HomeReportsBureau of Economic and Business Affairs2018 Investment Climate Statements...France and Monaco

# 					2018 Investment Climate Statements: France and Monaco			

 In this section										/

													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

Please see the end of this report for a summary of the investment climate of Monaco.

France welcomes foreign investment and has a stable business climate that attracts investors from around the world. The French government devotes significant resources to attracting foreign investment through policy incentives, marketing, overseas trade promotion offices, and investor support mechanisms. France has an educated population, first-rate universities, and a talented workforce. It has a modern business culture, sophisticated financial markets, strong intellectual property protections, and innovative business leaders. The country is known for its world-class infrastructure, including high-speed passenger rail, maritime ports, extensive roadway networks, public transportation, and efficient intermodal connections. High speed (3G/4G) telephony is nearly ubiquitous.

In 2017, France was the ninth largest global market for foreign direct investment (FDI) inflows with a year-on-year increase of 16 percent. In total, there are more than 28,000 foreign-owned companies doing business in France. It is the home to 29 of the world’s 500 largest companies. The World Economic Forum ranked France 22nd in terms of global competitiveness for 2017. The United States is the seventh largest foreign investor in France. Around 4,600 U.S. companies in France, of all sizes, employ over 460,000 French citizens.

France has already started to benefit from higher growth in Europe, with two percent GDP growth in 2017, and job creation is reaching record levels. France’s budget deficit dropped below the three percent limit to 2.6 percent of GDP in 2017 and the government has pledged to make further cuts in 2018. France’s public debt ratio of 97 percent of GDP remains one of the largest in the Euro-Zone.

Following the election of French President Emmanuel Macron in May 2017, the French government implemented significant labor market and tax reforms. By relaxing the rules on companies to hire and fire employees and by offering investment incentives, Macron has buoyed business confidence in France. According to the 2017 American Chamber of Commerce in France – Bain Barometer Survey on the attitudes of U.S. investors in France, 90 percent of American investors surveyed said Macron’s reforms improved France’s investment prospects and image in the United States. More than half of investors surveyed planned to hire new employees in France over the next two to three years. Investors in technology, in particular, found the climate for development of digital technologies and other innovations to be attractive in France. The metropolitan Paris region supports the largest concentration of technology engineers outside of Silicon Valley. In 2018 and beyond, Macron plans to introduce additional reforms, ranging from vocational training and unemployment insurance, to rail and government services.

The government recently presented a bill on company growth, nicknamed PACTE in French, which will attach requirements to foreign investment in artificial intelligence, data storage, and the space sector, when the direct objective of this investment pertains to national defense, national security, public order and public authority.

Key issues to watch in coming months include: 1) whether President Macron is able to maintain the pace of economic reform, and 2) opportunities and challenges resulting from Brexit.

*Table 1*

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies Toward Foreign Direct Investment**

France is committed to encouraging foreign investment. In the current economic climate, the French government sees foreign investment as a means to create additional jobs and stimulate growth. Investment regulations are simple, and a range of financial incentives are available to foreign investors, who report they find France’s skilled and productive labor force, good infrastructure, technology, and central location in Europe attractive. France’s membership in the European Union (EU) and the Eurozone facilitates the efficient movement of people, services, capital, and goods. However, notwithstanding French efforts at economic and tax reform, market liberalization, and attracting foreign investment, perceived disincentives to investing in France include the relatively high tax environment. Labor market fluidity is improving due to labor market reforms introduced by the Macron Administration, but it is still rigid compared to some OECD economies.

**Limits on Foreign Control and Right to Private Ownership and Establishment**

France is among the least restrictive countries for foreign investment. With a few exceptions in certain specified sectors, there are no statutory limits on foreign ownership of companies. Foreign entities have the right to establish and own business enterprises, and engage in all forms of remunerative activity.

However, France does maintain a national security review mechanism. French law stipulates that control by acquisition of a domiciled company or subsidiary operating in certain sectors deemed crucial to France’s national interests relating to public order, public security and national defense are subject to prior notification, screening, and approval by the Economy and Finance Minister. Other sectors requiring approval include energy infrastructure; transportation networks; public water supplies; electronic communication networks; public health protection; and installations vital to national security. In 2018, four additional categories – semiconductors, data storage, artificial intelligence and robotics – were added to the list requiring a national security review. For all listed sectors, France can block foreign takeovers of French companies according to the provisions of the Montebourg Decree.

In 2018, the government held equity positions in approximately 81 firms. Most of the positions were relatively small, but did include provisions which prevent foreign takeover of these firms. Exceptions, where the government had large holdings included, among others, Aeroports de Paris (50.6 percent), Engie, and Renault. In January 2018, the government sold 4.0 percent of its holding in Engie, lowering its stake to 25.5 percent of the energy company. The government also sold 5.0 percent of its stake in Renault, resulting in its ownership of 15.1 percent of the automaker.

**Other Investment Policy Reviews**

Given the level of development and stability of the investment climate, France has not recently been the subject of international organizations’ investment policy reviews. The OECD Economic Forecast for France (May 2018) can be found here: http://www.oecd.org/economy/france-economic-forecast-summary.htm .

**Business Facilitation**

Business France is a government agency established with the purpose to promote new foreign investment, expansion, technology partnerships, and financial investment. Business France provides services to help investors understand regulatory, tax, employment policies as well as state and local investment incentives, and government support programs. Business France also helps companies find project finance and potential equity acquisitions. Business France recently unveiled a website in English to help prospective businesses considering the French market (https://www.businessfrance.fr/en/invest-in-France ).

In addition, France’s public investment bank, Bpifrance, also assists foreign businesses of all sizes, but focused primarily on the needs of small- and mid-sized, in finding local investors and partners and setting up the subsidiary of a foreign group in France. It also supports foreign startups in France through the government’s French Tech Ticket program, which provides them with funding, a resident’s permit, and incubation facilities. Both business facilitation mechanisms provide for equitable treatment of women and minorities.

President Macron has made innovation one of his priorities with a EUR 10 billion fund that is being financed through privatizations. France’s priority sectors for investment are: aeronautics, agro-foods, digital, nuclear, rail, auto, chemicals and materials, forestry, eco-industries, shipbuilding, health, luxury, and extractive industries. In the near-term the French government intends to focus on driverless vehicles, batteries, the high-speed train of the future, nano electronics, renewable energy, and health industries.

Business France and Bpifrance are particularly interested in attracting foreign investment in tech sector. The French government has developed a brand “French Tech” to promote the development of France’s tech sector and promote France as a location for start-ups and high-growth digital companies, with the goal of turning France into a “Start-Up Republic.” In addition to offices in 17 French cities, French Tech hubs are established in 22 cities globally including New York, San Francisco, Los Angeles, Shanghai, Hong Kong, Vietnam, Moscow, and Berlin.

