All questions
Foreign investment
In principle, foreign investment in France is unrestricted.
By way of exception, certain investments listed by decree are subject to prior authorisation by the French Minister of the Economy. These investments mainly concern sectors essential to the country’s interests in terms of public order, public security or national defence. A Decree dated 31 December 2019 has established a unified list of all relevant sectors and extended the scope of sectors subject to authorisation. Regarding the procedure, the Minister issues a decision within 30 days of the application for authorisation. In the absence of a response, the application is deemed to be refused. If the operation is carried out in the absence of authorisation, the Minister may take various measures, including an injunction to restore the situation or modify the investment under penalty, or other precautionary measures.
The transfer or direct acquisition of real estate, acquisition or purchase of a stake in French real estate funds (OPCIs) or in any special purpose vehicles (SPVs) made by foreign investors may also be subject to mandatory declaration.
Pursuant to Decree No. 2017-932 of 10 May 2017, administrative declaration is not required for investment in real estate companies; however, a statistical declaration to the French central bank may be required for certain transactions, including acquisitions and sales of real estate for values exceeding €15 million. In terms of timing, such declarations must be made within 20 days of the date of the operation or at the date of the execution of the relevant operation depending on the kind of declaration. Breach of this declaration obligation is subject to criminal sanctions (including imprisonment).
From a tax perspective, foreign legal entities (but not individuals) that hold, directly or indirectly, real estate located in France must pay an annual tax equal to 3 per cent of its fair market value, regardless of any acquisition debt. Such entities can, however, be exempt from this tax by complying with certain filing obligations required by the French tax authorities. From 1 January 2021, the specific 3 per cent tax return must be filed electronically.
The following are automatically exempt from this tax:
- international organisations, sovereign states or one of their institutions, including legal entities, bodies, trusts or equivalent institutions that they control and have a majority interest in;
- entities whose French assets do not mainly comprise real estate;
- entities whose shares are significantly and regularly exchanged on a regulated stock exchange, including any subsidiary entities whose total shares they hold directly or indirectly; and
- entities with their registered office located in France, in an EU Member State or in a country or territory that has concluded a reciprocal tax or mutual assistance treaty with France and that:
- have a share in properties located in France representing less than €100,000 or 5 per cent of the property’s market value;
- are established to manage pension funds (including partnerships between entities), or as charities with acknowledged public utility or a not-for-profit purpose, if their activity or financing justifies the ownership of the real estate assets or rights; or
- are incorporated as an OPCI (subject to the conditions it complies with certain prudential ratios and is not restricted to qualified investors), or a form regulated by similar rules in the country in which they are incorporated.
A temporary regulation of foreign investment control was implemented by a Decree dated 22 July 2020 due to the covid-19 pandemic. This regulation, which was to last until 31 December 2020, was extended until 31 December 2021 and then until 31 December 2022.In December 2022, the French Minister of the Economy announced that this regulation, which strengthens foreign investment controls to protect French companies in strategic sectors, will be extended until 31 December 2023.
Structuring the investment
Real estate investments are usually made through SPVs incorporated as French companies, listed property investment companies (SIICs) or OPCIs.
i SPVs
SPVs can either be tax vehicles subject to corporation tax or tax-transparent vehicles, in which case profits are determined at company level but will be taxed in the hands of shareholders.
ii SIICs
The SIIC regime (largely inspired by the US REIT regulation) applies to real estate investment companies that:
- have a minimum share capital of €15 million;
- are listed on a French regulated market;
- have a minimum floating shareholding of 15 per cent at the date of the election for the SIIC regime (floating shareholdings are those held directly or indirectly by legal or natural persons with less than 2 per cent of the total share capital and voting rights); and
- do not have more than 60 per cent of their share capital or voting rights held directly or indirectly by one shareholder (or by different shareholders in a joint control situation) unless the shareholders are also SIIC-qualifying companies.
The SIIC regime also applies to SIIC subsidiaries subject to corporation tax that are at least 95 per cent held, directly or indirectly, by the SIIC (or, as the case may be, jointly with one or more OPCIs) and have the same corporate purpose.
The SIIC regime provides for a full exemption for corporation tax purposes on profits deriving from real estate investments (rents and capital gains), provided that certain distribution obligations are fulfilled (95 per cent of net rents, 70 per cent of capital gains and 100 per cent of dividends received from SIIC subsidiaries). Tax is therefore passed on to investors, who are subject to French personal or corporation tax if they are French residents (in this case, the distribution cannot benefit from the parent subsidiary regime if the amounts distributed correspond to tax-exempt profits), or French withholding tax if they reside abroad.
Distributions paid out of tax-exempt profits are subject to a 20 per cent levy if they are paid to corporate shareholders that hold, directly or indirectly, more than 10 per cent of the dividend rights at the time of the distribution, and that are not subject to French corporation tax or to an equivalent tax amounting to at least one-third of the French corporation tax on the distributions received. Such levy is not payable where tax-exempt profits are paid to entities that have an obligation to distribute 100 per cent of received dividends (e.g., French SIICs and OPCIs and foreign equivalents), and where the shareholders of the entities that hold, directly or indirectly, more than 10 per cent of the dividend rights are subject to French corporation tax or to an equivalent tax amounting to at least one-third of the French corporation tax on the distributions received.
Companies electing for the SIIC regime are entitled to step up the tax basis of their eligible assets at a reduced tax cost (19 per cent corporation tax rate instead of the 25 per cent standard rate for 2023), payable in four years.
iii OPCIs5
OPCIs are fully exempt from corporation tax, but are subject to distribution obligations (85 per cent of net rents, 50 per cent of capital gains and 100 per cent of dividends received from subsidiaries exempt from corporation tax on their real estate activities). Their main business purpose must be direct or indirect investment in real estate assets with a view to carrying out rental activities.
OPCI subsidiaries that are subject to corporation tax can elect for the application of the SIIC regime described above if they are at least 95 per cent held, directly or indirectly, by the OPCI (or, as the case may be, jointly with one or more SIIC) and have the same corporate purpose.
The creation of an OPCI is subject to the prior approval of the French Stock Exchange Commission.
Distributions paid out of the tax-exempt profits of SIICs and OPCIs to French UCITS,6 certain alternative investment funds or foreign equivalent entities are subject to a 15 per cent levy.
