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France: Market Profile

 

Picture: France factsheet
Picture: France factsheet
 

1. Overview

France is one of the largest and most advanced European economies. Key French companies have a strong reputation for technological sophistication and high research and development spend. The French economy has rebounded since the beginning of 2015. Soft oil prices and tax cuts for low-income earners have been favourable to private consumption. Easing credit conditions and the recent supportive economic strategies, such as the progressive reduction of the corporate income tax rate from 33.3% to 25%, the increase of the tax credit for employment and competitiveness and the over-amortisation scheme, are conducive to private investment. Future growth will be aided further by a strong recovery in the housing market, increased reform momentum and improving exports. According to the OECD's Economic Survey of France, published in April 2019, economic growth had slowed after a gradual recovery, with global uncertainties and the effects of social unrest having weighed on activity. Real wage growth and productivity gains had not returned to pre-crisis levels, despite a slight rebound in 2017-2018, although fiscal measures agreed in December 2018, and passed in 2019, will generate substantial gains in household purchasing power during 2019, and therefore potentially domestic demand, that should bolster economic growth.

Sources: Organisation for Economic Co-operation and Development, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

April 2017
Former economy minister, Emmanuel Macron, beat the National Front's Marine Le Pen in the decisive second round of the presidential election. Neither of the two main parties (the Socialists and Republicans) made it into the run-off round.

June 2017
President Macron's new movement, La Republique En Marche!, won an overall majority in the parliamentary elections.

September 2017
President Macron signed into law changes to the labour code designed to make it easier for companies to hire and fire workers.

April 2018
Rail workers announced a three-month strike.

June 2018
National railway operator Societé National Chémin des Fers announced plans to revamp Gare du Nord station in Paris, with a view to preparing for the Olympic Games set to take place in 2024. The EUR600.0 million overhaul will be carried out in collaboration with real estate developers.

2019
President Macron’s government plans to implement structural reforms in 2019 as outlined in the 2019 budget plan that includes a EUR6 billion cut in household taxes, with overtime pay and a housing tax set to be axed in September 2019.

January 2019
At CES 2019 in the United States, the world's largest tech trade show, French tech start-ups were the largest group (315) of any country, including the United States (293). The French start-ups represented every major industry, from self-driving vehicles and smart cities to sports tech and artificial intelligence (AI).

April 2019
The joint cities of Marseille and Aix-en-Provence provided France's digital economy with a boost by becoming the latest part of the French Tech movement. The number of underwater communication cables connecting Marseille to the rest of the world has doubled in the past four years and is expected to reach 18 cables in 2019. This infrastructure has led to the emergence of new data centres and digital start-ups.

June 2019
Spokespeople for French agricultural workers criticised the announced EU-Mercosur deal because it would 'expose European farmers to unfair competition'. President Macron hailed it as a 'good' deal. Europe's car exporters on the other hand should benefit from reduced import duties into a growing vehicle market.

While attending the Group of 20 summit in Tokyo, President Macron reaffirmed the 'solidity' of the Renault-Nissan alliance. Renault, in which the French state holds a 15% stake, owns 43% of Nissan.

On the opening day of the Paris air show, Airbus launched a new long-range small passenger jet, the A321XLR, and announced EUR15 billion of orders. The plane's additional range opens up routes such as India to Europe or China to Australia.

July 2019
The French government launched a scheme called Join the Game, which is an attempt to poach British game developers in anticipation of Brexit by promising subsidies, tax breaks and loans to those who move across the English Channel.

Groupe Renault announced that it would add a plug-in hybrid electric version of its small SUV to its range in 2020 to address the growing demand for electrified vehicles. Renault hopes to offer at least 20 electrified models by 2022. In the first half of 2019, Renault's Zoe was second in sales only to the Tesla Model 3.

The adoption by the French parliament of a Digital Services Tax, effective in 2019, which will affect the big United States' tech companies, prompted an immediate investigation by the Office of the United States Trade Representative.