President Macron remains the best promoter of France as an investment destination. On January 22, he appointed former Cisco CEO John Chambers as the International Ambassador for France’s French Tech program. The announcement was made during the “Choose France” Summit hosted by the French President at Versailles. During that summit, some 140 business leaders from multinationals in various sectors announced large-scale investment projects in the automotive, digital, artificial intelligence, pharmaceuticals, agrifood, and electronic sectors. The government further pledged to create international commercial chambers within the Paris Court of Appeal and Commercial Court, as of March 2018, to adjudicate foreign contracts made under common law, together with translation facilities.

The website Guichet Enterprises (https://www.guichet-entreprises.fr/fr/ ) is designed to be a one stop website for registering a business. The site is available in both French and English although some fact sheets on regulated industries are only available in French on the website.

**Outward Investment**

French firms invest more in the United States than in any other country and support approximately 678,000 American jobs. Total French investment in the U.S. reached $267.6 billion in 2016. France was our eighth-largest trading partner with nearly $120 billion in bilateral trade. The business promotion agency Business France also assists French firms with outward investment. There is no restriction on outward investment.

							2. Bilateral Investment Agreements and Taxation Treaties					

Investments in France by other EU member states are governed by the provisions of the Treaty of Rome and by European Union Law. France has Bilateral Investment Treaties (BITs) with 96 countries: Albania, Algeria, Argentina, Armenia, Azerbaijan, Bahrain, Bangladesh, Bosnia and Herzegovina, Bulgaria, Cambodia, Chile, China, the Democratic Republic of the Congo, Costa Rica, Croatia, Cuba, Czech Republic, Djibouti, Dominican Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea, Estonia, Ethiopia, Georgia, Guatemala, Haiti, Honduras, Hong Kong, Hungary, India, Iran, Israel, Jamaica, Jordan, Kazakhstan, Korea (South), Kuwait, Kyrgyz Republic, Laos, Latvia, Lebanon, Liberia, Libya, Lithuania, Macedonia (FYRM), Madagascar, Malaysia, Malta, Mexico, Moldova, Mongolia, Montenegro, Morocco, Mozambique, Namibia, Nepal, Nicaragua, Nigeria, Oman, Pakistan, Panama, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Russian Federation, Saudi Arabia, Senegal, Serbia, Seychelles, Singapore, Slovakia, Slovenia, Sri Lanka, Sudan, Tajikistan, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Vietnam, Yemen, and Zambia.

Bilateral Investment Treaties between France and the following countries have been signed but are not in force: Belarus, Brazil, Chad, Colombia, Ghana, Iraq, Kenya, and Zimbabwe. France previously had BITs with Mauritius and Syria; new BITs with these two countries have been signed but have not yet entered into force.

UNCTAD maintains the most current list of ratified and non-ratified BITs, including links to each document: http://investmentpolicyhub.unctad.org/IIA/CountryBits/72#iiaInnerMenu .

The United States and France have enjoyed a Navigation and Commerce Treaty since 1822, which guarantees national treatment of U.S. citizens. Since 1994, a Convention between the Government of the United States of America and the Government of the French Republic continues to be in force for the avoidance of double taxation and the prevention of fiscal evasion.

The Macron government temporarily raised corporate taxes in 2017 after the country’s Constitutional Court ordered the state to pay back 10 billion euros ($11.6 billion) in unlawful taxes on investor dividends. From a nominal corporate tax rate of 33.3 percent in 2016, the temporary corporate tax rate rose to 38.3 percent in 2017 for companies with turnover in excess of 1.0 billion euros and to 43.3 percent for those with revenues in excess of 3.0 billion euros.

Earlier this year, the government demonstrated its intent to lower corporate taxes over the medium term. The 2018 tax law reduces corporate tax on profits over 500,000 euros ($596,000) to 31 percent for 2019, 28 percent in 2020, 26.5 percent in 2021 and 25 percent in 2022.

France has tax agreements with 127 countries: Albania, Algeria, Andorra, Argentina, Armenia, Australia, Austria, Azerbaijan, Bahrain, Bangladesh, Belarus, Belgium, Benin, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Bulgaria, Burkina Faso, Cameroon, Canada, Cambodia, Central African Republic, Chile, China, Cyprus, the Democratic Republic of the Congo, Croatia, Czech Republic, Denmark, Ecuador, Egypt, Equatorial Guinea, Estonia, Ethiopia, Finland, Gabon, Georgia, Ghana, Greece, Guinea, Hong Kong, Hungary, India, Indonesia, Iran, Ireland, Island, Ivory Coast, Israel, Italia, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Korea (South), Kosovo, Kuwait, Kyrgyz Republic, Latvia, Lebanon, Libya, Lithuania, Luxemburg, Macedonia (FYRM), Madagascar, Malaysia, Malawi, Mali, Malta, Mauritania, Mauritius Island, Mayotte, Mexico, Monaco, Mongolia, Montenegro, Morocco, Namibia, Netherlands, New Zealand, New Caledonia, Niger, Nigeria, Norway, Oman, Pakistan, Panama, Philippines, Poland, French Polynesia, Portugal, Qatar, Quebec, Romania, Russian Federation, Saudi Arabia, Saint-Martin, Saint Pierre and Miquelon, Senegal, Serbia, Singapore, South Africa, Spain, Slovakia, Slovenia, Sri Lanka, Sweden, Switzerland, Syria, Tajikistan, Taiwan, Thailand, Togo, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, Uruguay, Uzbekistan, Venezuela, Vietnam, Zambia, and Zimbabwe. Bilateral tax agreement between France and Colombia has been signed but is not in force. https://www.impots.gouv.fr/portail/les-conventions-internationales .

							3. Legal Regime					

**Transparency of the Regulatory System**

France’s government has made considerable progress in the last decade on the transparency and accessibility of its regulatory system. The French government generally engages in industry and public consultation before drafting legislation or rulemaking through a regular but variable process directed by the relevant ministry. However, the text of draft legislation is not always publicly available before parliamentary approval. U.S. firms may also find it useful to become members of industry associations, which can play an influential role in developing government policies. Even “observer” status can offer insight into new investment opportunities and greater access to government-sponsored projects.

To increase transparency in the French legislative process, all ministries are required to attach an impact assessment to their draft bills. The Prime Minister’s Secretariat General (SGG for Secretariat General du Gouvernement) is responsible for ensuring that impact studies are undertaken in the early stages of the drafting process. The State Council (Conseil d’Etat), which must be consulted on all draft laws and regulations, may reject a draft bill if the impact assessment is inadequate.

After experimenting with new online consultations, the Macron Administration is regularly using this means to achieve consensus on its major reform bills. These consultations are often open to professionals as well as citizens at large. Another Macron innovation is to impose regular impact assessments after a bill has been implemented to ensure its maximum efficiency, revising, as necessary, provisions that don’t work in favor of those that do. Finally, the Macron Administration aims to make all regulations and laws available online by 2022.

