDI review/approval process in place and the Direction General du Tresor within the Ministry of Economy and Finance is in charge of such review. Please also refer to 1.2 Regulatory Framework for FDI for the types of FDI subject to review.

As a general rule, intragroup operations (made between entities ultimately under the same control) are exempted. Also, subject to limited exceptions, when a foreign investor crosses the 25% voting right threshold in a French company in which the investor acquired control with the French FDI authorities’ clearance, it does not need to obtain again FDI clearance. Conversely, when a foreign investor acquires control of a French company for which it crossed the 25% voting right threshold with the French FDI authorities’ clearance, the investor does not need to obtain FDI clearance again.

As a general rule, French FDI clearance is a mandatory regime – ie, a foreign investment cannot be completed before FDI clearance is obtained. As such, French FDI clearances are often provided as conditions precedent to closing a transaction.

The authorisation process takes place in one or two phases, depending on the nature of the French activities at stake and the risk assessment made by the FDI authorities with regard to French national interests.

• Phase I – the FDI authorities have 30 business days from the receipt of a filing to notify to the foreign investor that the investment either:
1. falls out of the scope of the FDI regulations;
2. falls within the scope of the FDI regulations and is unconditionally authorised; or
3. falls within the scope of the FDI regulations and requires further analysis to determine under what conditions it could be authorised (Phase II opening).

The FDI authorities can raise post-filing requests for information. The review period is suspended by the time taken by the investor to provide satisfactory answers thereof.

• Phase II – the FDI authorities can, during or more generally at the expiry of the Phase I review, open a Phase II review should they consider that the transaction requires further analysis. The FDI authorities must render their decision within 45 business days from the opening of the Phase II review. During such Phase II review, the FDI authorities may grant or deny their clearance or may grant their clearance subject to commitments from the investor. These commitments must be proportionate to the necessary protection of French national interests.

As a general rule, the French FDI authorities review and assess the transaction based on the nature and sensitivity of the French activities acquired by the foreign investor. The aim is to determine if such acquisition is likely to prejudice the French national interests with regard mainly to national defence, public authority, public order or public security in the sectors deemed sensitive by French FDI regulations.

This is a fact-based analysis on a multi-criteria basis. The nature and scope of the French target activities, as well as the identity of the foreign investor, its size, industrial project for France, potential relationships with foreign states, etc, will be reviewed in depth. French FDI regulations do not provide for different analysis criteria depending on the nature of the investor nor the stake acquired by the FDI.

The French FDI authorities can subject their decision to authorise a transaction to certain commitments from the foreign investor. The scope of such commitments can vary greatly, depending on the national interests at stake. Examples include:

• maintaining the French target’s sensitive activities and industrial capabilities on French territory and carried out by a company incorporated under French law;
• ensuring that the French target company continues to operate the sensitive activities for the benefit of the sensitive clients on reasonable technical and commercial terms; and
• adapting the internal organisation and governance of the entity, creating certain specific committees to oversee/deal with critical topics, and segregating sensitive information.

For the most critical activities, FDI authorities can ask for a golden share for the benefit of the French State or a French state body, etc.

The French FDI regime is “mandatory” – ie, any foreign investment made in breach of French FDI regulation would expose the foreign investor to a wide range of severe sanctions, including:

• the nullity of the French investment;
• injunctions to file for clearance;
• the obligation to unwind the investment or to amend the investment terms;
• the suspension of the French target’s voting rights;
• a prohibition on distributing dividends by the French target;
• payment of financial penalties; and
• criminal penalties (imprisonment and fines).

The decisions of the FDI authorities are subject to judicial claim (recours de plein contentieux) before French administrative courts. As such, a foreign investor may challenge before French administrative courts a denied authorisation or the conditions imposed in connection with the authorisation that would be too stringent.

Sanctions Regime

The French sanctions regime applies to all:

• French nationals;
• foreign nationals when in France;
• French legal persons; and
• foreign legal persons when conducting activities in France.

These natural or legal persons are required to comply with the sanctions regime applicable in France, which can include specific trade restrictions (eg, prohibition of carrying out transactions with certain entities or on certain products) and the freezing of assets, which prohibits providing any assets (eg, monies, real estate, IP rights) to a person subject to sanctions measures. Failing to comply may trigger several sanctions – notably, up to five years’ imprisonment and a fine between one and two times the amount of the infringement (multiplied by five for legal persons).