Sources: BBC Country Profile – Timeline, Forbes, The Guardian, France 24, Fitch Solutions

3. Major Economic Indicators

Graph: France real GDP and inflation
Note: Estimate in 2018 is for real GDP only
Graph: France real GDP and inflation
Note: Estimate in 2018 is for real GDP only
Graph: France GDP by sector (2018)
Graph: France GDP by sector (2018)
Graph: France unemployment rate
Graph: France unemployment rate
Graph: France current account balance
Graph: France current account balance

e = estimate, f = forecast
Sources: IMF, World Bank, Fitch Solutions
Date last reviewed: August 20, 2019

4. External Trade

4.1 Merchandise Trade

Graph: France merchandise trade
Graph: France merchandise trade

Source: WTO
Date last reviewed: August 20, 2019

Graph: France major export commodities (2018)
Note: Unclassified products are not included
Graph: France major export commodities (2018)
Note: Unclassified products are not included
Graph: France major export markets (2018)
Graph: France major export markets (2018)
Graph: France major import commodities (2018)
Graph: France major import commodities (2018)
Graph: France major import markets (2018)
Graph: France major import markets (2018)

Sources: Trade Map, Fitch Solutions
Date last reviewed: August 20, 2019

4.2 Trade in Services

Graph: France trade in services
Graph: France trade in services

e = estimate
Source: WTO
Date last reviewed: August 20, 2019

5. Trade Policies

  • France has been a World Trade Organization (WTO) member since January 1, 1995, and a member of the General Agreement on Tariffs and Trade since January 1, 1948.

  • France is a member of the European Union (EU) which has a common set of tariffs and customs levied on various imports and exports. The trade policy is largely identical to that of the wider regional bloc. The EU updated its trade policy (and, by extension, its import tariffs, customs, duties and procedures) in 2017 and 2018. The EU has an overall simple tariff of 5.1%. Once goods are cleared by customs authorities upon entry into any EU member state, these imported goods can move freely among EU member states without any additional customs procedures.

  • Trade bureaucracy and customs delays are a significant hindrance to foreign investors, particularly those outside the EU. Although there are increasing efforts to reduce trade bureaucracy, paper-based procedures remain cumbersome and costs and connectivity issues add to market barriers.

  • As a member state of the EU, France incorporates EU regulatory norms. While developing new draft regulations, the French government submits a copy to the WTO for review to ensure that the prospective legislation is not inconsistent with its WTO obligations.

  • As a eurozone member, France adopted the euro as its legal tender from January 1, 2002.

  • The EU has the largest web of preferential trade agreements in the world, being party to some 70 free trade agreements (FTAs) spanning five continents, and, consequently, access to other markets of the countries concerned is currently mediated through those agreements. The EU's scheme on generalised system of preferences (GSP) entered into effect on January 1, 2014. Under the scheme, tariff preferences have been removed for imports into the EU from countries where per capita income has exceeded USD4,000 for four years in a row. As a result, the number of countries that enjoy preferential access to EU markets was reduced from 176 to less than 80. While Mainland China remains a beneficiary, many of its exports – such as toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks – have already been graduated from the preferential treatment. Regarding Hong Kong, the territory has been fully excluded from the EU's GSP scheme since May 1, 1998.

  • Nine types of goods imported into the EU are subject to licensing. These goods are (broadly) textiles, various agricultural products, iron and steel products, ozone-depleting substances, rough diamonds, waste shipment, harvested timber, endangered species and drug precursors. Currently, no quotas are imposed on textiles and clothing exports or non-textile product exports from Hong Kong and Mainland China.

  • In order to protect domestic industries, a number of products from Mainland China are subject to the EU's anti-dumping duties, including bicycles, bicycle parts, ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards, and solar glass, which are of interest to Hong Kong exporters. For example, in November 2016 the EC imposed a provisional anti-dumping duty on imports of some primary and semi-processed metals from Mainland China. The rate of duty is between 43.5% and 81.1% of the net, free-at-union-frontier price before duty, depending on the company. By way of comparison, the rate of duty for similar goods from Belarus is 12.5% of the net, free-at-union-frontier price before duty. As of March 2019, the EU did not apply any anti-dumping measures on imports originating from Hong Kong.

  • In 2018 the EU modernised its trade defence instruments, with a view to shielding EU producers from damage caused by unfair competition. Anti-dumping and anti-subsidy regulations have been amended to better respond to unfair trade practices and to furnish Europe's trade defence instruments with more transparency, quicker procedures and more effective enforcement. In exceptional cases, such as in the presence of distortions in the cost of raw materials, the EU will be able to impose higher duties through the limited suspension of the lesser-duty rule.