Over past decades, major reforms have extended the investigative and decision-making powers of France’s Competition Authority. As a result, the Authority has completed 50 enforcement investigations by end of 2016, with 14 decisions leading to sanctions of 203 million EUR ($251 million). The Authority publishes its methodology for calculating fines imposed on companies charged with abuse of a dominant position. It issues specific guidance on competition law compliance, and government ministers, companies, consumer organizations and trade associations now have the right to petition the authority to investigate anti-competitive practices. While the Authority alone examines the impact of mergers on competition, the Minister of the Economy retains the power to request a new investigation or reverse a merger transaction decision for reasons of industrial development, competitiveness, or saving jobs.

**International Regulatory Considerations**

France is a founding member of the European Union, created in 1957. As such, France incorporates EU laws and regulatory norms into its domestic law. France has been a WTO member since 1995 and a member of GATT since 1948. While developing new draft regulations, the French government submits a copy to the World Trade Organization for review to ensure the prospective legislation is consistent with its WTO obligations. France ratified the Trade Facilitation Agreement in October 2015 and has today implemented all of its TFA commitments.

**Legal System and Judicial Independence**

French law is codified into what is sometimes referred to as the Napoleonic Code, but is officially the Code Civil des Francais, or French Civil Code. Private law governs interactions between individuals (e.g., civil, commercial, and employment law) and public law governs the relationship between the government and the people (e.g., criminal, administrative, and constitutional law).

The French Government, by Ordinance n° 2016-131 of 10 February 2016, amended the French Civil Code which articulates definitions for legal contracts: (i) henceforth, *contractual freedom* is defined as freedom to enter into a contract, to choose a contracting party and also to determine the content of the contract; (ii) *binding force contracts* are legally formed agreements having force of law between parties; (iii) contracts must be negotiated, formed and performed in *good faith.*

France has an administrative court system to challenge a decision by local governments and the national government; the State Council (Conseil d’Etat) is the appellate court. France enforces foreign legal decisions such as judgments, rulings, and arbitral awards through the procedure of exequatur introduced before the Tribunal de Grande Instance (TGI), which is the court of original jurisdiction in the French legal system.

France’s Commercial Tribunal (Tribunal de Commerce or TDC) specializes in commercial litigation. Magistrates of the commercial tribunals are lay judges, who are well-known in the business community and have experience in the sectors they represent. Decisions by the commercial courts can be appealed before the Court of Appeals. France’s judicial system is procedurally competent, fair, and reliable and is independent of the government.

The judiciary – although its members are state employees – is independent of the executive branch. The judicial process in France is known to be competent, fair, thorough, and time-consuming. There is a right of appeal. The Appellate Court (“cour d’appel”) re-examines judgments rendered in civil, commercial, employment or criminal law cases. It re-examines the legal basis of judgments, checking for errors in due process and reexamines case facts. It may either confirm or set aside the judgment of the lower court, in whole or in part. Decisions of the Appeal Court may be appealed to the Highest Court in France the “Cour de cassation”.

**Laws and Regulations on Foreign Direct Investment**

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all sorts of remunerative activities. U.S. investment in France is subject to the provisions of the Convention of Establishment between the United States of America and France, which was signed in 1959 and remains in force. The rights it provides U.S. nationals and companies include: Rights equivalent to those of French nationals in all commercial activities (excluding communications, air transportation, water transportation, banking, the exploitation of natural resources, the production of electricity, and professions of a scientific, literary, artistic, and educational nature, as well as certain regulated professions like doctors and lawyers. Treatment equivalent to that of French or third-country nationals is provided with respect to transfer of funds between France and the United States. Property is protected from expropriation except for public purposes; in that case it is accompanied by payment that is just, realizable and prompt.

Potential investors can find relevant investment information and links to laws and investment regulations at http://www.businessfrance.fr/ .

**Competition and Anti-Trust Laws**

Major reforms extended the investigative and decision-making powers of France’s Competition Authority. The Authority publishes its methodology for calculating fines imposed on companies charged with abuse of a dominant position. It issues specific guidance on competition law compliance. Government ministers, companies, consumer organizations and trade associations have the right to petition the authority to investigate anti-competitive practices. While the Authority alone examines the impact of mergers on competition, the Minister of the Economy retains the power to request a new investigation or reverse a merger transaction decision for reasons of industrial development, competitiveness, or saving jobs.

A new law on Economic Growth, Activity and Equal Opportunities (known as the “Macron Law”), adopted in August 2016, vested the Competition Authority with the power to review mergers and alliances between retailers ex-ante (beforehand). The law provides that all contracts binding a retail business to a distribution network shall expire at the same time. This enables the retailer to switch to another distribution network more easily. Furthermore, distributors are prohibited from restricting a retailer’s commercial activity via post-contract terms. The civil fine incurred for restrictive practices can now amount to up to five percent of the business’s revenue earned in France.

France’s Competition Authority launches regular in-depth investigations into various sectors of the economy, which may lead to formal investigations and fines. For instance, in a March 6, 2018 opinion, the authority announced the possible opening of a formal antitrust investigation into Facebook and Google after a two-year examination of the French online advertising market. Amazon also is subject to an antitrust case in France. The Competition Authority may also impose penalties on a company for obstruction of an investigation.

**Expropriation and Compensation**

Government cannot legally expropriate property to build public infrastructure without fair market compensation. There have been no expropriations of note during the reporting period.

**Dispute Settlement**

France is a member of both the World Bank-based International Centre for Settlement of Investment Disputes (ICSID) Convention and a signatory to the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) which means local courts are obligated to enforce international arbitral awards under this system. The International Chamber of Commerce’s International Court of Arbitration (ICA) has been based in Paris since 1923.

France was one of the first countries to enact a modern arbitration law in 1980-1981. In 2011, the French Ministry of Justice issued Decree 2011- 48 which introduced further international best practices into French arbitration procedural law. As a result of that decree, parties are free to agree orally to settle their disputes through arbitration, subject to standards of due process and a newly enacted principle of procedural efficiency and fairness.

*Investor-State Dispute Settlement*

The President of the Tribunal de Grande Instance (High Civil Court of First Instance) of Paris has the authority to issue orders related to ad-hoc international arbitration. Paris is the seat of the International Chamber of Commerce’s International Court of Arbitration, composed of representatives from 90 countries, that handles investment as well as commercial disputes. During the last decade there have been approximately 25 known investment disputes under arbitration involving BITs with France. Approximately, 11 cases have been resolved and the rest are pending. U.S. investors are not known to have been involved, but in several cases U.S. law firms represented claimants or respondents. France does not have a bilateral investment treaty with the U.S.