Banking and Financial Authorisations

The projected transaction may need to be notified to and possibly receive prior authorisation from the French Banking Supervisory Authority or the French Financial Market Authority. Generally, these requirements apply when:

• the targeted entity is a regulated entity (eg, a credit institution or a payment institution); and
• the contemplated transaction impacts, directly or indirectly, the shareholding or the effective control of the regulated entity.

Both parties to the transaction (ie, the buyer and the seller) may be required to notify or seek the supervising authority’s prior approval.

The following rules may change with the Finance Bill for 2025, to be submitted to Parliament in 2025. Its impact is uncertain at this stage, owing to the complex current political environment in France.

Direct Tax

French tax law distinguishes between tax-transparent and non-tax transparent companies.

Transparent companies are not personally liable for corporate investment tax (CIT) but must calculate a taxable income, with shareholders paying CIT/income tax based on their shareholding. Non-resident companies holding transparent French companies are, in principle, liable for CIT/income tax in France (on their share of the profits).

Non-tax transparent companies are subject to CIT in France. CIT is generally levied at a standard rate of 25%. Companies owing more than EUR763,000 in CIT are subject to a 3.3% surcharge, bringing the effective tax rate (ETR) to 25.825%. French resident companies are subject to CIT on a domestic basis. Non-resident companies are subject to CIT only on profits attributable to France (eg, French permanent establishment or French-source rental income and real estate capital gains).

VAT

VAT is charged on the supply of goods and services, with a standard rate of 20% (alternative rates of 10%, 5.5% or 2.1% apply, depending on the nature of the transactions). VAT can be offset or refunded if incurred for business purposes. VAT applies to French or foreign companies doing business in France. Cross-border transactions are subject to special rules.

Transfer Tax

Transfer tax applies to certain asset transfers, with rates varying based on the transaction types, such as the following:

• transfer of a stock company’s shares – 0.1% (intragroup exemption available);
• transfer of a non-stock company’s interest (parts sociales) – approximately 3% (intragroup exemption available);
• transfer of a land-rich company’s shares – 5%;
• transfer of a going concern, client base or assimilated assets – approximately 5%; and
• transfer of real estate assets – generally approximately 5.91% (0.6% surtax for office, commercial and warehouse assets located in Île de France), with lower rates available subject to commitments to build/resell.

Other Taxes

French resident companies and French permanent establishments may also be liable for other taxes in France. Notable examples are business property tax, business VAT, companies’ social security contribution, local property taxes and payroll tax.

Dividends

Under French domestic provisions, dividends paid by a French opaque company are subject to the following withholding tax rates:

• 25% for foreign corporations;
• 12.8% for non-resident individuals; and
• 75% for certain non-compliant state jurisdictions (NCJs), subject to the safe harbour rule.

These rates can be reduced through double tax treaties – generally to 15%, 5% or even 0% in certain situations – or through the parent-subsidiary regime, which allows a full exemption for companies in the EU or the European Economic Area (EEA) (Norway and Iceland) that meet specific conditions (eg, 10% ownership for two years).

Interest

Interest payments are exempt from withholding tax unless paid in an NCJ, where a 75% rate applies.

Royalties

Royalties paid by a French resident to a foreign resident are subject to a 25% withholding tax, increased to 75% for NCJs (subject to the safe harbour rule). Intragroup royalty payments between EU companies are exempt if certain conditions are met. Double tax treaties generally reduce the applicable withholding tax rate to between 0% and 10%.

Payments and Fees

Payments for services provided or used in France by a foreign resident with no permanent establishment in France are subject to a 25% withholding tax, increased to 75% for NCJs (subject to the safe harbour rule). Most double tax treaties eliminate such withholding tax.

Limitations

Please note that the availability of any withholding tax or treaty relief mechanisms is subject to:

• appropriate formalism;
• beneficial ownership; and
• anti-abuse and anti-treaty shopping provisions.

Any tax mitigation strategy must be driven by strong business rationale. Anti-abuse rules may apply.