  • The European Commission (EC) has introduced an import licensing regime for certain iron, steel and aluminium products exceeding 2.5 tonnes. The regulation will be active until May 15, 2020.

  • To combat the spread of the Asian long-horned beetle, in July 1999 the EU introduced emergency controls on wooden packaging material originating in Mainland China. Wood covered by the measures must be stripped of its bark and free of insect bore holes greater than 3mm across or have been kiln-dried to below 20% moisture content.

  • For health reasons, the EU has adopted a directive on the control of the use of nickel in objects intended to be in contact with the skin, such as watches and jewellery. The EU has also adopted a directive to ban the use of some phthalates in certain PVC toys and childcare articles on a permanent basis, which came into effect from January 16, 2007. In addition, the EU has adopted a directive to prohibit the trading of clothing, footwear, and other textile and leather articles that contain azo-dyes, from which aromatic amines may be derived.

  • The EU has adopted a number of directives for environmental protection, which may have an impact on the sale of a wide range of consumer goods and consumer electronics. Notable examples include the directive on Waste Electrical and Electronic Equipment (WEEE) implemented in August 2005, and the directive on Restriction of Hazardous Substances (RoHS) implemented in July 2006. A recast WEEE directive entered into force in August 2012 as a result of which member states must adhere to higher collection/recycling targets (a 45% collection rate as of 2016 and 65% from 2019). The directive is also wider in scope, covering all electric and electronic equipment, while establishing producer responsibility as a means of encouraging greener product designs. The recast RoHS directive was published on July 1, 2011, and entered into force on January 2, 2013. The new directive continues to prohibit electrical and electronic equipment that contains the same six dangerous substances as listed in the original RoHS directive. From July 22, 2019, the new directive will widen the current scope of the previous directive by including any electrical and electronic equipment that will have fallen out of the old RoHS directive's scope, with only limited exceptions. Following those recast directives, the EU's new framework directive for setting eco-design requirements for energy-related products (ErP) is now in place. The ErP Directive is no longer limited to electrical and electronic equipment (as it was under its predecessor, the energy-using product or EuP Directive), but potentially covers any product that is related to the use of energy, including shower heads and other bathroom fittings, as well as insulation and construction materials.

  • REACH, an EU regulation which stands for Registration, Evaluation, Authorisation and Restriction of Chemicals, entered into force in June 2007. It requires EU manufacturers and importers of chemical substances to gather comprehensive information on the properties of these substances produced or imported in volumes of one tonne or more per year, and to register such substances prior to manufacturing in or importing into the EU.

  • With EU-United States talks on a Transatlantic Trade and Investment Partnership having been suspended at the end of 2016, in April 2019 the EU and United States' chemical industries proposed an enhanced aligned approach that could serve as a global blueprint for regulatory cooperation to reduce barriers and increase trade in the chemicals sector.

  • France's position had slipped several places in the most recent IMD World Competitiveness Rankings, which rated the country highly for its infrastructure, but placed it in the bottom half for economic performance, business efficiency and, worst of all, government efficiency.

Sources: WTO – Trade Policy Review, European Commission, IMD World Competitiveness, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

As a member of the EU, France is party to the same trade agreements as its 27 peer states. The region negotiates and enters into trade agreements as a collective due to the single-market nature of the union. In total, the EU is party to some 70 free trade agreements (FTAs).

6.2 Multinational Trade Agreements

Active

  1. The EU Common Market: The transfer of capital, goods, services and labour between member nations enjoy free movement. The common market extends to the 28 member nations of the EU, namely: Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. As France's main trade partners are in the EU, the absence of customs charges with member countries greatly enhances its trade volumes.

  2. European Economic Area (EEA)-European Free Trade Association (EFTA) agreement: This economic integration agreement entered into force on January 1, 1994. The agreement unites the EU member states, the three non-EU member states of the EEA (Iceland, Liechtenstein, Norway) that are also members of EFTA and Switzerland, which is a member of EFTA but not of the EU or EEA, into an internal market governed by the same basic rules. These rules aim to enable goods, services, capital and persons to move freely about the signatory countries in an open and competitive environment, a concept referred to as the four freedoms. While the agreement enhances trade flows between the EFTA countries and the EU, only Switzerland is a fairly major trading partner.