*International Commercial Arbitration and Foreign Courts*

French law provides conditions for the recognition and the enforcement of foreign arbitral awards in relation to the New York Convention. The provisions of French law are contained in the Code of Civil Procedure and the Code of Civil Enforcement Procedures. The French Civil Code envisions several mechanisms of alternative dispute resolution (ADR) including out of court arbitration and conciliation where a judicial conciliator put an end to a dispute. France is a member of UNCITRAL. Local courts recognize and enforce foreign arbitral awards as mentioned above. The recognition of judgments of foreign courts by French courts is possible, but judgements must be accompanied by the issuance of an exequatur – a legal document issued by a sovereign authority that permits the exercise or enforcement of a foreign judgement.

The European Commission directly negotiates on behalf of the EU on foreign direct investment since it is part of the EU Common Commercial Policy. In 2015, the EU agreed to pursue a new investment dispute settlement approach to replace the global practice of independent, impartial arbitration through an investor-State dispute settlement mechanism, with a permanent Investment Court System (ICS). While the ICS model is included in the Comprehensive Economic and Trade Agreement (CETA) with Canada and the EU-Vietnam FTA, no actual court has yet been established in any form or context.

**Bankruptcy Regulations**

France has extensive and detailed bankruptcy laws and regulations. Any creditor, regardless of the amount owed, may file suit in bankruptcy court against a debtor. Foreign creditors, equity shareholders and foreign contract holders have the same rights as their French counterparts. Monetary judgments by French courts on firms established in France are generally made in euros. Not bankruptcy itself, but bankruptcy fraud — the misstatement by a debtor of his financial position in the context of a bankruptcy — is criminalized. Under France’s bankruptcy code managers and other entities responsible for the bankruptcy of a French company are prevented from escaping liability by shielding their assets (Law 2012-346). France has adopted a law that enables debtors to implement a restructuring plan with financial creditors only, without affecting trade creditors. France’s Commercial Code incorporates European Directive 2014/59/EU establishing a framework for the recovery and resolution of claims on insolvent credit institutions and investment firms. In the World Bank’s 2018 Doing BusinessIndex, France was ranked 28th of 190 on ease of resolving insolvency.

The Bank of France, the country’s only credit monitor, maintains files on persons having written unfunded checks, having declared bankruptcy, or having participated in fraudulent activities. Commercial credit reporting agencies do not exist in France.

							4. Industrial Policies					

**Investment Incentives**

France offers financial incentives, generally equally available to both French and foreign investors. The government provides incentives for capital investment in small companies. For instance, a French company or a subsidiary of a foreign firm that would invest in a minority shareholding (less than 20 percent) of a small, innovative SME would benefit from a five year, linear amortization of their investment. To qualify, SMEs must allocate at least 15 percent of their spending on research.

*Research and Development*

Incentivizing research and development (R&D) and innovation is a high priority for the French government with Business France reporting that R&D represented 10 percent of foreign investments projects in 2017 and represented seven percent of all jobs created by foreign investors. Inward R&D investments increased nine percent in 2017 in key sectors such as pharmaceutical and biotechnologies, electronics, agriculture, alternative energy, and software. R&D continues to be a major component that attracts foreign investment. International companies may join France’s 71 innovation clusters, increasing access to both production inputs and technical benefits of geographical proximity. Other components of this policy include: the Innovative New Company (Jeune Enterprise Innovante) and the French Young Entrepreneurs Initiative.

The Research Tax Credit (Credit Impot Recherche – CIR) offsets R&D expenditures undertaken by both domestic and foreign firms operating in France, regardless of size or business sector, covering both R&D spending and innovation expenses incurred by small- and medium-sized enterprises. The French government provides tax credits to support up to 30 percent of a firm’s first EUR 100 million in R&D costs, and an additional five percent in credits above this threshold. Additionally an “innovation tax credit” is available that reduces the cost of innovation expenditure by 20 percent up to EUR 400,000. The research tax credit and innovation schemes are set through 2018.

**Foreign Trade Zones/Free Ports/Trade Facilitation**

France is subject to all EU free trade zone regulations. These allow member countries to designate portions of their customs’ territory as duty-free, where value-added activity is limited. France has several duty-free zones, which benefit from exemptions on customs for storage of goods coming from outside of the European Union. The French Customs Service administers them, and provides details on its website (http://www.douane.gouv.fr ). French legal texts are published online at http://legifrance.gouv.fr .

A February 2016 law called “Zero unemployment territories” established 44 Urban Free Zones (ZFU) in low income neighborhoods and municipalities with at least 10,000 residents. The law provides incentives for employers to create new jobs, including exemption from payment of payroll taxes and certain social contributions for five years. In 2017, community leaders from only 11 of the ZFU had volunteered: Colombelles, Colombey-les-Belles, Jouques, Mauleon Lille, Nievre & Foret, the 13th district of Paris, Pipriac, Thiers,and the district of Saint John in Villeurbanne. In 2017, 420 long-term unemployed (over a year) were hired, out of some 2,000 identified candidates, in the ten districts selected for the experiment. The five-year experimental plan is currently financed by EUR 15 million a year in State funds.

**Performance and Data Localization Requirements**

While there are no mandatory performance requirements established by law, the French government will generally require commitments regarding employment or R&D from both foreign and domestic investors seeking government financial incentives. Incentives like PAT regional planning grants (Prime d’Amenagement du Territoire pour l’Industrie et les Services) and related R&D subsidies are based on the number of jobs created, and authorities have occasionally sought commitments as part of the approval process for acquisitions by foreign investors. PAT has been revised to benefit SMEs, with the objective of promoting the development of businesses in priority regional zones, including EUR 30 million in direct government subsidies. The government recently presented a bill on company growth, nicknamed PACTE in French, which will attach requirements to foreign investment in artificial intelligence, data storage, and the space sector, when the direct objective of this investment pertains to national defense, national security, public order and public authority.

The French government imposes the same conditions on domestic and foreign investors in cultural industries: all purveyors of movies and television programs (i.e., television broadcasters, telecoms operators, internet service providers and video services) must invest a percentage of their revenues to finance French film and television productions. They must also abide by broadcasting cultural content quotas (minimum 40 percent French, 20 percent EU).

							5. Protection of Property Rights					

**Real Property**

Real property rights are regulated by the French civil code and are uniformly enforced. In the World Bank’s Doing Business Report (DBR), France is ranked 30 of 190 on registering property. French civil-law notaries (notaires) — highly specialized lawyers in private practice appointed as public officers by the Justice Ministry — handle residential and commercial conveyance and registration, contract drafting, company formation, successions, and estate planning. The official system of land registration, the “cadastre” is maintained by the French public land registry under the auspices of the French tax authority (Direction Generale des Finances Publiques – DGFiP); available online at http://www.cadastre.gouv.fr . Mortgages are widely available, usually for a 15-year period.