When acquiring a business, the acquisition structure significantly impacts the taxes payable. Acquiring shares in a company incurs a lower transfer tax rate (0.1%) and allows retention of the target’s tax losses but does not allow a step-up in the depreciable basis of the assets. Conversely, acquiring the business and assets directly results in a higher transfer tax rate (approximately 5%), immediate latent capital gains and profits taxation, and loss of unused tax losses, but steps up the depreciable basis of the acquired assets.

Financing an acquisition with debt allows interest deductions if the debt is justified by business reasons and not by tax considerations. Interest deductions may be limited by other rules such as the 30% EBITDA earnings-stripping rule.

Other French tax regimes can be used to mitigate a French resident’s or French permanent establishment’s taxation, as follows.

• Tax losses can be carried forward indefinitely (up to EUR1 million plus 50% of the taxable profit per financial year) or carried back one year (up to EUR1 million).
• The parent-subsidiary regime allows for an ETR of 1.3% or 0.3% (consolidated tax group) on eligible dividend payments.
• The tax consolidation group regime allows, notably, a consolidation of the taxable profits and losses of member companies and for the neutralisation of certain intragroup asset transfers.
• The long-term capital gains regime allows to limit taxation of capital gains on certain disposals of shares to 3.1%.
• The R&D tax credit allows companies to claim up to 30% of eligible R&D expenses as a tax credit.
• The IP box regime taxes at a reduced 10% rate the qualifying net income derived from the licensing, sublicensing or transfer of certain IP assets (mainly patents and copyrighted software).

Territoriality Rules

Foreign investors’ disposals not assigned to a French permanent establishment are generally not taxable in France, except for:

• sales of French company shares where the seller holds a substantial shareholding (greater than 25%);
• shares in French real estate-oriented companies; or
• real estate assets or assimilated rights located France.

Besides, treaties usually allow France to tax gains from the disposal of real estate assets, shares of real estate-oriented companies, and sometimes of substantial shareholdings in French companies.

Disposal of Shares

Capital gains from the sale of shares by foreign investors are typically not taxable in France, except for the following operations (see 9.5 Anti-Evasion Regimes for NCJs).

• Capital gains from the disposal of shares in French real estate-oriented companies are taxed at the following rates:
1. a 25% rate for foreign companies; and
2. a 19% rate for non-resident individuals.

Real estate-oriented companies are those with French real estate assets or rights not assigned to their business making up at least 50% of their fair market value.

• Capital gains realised on the sale of shares by a foreign investor in a French company where the seller holds a substantial shareholding (non-real estate-oriented companies) are taxed at either of the following rates:
1. a 25% rate for foreign corporations; and
2. a 12.8% rate for foreign individuals.
• Foreign corporations may apply for a partial reimbursement of tax, allowing such disposal to be taxed at an ETR of 3.1%, if certain conditions are met.

Disposal of Real Property

Capital gains on disposals of French real estate assets or rights by non-resident companies are taxed at 25% and by non-resident individuals at 19%.

Disposal of Other Assets

Disposal of certain other French assets (eg, French registered IP, businesses, activities or client bases) by non-residents is exempt from capital gains taxes if those assets are not part of a French permanent establishment. In the latter case, the disposal of these assets is taxed at the normal CIT rate (ie, 25%).

Use of French Blocker

Capital gains may be taxed at 3.1% CIT ETR under the participation exemption regime (two years’ holding required, in particular) or approximately 25.8%, as the case may be. The blocker may allow tax consolidation. Anti-abuse rules may apply (see 9.5 Anti-Evasion Regimes).

As regards proceeds distributed abroad, see 9.2 Withholding Taxes on Dividends, Interest, Etc.

General Anti-Abuse and Evasion Rules

French tax law includes several general anti-abuse measures targeting fictitious acts or arrangements primarily motivated by tax reasons. The abuse of law (abus de droit) allows the French tax authorities (FTAs) to disregard acts that are fictitious or defeat the purpose of the tax law with an exclusively tax-related purpose, subject to penalties up to 80%. The “mini”-abuse of law extends the FTAs’ power to disregard acts with a primarily tax-related purpose, where economic benefits are marginal compared to tax benefits.

