Successfully investing in France

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last updated on 27 May 2020 | reading time approx. 3 minutes

 

 

 

How do you assess the current economic situation in France?

Social and societal unrest has left its mark on the French economy in 2019 and has caused a slight economic slowdown. It is above all the so-called “yellow vests” and, more recently, the protest against the pension reform envisaged by the government that led to a 2-month strike in December 2019.

 

These protests have led to a slight slowdown in the economy at the business management level. The growth rate has slightly decreased to 1.3 per cent in 2019, compared to 1.7 per cent in 2018. However, the positive economic trend in France continues and the unemployment rate continues to fall – from 10.7 per cent in 2015 to 8.5 per cent in the second quarter of 2019.

 

How would you describe the investment climate in France? Which sectors offer the largest potential?

Despite the global slowdown and the “yellow vests”, the number of foreign investment projects in France has increased slightly in 2019. The difficulties of the German and Italian economies and the Brexit situation in Great Britain favour France. Also, President Macron's planned reforms of labour laws and the resulting reduction in labour costs will make France much more attractive to foreign investors.

 

In 2019, France ranked fifth worldwide as one of the most important export countries for products and services. France remains Germany's most important bilateral trading partner with a trade volume of 155 billion Euros in 2019 and continues to enjoy great popularity as an investment location – especially for German companies.

 

France's attractiveness as a business location is based on several strengths: Infrastructure is still of good quality, electricity costs are competitive and the workforce is well trained. The excellence of French engineers explains why the country attracts more research and development centres than its neighbours. After all, production has now become cheaper than in Germany and, measured by the number of foreign investment projects, France has now risen to first place ahead of Germany. The reduction in social security contributions granted to companies in 2019 should allow this trend to continue.

 

Furthermore France not only has well-established top industries such as the luxury goods industry and the food and energy sector, but is also characterised by factors such as innovation, creativity and problem-solving skills.

 

Finally France is home to branches of German companies from all sectors of the economy. In addition to the traditionally large share of German investors from industry, the service sector is also becoming increasingly important. Most German companies come from the transport and construction sectors, accounting for almost 16 per cent. Other important sectors are:

  • Machines and mechanical equipment,
  • electronic, IT and medical equipment,
  • commercial, financial and other services,
  • the chemical and plastics industry and
  • the automotive industry.

 

What challenges do German companies face during their business ventures into France?

Challenges for foreign companies are posed by the sometimes very divergent legal situation in France, especially in the areas of tax, labour and company law.

 

In addition to changes in French tax law (abolition of property tax with the exception of real estate, gradual reduction of corporate income tax from currently 33.33 to 25 per cent by 2022), the French labor law has also been amended. For example, the grounds for justification in the event of dismissal for operational reasons have been extended and maximum limits for compensation payments in the event of unjustified dismissal have been introduced, depending on the respective length of service.

 

Furthermore, as of 1 January 2019, a new amendment to the French Monetary and Financial Code extends the scope of application for foreign investments requiring approval to include research and development in the areas of cybersecurity, artificial intelligence, robotics, additive manufacturing, nanotechnology and space activities, as well as digital data acquisition and storage.

 

Foreign trade control by the French Ministry of the Economy is applied when acquiring the majority shareholding or all or part of the business of a company whose registered office is in France. For foreign investors from outside the EU, the approval requirement already applies when acquiring a capital holding or voting rights of 33.33 per cent.

 

Foreign investments requiring approval are subject to a specific approval procedure, the procedural steps of which must be observed in detail.

 

To what extent has the term of office of President Emmanuel Macron influenced the economy?

The change of government in May 2017 and Emmanuel Macron's ambitious plans for restructuring the French economic and social system have led to economic growth in recent years. Growth has been stronger than it has been for ten years and the French economy has undoubtedly become more attractive. In particular, the liberalisation of French labour law and the planned reduction of the tax burden are welcome reforms for a robust economy in the long term.

 

In addition, President Macron has promised an investment of 5 billion Euro to the so-called “French Tech” at the end of 2019. This will enable him to continue to develop France's attractiveness for foreign investors – especially in the innovative sector. Together with Great Britain and Germany, France has also been one of the most attractive countries for capital investment in Europe for several years.


In your opinion, how will France develop?

France is well on track to implement structural reforms that will make the country an even more efficient and competitive place to do business and finance. Reforms to further liberalise the labour market, for example by increasing the statutory working hours, are still desirable. In view of the reforms still pending in the French economy, explosive amendments to the law are expected in the coming years, which will continue to make France more attractive for foreign investment.

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