**Intellectual Property Rights**

France is a strong defender of intellectual property rights. Under the French system, patents and trademarks protect industrial property, while copyrights protect literary/artistic property. By virtue of the Paris Convention and the Washington Treaty regarding industrial property, U.S. nationals have a priority period following filing of an application for a U.S. patent or trademark in which to file a corresponding application in France: twelve months for patents and six months for trademarks.

Counterfeiting is a costly problem for French companies, and the government of France maintains strong legal protections and a robust enforcement mechanism to combat trafficking in counterfeit goods — from copies of luxury goods to fake medications — as well as the theft and illegal use of intellectual property. The French Intellectual Property Code has been updated repeatedly over the years to face this challenge. Recently, Parliament passed a law reinforcing France’s anti-counterfeiting law and its implementation of EU directives on intellectual property rights. The new legislation increases the euro amount for damages to companies that are victims of counterfeiting and extends trademark protection to smartcard technology, certain geographic indications, plants, and agricultural seeds. The new legislation also increases the statute of limitations for civil suits from three to ten years and strengthens the powers of customs officials to seize fake goods sent by mail or express freight. The government also reports on seizures of counterfeit goods. In 2017, French Customs seized 8.5 million counterfeited goods, 7.7 percent less in 2016, a record year for seizures with 9.2 million counterfeited goods. In 2017, the goods seized included 2.5 million drugs, 1.2 million toys and sporting goods, and 1.1 million pieces of clothing. France’s top private sector anti-counterfeiting organization, UNIFAB, dedicated its 2017 counterfeiting day to highlight the growing problem of fake pharmaceutical drugs. UNIFAB’s annual counterfeiting conference and museum are an integral part of France’s anti-counterfeiting system. France also hosted the 2017 European Forum on Intellectual Property.

France has robust laws against online piracy. The government agency called the High Authority for the Dissemination of Artistic Works and the Protection of Rights on Internet (Haute Autorite pour la Diffusion des Œuvres et la Protection des droits sur Internet – HADOPI) administers a “graduated response” system of warnings and fines. It has taken enforcement action against several online pirate sites, including Megaupload. HADOPI cooperates closely with the U.S. Patent and Trademark Office (USPTO) including pursuing voluntary arrangements that target intermediaries that facilitate or fund pirate sites. (Note that one of HADOPI’s tasks is to ensure that the technical measures used to protect works do not prevent the right of individuals to make personal copies of television programs for their private use.) Between July 2016 and June 2017, Hadopi sent a total of 889 cases to court, a 30 percent increase over the same period a year earlier. This upsurge in activity is due to better financing and support from the government. Last December, the French anti-piracy agency released figures showing that from the beginning of the decade, it had sent out nine million piracy warnings and referred over 2,000 cases to prosecutors, resulting in 189 criminal convictions, mostly small fines. Offenders risk fines of between EUR 1,500 and EUR 300,000/and/or up to three years imprisonment. “For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .”

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

There are no administrative restrictions on portfolio investment in France, and there is an effective regulatory system in place to facilitate portfolio investment. France’s open financial market allows foreign firms easy access to a variety of financial products, both in France and internationally. France continues to modernize its marketplace; as markets expand, foreign and domestic portfolio investment has become increasingly important. As in most EU countries, France’s listed companies are required to meet international accounting standards. Some aspects of French legal, regulatory and accounting regimes are less transparent than U.S. systems, but they are consistent with international norms. Foreign banks are allowed to establish branches and operations in France and are subject to international prudential measures. Under IMF Article VIII France may not impose restrictions on the making of payments and transfers for current international transactions without the (prior) approval of the Fund.

Foreign investors have access to all classic financing instruments, including short-, medium-, and long-term loans, short- and medium-term credit facilities, and secured and non-secured overdrafts offered by commercial banks. These assist in public offerings of shares and corporate debt, as well as mergers, acquisitions and takeovers, and offer hedging services against interest rate and currency fluctuations. Foreign companies have access to all banking services. Most loans are provided at market rates, although subsidies are available for home mortgages and small business financing.

Euronext Paris (also known as Paris Bourse) is part of a regulated cross border exchange located in six European countries. Euronext Growth is an alternative exchange for medium-sized companies to list on a less regulated market (based on the legal definition of the European investment services directive), with more consumer protection than the Marche Libre still used by a couple hundred small businesses for their first stock listing. A company seeking a listing on Euronext Growth must have a sponsor with status granted by Euronext, and prepare a French language prospectus for a permit from the Autorite des Marches Financiers (AMF or Financial Markets Authority), the French equivalent of the U.S. Securities and Exchange Commission. Small and medium-size enterprises (SMEs) may also list on EnterNext, a new subsidiary of the Euronext Group. The bourse in Paris also offers Euronext Access, an unregulated exchange for Start-ups. As of April 2017, there were 226 companies listed on the Euronext Access market of Paris.

*Money and Banking System*

France’s banking system recovered gradually from the 2008-2009 global financial crises and passed the 2016 stress tests conducted by the European Banking Authority. The French banking sector is healthy. Non-performing loans were 3.2 percent in France in the third quarter of 2017, compared to 4.2 percent across the European Union and 11.8 percent in Italy. The French banking industry is notable for its universal banking model: a single bank offers a full range of financial business lines: retail banking, specialist finance, corporate and investment banking, asset management and insurance.

Four French banks are ranked among the world’s 20 largest banks by balance sheet assets. The assets of France’s largest banks totaled EUR 6.3 trillion (USD 7.7 trillion) in 2017. The big French banks have more than doubled their “core” capital to comply with new capital adequacy rules, from 5.8 percent in 2008 to 13.2 percent in 2016.

France has a central bank, namely the Banque de France, that is a member of the Eurosystem, which groups together the European Central Bank (ECB) and the national central banks of all countries that have adopted the euro. The Banque de France is a public entity governed by the French Monetary and Financial Code. The conditions whereby it conducts its missions on national territory are set out in its Public Service Contract. The three main missions are monetary strategy, financial stability together with the High Council of financial stability (Haut Conseil de la Stabilite Financiere) which implements macroprudential policy, and the provision of economic services to the community. In addition, it participates in the preparation and implementation of decisions taken centrally by the ECB Governing Council.

Foreign banks can operate in France either as subsidiaries or branches but need to obtain a license. Credit institutions’ licenses are generally issued by France’s Prudential Authority (ACPR – Autorite de Controle Prudentiel et de Resolution) which reviews whether certain conditions are met (e.g. minimum capital requirement, sound and prudent management of the bank, compliance with balance sheet requirements, etc.). Both EU law and French legislation apply to foreign banks. Foreign banks or branches are additionally subject to prudential measures and must provide periodic reports to the ACPR regarding operations in France, including detailed reports on their financial situation. At the EU level, the ‘passporting right’ allows a foreign bank settled in any EU country to provide their services across the EU, including France. There are about 1,032 credit institutions authorized to carry on banking activities in France; the list of foreign banks is available on this website: https://www.regafi.fr/spip.php?page=results&type=advanced&id_secteur=3&lang=en&denomination=&siren=&cib=&bic=&nom=&siren_agent=&num=&cat=01-TBR07&retrait=0 .