Certain preferential tax regimes are subject to specific anti-abuse rules targeting fraudulent schemes and absence of substance (eg, the parent-subsidiary regime specific anti-abuse rule). Flows involving residents of NCJs are subject to a 75% withholding tax rate (on capital gains and dividends) and denied tax deductibility or exclusion from certain tax regimes.

Additionally, application of double tax treaties can be denied if obtaining treaty benefits was the main purpose of an arrangement or if the recipient of an income is not the beneficial owner.

CFC Rules

French controlled foreign corporation (CFC) rules tax foreign profits earned by branches and subsidiaries more than 50% held and established in tax-privileged countries. A country is considered tax privileged if the payable CIT amounts to less than 40% of what would have been due if the considered company or business were established in France. Under CFC rules, profits are subject to CIT in France proportionally to the shareholding held by the French resident company, with a safe harbour clause for non-tax driven establishments.

Hybrid Rules

Anti-hybrid rules, in line with the EU’s Anti-Tax Avoidance Directive (“ATAD 2”), neutralise hybrid mismatch arrangements – notably, where payments are tax deductible in one jurisdiction but not taxable in another.

Transfer Pricing Rules

Transfer pricing rules require transactions between affiliated enterprises to follow the arm’s length principle, allowing FTAs to adjust taxable income accordingly. Companies must maintain documentation to demonstrate that all transactions comply with the arm’s length principle.

Pillar Two Rules

France transposed into domestic law a domestic top-up tax, as well as the Income Inclusion Rule and the Undertaxed Payment Rule, in order to ensure a global minimum taxation level for multinational corporations and large-scale national groups.

Employment and Labor Legal Framework in France

France has one of the most structured and employee-centric labour law systems. Employment and labour matters are governed by the French labour code, supplemented by company collective agreements, case law, EU regulations and collective bargaining agreements. Notably, this regulates employment contracts, working time, dismissals (or, more generally, terminations), workplace safety, and employee benefits.

Employment contracts

Employment relationships are formalised through written contracts, either permanent (contrat à durée indéterminée, or CDI) or fixed-term (contrat à durée déterminée, or CDD). These contracts must comply with statutory requirements and applicable collective agreements, specifying essential terms such as job title, salary and working hours.

Working time

In principle, France has a 35-hour statutory working week, with overtime subject to additional compensation. Employees are entitled to at least five weeks of paid leave and a minimum statutory salary. However, many exceptions to this working time duration exist.

Health and safety obligations

Employers must ensure a safe workplace, conduct risk assessments and comply with statutory occupational health standards.

Dismissal (or, more generally, terminations)

Dismissals are based on real and serious personal or economic grounds and must be implemented in compliance with specific procedural requirements. Weak dismissal grounds or procedural missteps can lead to employee claims for compensation and/or reinstatement. Resignation or amicable termination agreements are other ways of termination.

Collective Bargaining, Works Councils and Labor Unions

Collective bargaining agreements are prevalent and often establish industry-specific minimum standards for wages and benefits. These agreements are binding and automatically apply to most employers within a sector.

Mandatory for companies with 11 or more employees, the works councils with extended prerogatives in large companies must be consulted on major decisions, including restructuring and redundancies.

Trade unions are influential, often leading sector-wide or company-wide negotiations and protests.

Key Considerations for Foreign Investors

Employers face high social costs, including payroll taxes for healthcare, pensions and unemployment insurance, which can be almost 50% of gross salaries. Furthermore, French dismissal regulations/costs and required consultations with the works councils can add complexity to workforce restructuring efforts.

Employee Compensation Frameworks in France

Employee compensation in France includes base salaries, variable remuneration, statutory benefits, optional pension plans and optional equity-based incentives. The principle of “à travail égal, salaire égal” (equal pay for equal work) ensures fair compensation for employees performing similar roles under similar conditions.

Base salary

Salaries must meet the statutory minimum salary (SMIC) or higher thresholds set by collective agreements.

Bonuses and equity compensation

Employees may receive performance bonuses or participate in equity-based plans (eg, stock options or restricted stock units), which may offer tax advantages if statutory requirements are met.

Pension and benefits

Employers contribute to France’s statutory pension system and may offer supplementary pension plans. Health insurance and provident scheme coverage are mandatory.