  3. EU-Japan Economic Partnership Agreement (EPA): In July 2018, the EU and Japan signed a trade deal that promises to eliminate 99% of tariffs that cost businesses in the EU and Japan nearly EUR1 billion annually. According to the EC, the EU-Japan EPA will create a trade zone covering 600 million people and nearly one-third of global GDP. The result of four years of negotiation, the EPA was finalised in late 2017 and came into force on February 1, 2019, after the EU Parliament ratified the agreement in December 2018. The total trade volume of goods and services between the EU and Japan is an estimated EUR86 billion. The key parts of the agreement will cut duties on a wide range of agricultural products, and it seeks to open up services markets, particularly financial services, e-commerce, telecommunications and transport. Japan is the EU's second biggest trading partner in Asia after Mainland China. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments, and electrical machinery.

  4. EU-Turkey Customs Union: The EU and Turkey are linked by a Customs Union agreement, which came into force on December 31, 1995. Turkey has been a candidate country to join the EU since 1999 and is a member of the Euro-Mediterranean partnership. The Customs Union with the EU provides tariff-free access to the European market for Turkey, benefitting both exporters and importers. Turkey is the EU's fourth-largest export market and fifth-largest provider of imports. The EU is Turkey's largest import and export partner. Turkey's exports to the EU are mostly machinery and transport equipment, followed by manufactured goods. At present, the Customs Union covers all industrial goods, but does not address agriculture (except processed agricultural products), services or public procurement. Bilateral trade concessions apply to agricultural, as well as coal and steel products. In December 2016, the EC proposed the modernisation of the Customs Union and to further extend the bilateral trade relations to other areas, such as services, public procurement and sustainable development.

  5. EU-Canada Comprehensive Economic and Trade Agreement (CETA): CETA is expected to strengthen trade ties between the two regions, having been signed in October 2016 and entered force provisionally on September 21, 2017. Some 98% of trade between Canada and the EU is duty-free under CETA. The agreement is expected to boost trade between partners by more than 20%. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice versa. CETA means that Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport.

  6. EU-Southern African Development Community (SADC) EPA: An agreement between the EU and a group of SADC countries (Botswana, eSwatini, Lesotho, Mozambique, Namibia, and South Africa) was signed on June 10, 2016, with Angola having an option to join the agreement in the future. The agreement provisionally entered into force for most countries on October 10, 2016, but only became fully operational after Mozambique began applying the EPA in February 2018. Nine of the remaining members of SADC not included in the deal (Comoros, the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, the Seychelles, Tanzania, Zambia and Zimbabwe) have or are seeking economic partnership agreements with the EU as part of other regional trading blocs – such as with East, Central or Southern African communities.

Ratification Pending

  1. EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama): An agreement between the parties was reached in 2012 and is awaiting ratification (31 of the 33 parties have ratified the agreement as of July 2019). The agreement has been provisionally applied since 2013.

  2. EU-Mercosur Trade Agreement: An agreement between the parties was reached on June 28, 2019. The agreement means the EU is the first major partner to make a trade pact with the Mercosur bloc, which comprises Argentina, Brazil, Paraguay and Uruguay. The agreement will cover a population of 780 million and gives EU-based companies easier entry into a market with an enormous economic potential, saving them EUR4 billion in duties annually. Currently, EU exports in goods and services are worth approximately EUR68 billion. The EU is the biggest foreign investor in MERCOSUR, with stock of EUR381 billion, while MERCOSUR's investment stock in the EU is worth EUR52 billion. The agreement contains specific commitments on labour rights and environmental protection, including the implementation of the Paris climate agreement and related enforcement rules. The EU will not fully open its market for imports of agri-food products, although beef, poultry and honey imports from the MERCOSUR countries will be permitted to increase over a five-year phasing in period.

  3. EU-Vietnam FTA and Investment Protection Agreement (IPA): In October 2018, the EU and Vietnam agreed on final texts for the EU-Vietnam FTA and the EU-Vietnam IPA. As of July 2019, the final text of the agreement has been finalised and is awaiting the consent of the European Parliament before being signed and concluded. Once in force, the agreements will provide opportunities to increase trade and support jobs and growth on both sides by eliminating 99% of all tariffs, reducing regulatory barriers and overlapping 'red tape', ensuring protection of geographical indications, opening up services and public procurement markets, and establishing the means to ensure the agreed rules are enforceable.