The Foreign Account Tax Compliance Act (FATCA) does not, in principle, restrict a U.S. citizen’s ability to establish a bank account in France. However, in practice, it can be difficult for American citizens to open a bank account. For French banks, FATCA imposes high administrative costs in order to comply with IRS requirements. Parliamentarians and a society of French Americans have expressed an intention to engage with members of the U.S. Congress to resolve the issue.

The Banque de France and the financial markets regulator (AMF) reportedly are exploring regulations for blockchain and other emerging financial technologies. Finance Minister Bruno Le Maire called for France and Germany to work together to draft regulations for block chain for the Eurozone.

**Foreign Exchange and Remittances**

France’s investment remittance policies are stable and transparent. All inward and outward payments must be made through approved banking intermediaries by bank transfers. There is no restriction on the repatriation of capital. Similarly, there are no restrictions on transfers of profits, interest, royalties, or service fees. Foreign-controlled French businesses 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.

For purposes of controlling exchange, the French government considers foreigners as residents from the time they arrive in France. French and foreign residents are subject to the same rules; they are entitled to open an account in a foreign currency with a bank established in France, and to establish accounts abroad. They must report all foreign accounts on their annual income tax returns, and money earned in France may be freely converted into dollars or any other currency and transferred abroad.

France is one of nineteen countries (known collectively as the Eurozone) that use the euro currency. Exchange rate policy for the euro is handled by the European Central Bank, located in Frankfurt, Germany. The euro was trading in a range from USD 1.03 to USD 1.2316 between January 1, 2017 and March 23, 2018 (average 1.148).

France is a founding member of the OECD-based Financial Action Task Force (FATF, a 34-nation intergovernmental body). As reported in the Department of State’s France Report on Terrorism, the French government has a comprehensive anti-money laundering/counterterrorist financing (AML/CTF) regime and is an active partner in international efforts to control money laundering and terrorist financing. Tracfin, the French government’s financial intelligence unit, is active within international organizations, and has signed new bilateral agreements with foreign countries.

**Sovereign Wealth Funds**

France has no sovereign wealth fund per se (none that use that nomenclature), but does operate funds with similar intent. The Public Investment Bank (Banque Publique d’Investissement – BPI, now known as Bpifrance) supports small and-medium term enterprises (SMEs), larger enterprises (Entreprises de Taille Intermedaire) and innovating businesses. The government strategy is defined at the national level and aims to fit with local strategies. Bpifrance may hold direct stakes in companies, hold indirect stakes via generalist or sectorial funds, venture capital, development or transfer capital. Bpifrance has minority stakes in 214 firms and 56 investment funds that invest in businesses. It also provides export insurance.

							7. State-Owned Enterprises					

The 12 listed entities in which the French State maintains stakes are Aeroports de Paris (50.63 percent), Airbus Group (11.03 percent), Air France-KLM (14.29 percent), CNP Assurances (holds 1.11 percent; controls 66 percent), Dexia (5.73 percent), EDF (83.50 percent), ENGIE (24.10 percent), Orange (a direct 13.39 percent stake and a 9.60 percent stake through Bpifrance), Renault (15.1 percent), Safran (14 percent of shares and 21.9 percent of voting rights), and Thales 25.76 percent). Unlisted companies owned by the State include SNCF (rail), RATP (public transport), CDC (Caisse des depots et consignations) and La Banque Postale (bank). In all, the government has majority and minority stakes in 81 firms, in a variety of sectors.

Private enterprises have the same access to financing as SOEs, including from state-owned banks or other state-owned investment vehicles. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors. SOEs may get subsidies and other financial resources from the government.

France, as a member of the European Union, is party to the Agreement on Government Procurement (GPA) within the framework of the World Trade Organization. Companies owned or controlled by the state behave largely like other companies in France and are subject to the same laws and tax code. The Boards of SOEs operate according to accepted French corporate governance principles as set out in the (private sector) AFEP-MEDEF Code of Corporate Governance. SOEs are required by law to publish an annual report, and the French Court of Audit conducts financial audits on all entities in which the state holds a majority interest. The French government appoints representatives to the Boards of Directors of all companies in which it holds significant numbers of shares, and manages its portfolio through a special unit attached to the Ministry for the Economy and Finance Ministry, the shareholding agency APE (Agence de Participations de l’Etat). A recent APE annual report highlighted the government’s strategy to keep a sufficient level of control in strategically important companies while scaling back its shareholdings in traditional industrial sectors to invest in fast-growing companies in key sectors for economic growth.

**Privatization Program**

The government has partially privatized many large companies, including Air France, Orange, Renault, PSA, and ENGIE in order to fund a 10 billion EUR fund for innovation and research. However, the government maintains a strong presence in some sectors, particularly power, public transport, and defense industries.

							8. Responsible Business Conduct					

There is general awareness of standards for responsible business conduct (RBC) in France. The country has established a National Contact Point (NCP) for the OECD Guidelines for Multinational Enterprises, coordinated and chaired by the Directorate General of the Treasury in the Ministry for the Economy and Finance. Its members represent State Administrations (Ministries in charge of Economy and Finance, Labor and Employment, Foreign Affairs, Ecology, Sustainable Development and Energy), six French Trade Unions (CFDT, CGT, FO, CFE-CGC, CFTC, UNSA) and one employers’ organization, MEDEF. The NCP promotes the Guidelines and ensures their application. It provides relevant information and handles inquiries. It examines the specific instances referred to it, offers its good offices to the parties (discussion, exchange of information) and may act as a mediator in disputes, if appropriate.

The French Office of the NCP promotes the OECD Guidelines in a manner that is relevant to specific sectors. In specific instances, the NCP conducts fact-finding to assist parties in resolving disputes, and posts final statements on any recommendations for future action with regard to the Guidelines. The NCP may also monitor how its recommendations are implemented. In April 2017, the French NCP signed a two-year partnership with Global Compact France to increase sharing of information and activity between the two organizations.

In France, corporate governance standards are the product of a combination of legislative provisions and the recommendations of the AFEP-MEDEF code (two employers’ organizations). The code meets the expectations of shareholders and various stakeholders, as well as of the European Commission. The code was revised in November 2016 to add principles for the determination of remuneration and independence of directors, and now includes corporate social and environmental responsibility standards. The “Transparency, Anti-corruption, and Economic Modernization” law adopted in 2016 (Sapin 2 law) established a High Authority for Transparency in Public Life (HATVP). The HATVP promotes transparency in public life by publishing the declarations of assets and interests it is legally authorized to share publicly. After review, declarations of assets and statements of interests of members of the Government are published on the High Authority’s website under open license. The declarations of interests of members of Parliament and mayors of big cities and towns, but also of regions are also available on the website. In addition, the declarations of assets of parliamentarians can be accessed in certain governmental buildings, though not published on the internet.