Compensation in Corporate Transactions

In cases of automatic transfer, employment contracts and benefits automatically transfer to the new employer.

Disparities between the acquiring and acquired companies may necessitate adjustments. Employers must compare salaries, bonuses and benefits, potentially leading to negotiations with employee representatives or the denunciation of company customs.

Employers should carefully evaluate compensation structures and harmonisation strategies during acquisitions to mitigate disputes and ensure compliance.

Automatic Transfer of Employment Contracts

Under Article L. 1224-1 of the French Labour Code, employment contracts are automatically transferred to the new employer when the transaction involves the transfer of an autonomous economic entity. This means the transferred activity must retain its identity and include the necessary and specific resources for its operation, such as personnel, clients and equipment. Employees retain their contracts under the same terms, including salary, seniority and accrued benefits.

Dismissal and Redundancy Rights

If economic redundancies are planned following the transaction, affected employees are entitled to statutory or contractual severance indemnity, notice period and, where applicable, redeployment assistance. These rights depend on the company’s size, the employee’s seniority and the applicable collective bargaining agreements.

Works Council Consultation

Depending on the type of transaction and the size of the company, employers may be required to inform and consult with the works council before completing the transaction. The consultation process must be completed – ie, the Works Council (CSE) must have rendered its opinion – before any binding agreement is signed. Unless otherwise provided for in an in-house collective bargaining agreement, the works council has one month to render its opinion (extended to two months if the works council appoints an expert). A negative opinion of the works council would not prevent the completion of the proposed transaction. Non-compliance with the consultation obligations can result in penalties or pause the transaction in the event of litigation.

Collective Bargaining Agreements

After completion of the transaction, the transferred employees’ collective agreements continue to apply to the transferred employees until they are replaced by a substitution agreement or – in the absence of a substitution agreement – for a maximum transitional period of 15 months. A substitution agreement may therefore need to be negotiated with trade union delegates (if any) or the works council.

See 7.2 Criteria for Review for further details. The FDI authorities assess the sensitivity of the French target activities on a multi-criteria analysis basis. The nature and scope of the R&D operations performed in France and the IP created as a result thereof are scrutinised when such IP can be deemed critical for French national interests, notably in the defence or hi-tech sectors.

Strong IP Protections in France

France is renowned for its robust IP protection system and for being a copyright-friendly country. This includes strong safeguards for registered IP rights, such as trade marks, patents and designs (protected by French and EU titles), as well as unregistered rights such as copyrights (which cannot be registered in France) and trade secrets. The legal framework in France ensures that these rights are well protected, providing a secure environment for authors, creators and innovators. Additionally, the concepts of unfair competition and “passing off” are effective tools in France, allowing businesses to protect their brand identity and products from imitation.

Protection Exclusions and Compulsory Licensing

Although France offers comprehensive IP protections, there are certain exclusions. By way of example, ideas, discoveries, scientific theories and mathematical methods are typically not eligible for IP protection. This is a common practice globally to ensure that fundamental knowledge remains accessible.

Moreover, France does have provisions for compulsory licensing in patent law, which apply in specific circumstances. This means that the government can allow others to use a patented invention without the consent of the patent holder in certain situations, usually to address public health needs or other critical issues.

Protection of AI-Generated Works

The protection of AI-generated works is a topic currently under discussion in France in order to find an adequate balance between the interest of the authors and innovation. At present, there is no position from academics nor case law. However, it is likely that such works will be protected by copyrights, if they meet the criterion of originality and if the imprint of the author can be identified in the creation process directed by a human person. Should this be confirmed, it would mean that businesses using AI-generated works in their creation process would be able to rely on copyright protection.

France enforces the General Data Protection Regulation and the French Data Protection Act, both with extraterritorial scope, applying to foreign entities processing EU residents’ data. The National Commission on Informatics and Liberty (Commission nationale de l'informatique et des libertés, or CNIL) oversees enforcement, conducting numerous inspections annually. Penalties can be substantial, often exceeding economic losses. Fines are calculated based on the severity of the violation and the company’s global turnover, potentially reaching up to 4% of annual revenue. This explains the high sanctions on major foreign tech companies. Foreign investors must be vigilant to ensure compliance with these stringent data protection laws.