Also relating to transparency, the EU passed a new regulation in May 2017 to stem the trade in conflict minerals and, in particular, to stop conflict minerals and metals from being exported to the EU; to prevent global and EU smelters and refiners from using conflict minerals; and to protect mine workers from being abused. The regulation goes into effect January 1, 2021, and will then apply directly to French law.

France has played an active role in negotiating the ISO 26000 standards, the International Finance Corporation Performance Standards, the OECD Guidelines for Multinational Enterprises, and the UN Guiding Principles on Business and Human Rights. France has signed on to the Extractive Industries Transparency Initiative (EITI), although it has not yet been fully implemented. Since 2017, large companies based in France and having at least 5,000 employees are now required to establish and implement a corporate plan to identify and assess any risks to human rights, fundamental freedoms, workers’ health, safety, and risk to the environment from activities of their company and its affiliates.

							9. Corruption					

In line with President Macron’s campaign promise to clean up French politics, the French parliament adopted in September 2017 the law on “Restoring Confidence in Public Life.” The new law bans elected officials from employing family members, or working as a lobbyist or consultant while in office. It also bans lobbyists from paying parliamentary, ministerial, or presidential staff and requires parliamentarians to submit receipts for expenses. In November 2016, France’s parliament adopted the “Transparency, Anti-corruption, and Economic Modernization Law” which is also known as the “Loi Sapin II.” The law came into effect on June 1, 2017, aiming to bring French legislation in line with European and international standards. Key aspects of the law include: creating a new anti-corruption agency; establishing “deferred prosecution” for defendants in corruption cases and prosecuting companies (French or foreign) suspected of bribing foreign public officials abroad; requiring lobbyists to register with national institutions; and expanding legal protections for whistleblowers. The U.S. embassy in Paris has received no specific complaints from U.S. firms of unfair competition in France in recent years. France ranked 23rd of 180 on Transparency International’s (TI) 2017 corruption perceptions index; TI maintains that France continues to face corruption challenges in certain areas including public works and in the defense sector. See https://www.transparency.org/country/FRA .

**Resources to Report Corruption**

The Central Office for the Prevention of Corruption (Service Central de Prevention de la Corruption or SCPC) was replaced in 2017 by the new national anti-corruption agency – the Agence Francaise Anticorruption (AFA). The AFA is charged with preventing corruption by establishing anti-corruption programs, making recommendations, and centralizing and disseminating information to prevent and detect corrupt officials and company executives. The AFA will also administrative authority to review the anticorruption compliance mechanisms in the private sector, in local authorities and in other government agencies.

Contact information for Transparency International’s French affiliate:

Transparency International France14, passage Dubail75010 ParisTel: (+33) 1 84 16 95 65;Email: contact@transparency-france.org

							10. Political and Security Environment					

France is a politically stable country. Occasionally, large demonstrations and protests occur (sometimes organized to occur simultaneously in multiple French cities); these normally don’t result in violence. When faced with imminent business closures, on rare occasions French trade unions have resorted to confrontational techniques such as setting plants on fire, planting bombs, or kidnapping executives or managers. In March 2018, railway workers, teachers, students, and air traffic controllers went on strike to protest President Macron’s reforms. Rolling two-day strikes of the national rail system are anticipated throughout the summer of 2018 (April to June) if a labor agreement between the unions and French government is not reached. Railway workers are protesting reform of the state controlled SNCF railway company that includes introducing competition on some railways and changes to SNCF unemployment benefits and pension system.

In recent years, more than 230 people have been killed in terrorist attacks in France, including the January 2015 assault on the satirical magazine Charlie Hebdo, the November 2015 Bataclan concert hall and national stadium attacks, and the 2016 Bastille Day truck attack in Nice. While terrorists continue to target French interests, since July 2016 attacks have been smaller in scale and most often perpetrated by lone actors inspired by, but with little direct connection to, ISIS or other international terrorist organizations. French security agencies continue to disrupt plots and cells, and their efforts have been aided by recent legislation and executive measures which strengthen search and detention authorities. Despite the spate of recent small-scale attacks, France remains a strong, stable, democratic country with a vibrant economy and culture. Americans and investors from all over the world continue to invest heavily in France. In 2017 American businesses were the largest foreign direct investors in the country.

							11. Labor Policies and Practices					

France’s private sector labor force is a major asset in attracting foreign investment. With a return to growth (2 percent in 2017) and a drop in unemployment to 8.9 percent in 2017 from 9.9 percent a year earlier, President Macron launched a labor market reform to reduce regulations and spur new hiring. Five ordinances (executive orders), which came into effect on January 1, 2018, introduced measures easing companies’ ability to fire workers including by capping potential damage claims in cases of wrongful dismissal, and a one year time limit for making claims, which business organizations asked for several decades. In order to make these proposals acceptable to labor unions, Minister Penicaud increased regular required severance pay by 25 percent. For example, an employee paid a monthly EUR 2,000 and fired after 10 years will be entitled to a severance pay of EUR 5,000, instead of the previous EUR 4,000.

Mandatory company employee councils for consultations on economic, social and public safety issues have been reduced from three to one. Companies of all sizes are now able to initiate wide-scale voluntary layoffs with severance provisions for employees for any reason without fear of lawsuit, but with the agreement of labor unions representing a majority of employees. Finally, foreign owned companies no longer have to justify job cuts in France on the basis of their global turnover, but can base them on poor performance in France. These measures have been welcomed by the business community.

For the second half of 2018, the government plans to pass additional labor-related legislation to simplify vocational training and apprenticeships, and expand unemployment insurance. These reforms are aimed to reduce France’s high youth unemployment rate. Youth unemployment was at 21.8 percent in November 2017, lower than a year earlier when it hovered at 25.1 percent (the unemployment rate among those aged 20 to 24 has been at or above 22 percent since 2009). Many educated youth in the 20 to 24 age bracket take internships or short-term employment contracts, but cannot find a permanent job that gets them on the path to taxpaying or property-owning. The number of job-seekers over age 50 remains steady at 6.9 percent, but 23 percent will only find part-time work. The underemployment ratio (defined as part-time workers unable to find full-time positions) was 6.2 percent in 2017 (compared to 6.3 percent a year earlier).

**Labor-Management Relations**

While the rate of union membership in France (around eight percent overall; five percent in the private sector and 14 percent in the public sector) has steadily declined to just over half the rate of union membership in the United States, French labor law provides an extensive institutional role for employee representatives and organized labor. This is due in part to the fact that union delegates represent all employees (nonmembers and members alike). French unions continue to play a significant (even outsized) role in labor-management relations. Indeed, the top five unions and the top three employer associations (collectively known as the *partenaires sociaux* or social partners) have a statutory role in national-level negotiations. Strikes are common and are part of the social fabric of France but strikes do not generally pose a serious commercial risk to foreign or local investors. Labor tribunals (playing a role largely equivalent to the U.S. National Labor Relations Board in resolving labor disputes) are comprised of equal numbers of union and employer representatives. Appeals are possible to the level of the Cour de Cassation, France’s highest civil court.

**Labor Conditions**

Working conditions are generally excellent in France and workers are well-protected. The labor code sets minimum standards for the length of the workweek, layoffs, overtime, vacation, and personal leave. The 35-hour workweek (beyond which overtime compensation must be paid) is standard. Most French retire at age 62. Work contracts follow requirements stipulated in industry-wide collective bargaining agreements. For example, an employee of a large company who is laid off for economic reasons may benefit from training, short-term contracts, or transfer to another company. Other labor standards are contained in collective agreements, usually negotiated by sector (at a national or regional level) by various trade union federations and employers’ associations.

							12. OPIC and Other Investment Insurance Programs					

Given France’s high per capita income, investments in France do not qualify for investment insurance or guarantees offered by the Overseas Private Investment Corporation (OPIC).

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics					

*Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy*

*Table 3: Sources and Destination of FDI*

*Table 4: Sources of Portfolio Investment*

							14. Contact for More Information					

Peter ChisholmEconomic Affairs Officer,U.S. Embassy2 Avenue Gabriel75008 Paris, FranceTel: +33.1.43.12.2000FranceICSeditor@state.govhttps://fr.usembassy.gov/business/

**Special Section on Monaco**

The Principality of Monaco, the world’s second smallest country by area, has an open economy that welcomes foreign investment. Monaco enjoys a high standard of living and no unemployment. Foreigners (and Monegasques) actually living and working in Monaco are not subject to personal income tax, with the exception of French citizens. Corporations may benefit from various tax incentives. There are no restrictions preventing foreigners and non-residents from buying property or opening bank or brokerage accounts in Monaco, though some banks have levied fees on American accounts. Non-residents likely account for more than half of real estate investments. Monaco is well known for its security and political stability.

Note: the Principality of Monaco is not covered by the World Bank’s Doing Business Report, Transparency International’s Country Corruption Report, or the Heritage Foundation’s Economic Freedom Index report.

*Investment Regime of Monaco*

Monaco’s economic and regulatory system is closely tied to that of France, and Monaco uses the Euro as its currency. The convention of May 1, 1963 brought French and Monegasque territories, including territorial waters, under a customs union resulting in the application of French customs law in Monaco. Although Monaco is not a full member of the European Union, the customs union with France makes it subject to EU customs laws, thus guaranteeing that the transfer of goods and services from and into Monaco remains within the single European market.

Economic activity within Monaco, including commercial, craft and industrial activity, is strictly monitored by the government. Prior approval from the Direction de l’Expansion Economique is required before conducting any economic activity in the principality, and this applies to any foreign companies which establish a branch or an administrative unit in the principality. Monegasque authorities issue approvals based on type of business; approval is personal and may not be transferred. Any change in the terms requires a new approval. The government is streamlining the approval process by reducing the number of documents required to nine, or six for individual authorizations.

A body called Espace Entreprises Monaco Business Office helps new investors. The Monaco Welcome and Business office (MWBO) assists individuals and entrepreneurs in relocating to the Principality of Monaco. In the financial sector, creation of any financial organization is subject to the approval of both the French CECEI (Committee for Credit and Investment Institutions) in Paris and of Monegasque financial supervisory authorities. Offshore companies are subject to the same due diligence and suspicious-transaction reporting regulations as other banking institutions.

Monaco has taken a number of initiatives to promote economic activity and make company operations more transparent while maintaining high ethical standards, including:

- creation of the legal status of Limited Liability Company;
- adoption of systems to combat money laundering, organized crime and corruption (through the creation of the Service d’Information et de Contrôle sur les Circuits Financiers, SICCFIN:  http://www.siccfin.gouv.mc  ); and
- special exemptions for new companies and research.

In Monaco, there is no direct taxation, with two exceptions:

- companies earning more than 25 percent of their turnover (revenue) outside of the principality, and companies whose activities consist of earning revenues from patents and literary or artistic property rights, are subject to a tax of 33.33 percent on profits, and
- French nationals unable to prove that they resided in the principality for five years before October 31, 1962 are subject to the French income tax.

To encourage the creation of economic activity, the Principality of Monaco offers tax exemptions to new companies developing a new activity. These new companies enjoy 100 exemption from corporate tax in the first two years, and then gradually assume normal tax obligations: third year (25 percent), fourth year (50 percent), and fifth year (75 percent). A research tax credit was additionally created in March 2009.

On July 12, 2016, The European Union and Monaco signed an agreement making Monaco’s tax compliance regulations and automatic exchange of financial information stronger and equivalent to measures in force in the EU. The EU-Monaco agreement entered into force in 2018. Monaco is now classified as “largely compliant” by OECD tax transparency standards, the same rating as the U.S and Germany. The principality has signed 33 (but 32 are in force) tax information exchange agreements (TIEA), including one with the United States on September 8, 2009.

*Size of the Economy of Monaco*

Monaco’s GDP was EUR 5.85 billion in 2016, and 5.64 billion in 2015, up 5.4 percent from 5.32 billion in 2014 and 4.94 billion in 2013 (Source: IMSEE – Monaco Statistics http://www.monacostatistics.mc/Economy-and-Finance/GDP ). The country’s budget comes from taxes on industry, trade and services, a vibrant tourism sector, and several government-owned enterprises, most notably the Societe des Bains de Mer, which owns the country’s famous casinos. Approximately 50 percent of government revenue is estimated to come from the Value Added Tax (VAT) applied by the French Administration on Monaco.

There is a high concentration of financial professionals in Monaco, as might be expected in this center of international business. French banking law applies in Monaco, subjecting banks to the same level of supervision as in France. Some 31 banks, 4 finance corporations, 56 mutual investment funds, and 60 portfolio management companies operate in Monaco. Recent figures show that Monaco’s outsized financial sector manages well over EUR 750 billion for a clientele that is 46 percent non-resident.

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### On This Page

                    -  Executive Summary 
                    -  1. Openness To, and Restrictions Upon, Foreign Investment   
                    -  2. Bilateral Investment Agreements and Taxation Treaties   
                    -  3. Legal Regime   
                    -  4. Industrial Policies   
                    -  5. Protection of Property Rights   
                    -  6. Financial Sector   
                    -  7. State-Owned Enterprises   
                    -  8. Responsible Business Conduct   
                    -  9. Corruption   
                    -  10. Political and Security Environment   
                    -  11. Labor Policies and Practices   
                    -  12. OPIC and Other Investment Insurance Programs   
                    -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                    -  14. Contact for More Information   

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