Under Negotiation

  1. EU-Australia: The EU, Australia's second-largest trade partner, has launched negotiations for a comprehensive trade agreement with Australia. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017, and bilateral trade in services added an additional EUR27 billion. The negotiations aim to remove trade barriers, streamline standards and put European companies exporting to or doing business in Australia on equal footing with those from countries that have signed up to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or other trade agreements with Australia. The Council of the EU authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018.

  2. EU-United States (Transatlantic Trade and Investment Partnership): This agreement was expected to increase trade and services, but it is unlikely to pass under the Trump administration in the United States against the backdrop of rising global trade tensions.

Sources: WTO Regional Trade Agreements database, European Commission, Bruegel, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: France FDI stock
Graph: France FDI stock
Graph: France FDI flow
Graph: France FDI flow

Source: UNCTAD
Date last reviewed: August 20, 2019

7.2 Foreign Direct Investment Policy

  1. Foreign and domestic private entities have the right to establish and own business enterprises and engage in various remunerative activities. France is committed to encouraging foreign investment. In the current economic climate, the French government sees foreign investment as a way to create jobs and stimulate growth. Investment regulations are simple, and a range of financial incentives are available to foreign investors. France's membership of the EU and the eurozone facilitates the efficient movement of people, services, capital and goods. Foreign firms number 28,600, employ two million people, account for one-third of France's manufacturing, 30% of goods and services exports, and have increased corporate research and development (R&D) expenditure by 32%.

  2. The French investment regime is said to be among the least restrictive in the world. 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. The government cannot legally expropriate property to build public infrastructure without fair market compensation.

  3. 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 market, strong intellectual property protection, and innovative business leaders. The country is known for its world-class infrastructure, including high-speed passenger rail, maritime ports, extensive road networks and public transport, and efficient intermodal connections. High speed (3G/4G) telephony is nearly ubiquitous.

  4. In April 2015, France launched its programme for building its industrial future, with the goal to modernise production tools and provide support for manufacturers as the digital changeover transforms organisations, their business models and the way in which they design and market their products. The programme, New Industrial France (Nouvelle France Industrielle – NFI), is based on nine industrial solutions that provide real-world responses to key economic and social challenges:

    • Data economy
    • Smart objects
    • Digital trust
    • Smart food production
    • New resources
    • Sustainable cities
    • Eco-mobility
    • Medicine of the future
    • Transport of tomorrow

    These nine solutions will position French businesses for tomorrow's markets in a world in which digital technology is erasing the boundary between industry and services. The accompanying report, Key Technologies 2020, presented a list of 47 key technologies in which French companies need to be present within five to 10 years in order to maintain a competitive advantage and uphold the appeal of France in growth markets. These key technologies provide medium-term direction for the development of the NFI’s solutions. The second phase of the programme was launched in May 2015 by the former minister for the economy, industry and digital affairs, Emmanuel Macron (the current president).

  5. In January 2019, the French government, in association with the country's Electronic Communications and Postal Regulatory Authority (Arcep), put out calls for the creation of 5G trial platforms in the 26 GHz band. This portion of the spectrum has been opened to third parties by French regulators. The government encourages third-party businesses in the health, energy and smart city industries to create solutions using 5G functionality.

  6. France updated the NFI programme in 2016 to define France's industrial policy priorities in the form of 34 sector-based initiatives that will be the focal point of France's efforts and the starting point for its industrial renewal. The initiatives include:

    • Developing the next generation TGV (high-speed train)
    • An affordable fully electric car for all
    • The first fully electric passenger airplane
    • Efficient, low-emissions ships
    • More powerful and longer-lasting batteries
    • Electricity charging stations
    • Intelligent fabrics
    • Thermally efficient building renovation
    • Nano-electronics
    • Augmented reality
    • Connected objects
    • Robotics
    • Electrically propelled satellites
    • Cloud computing
    • Cyber security

  7. The French government's Direction Générale des Entreprises launched the second phase of the Innovation 2030 programme in December 2016 via a global contest called the Worldwide Innovation Challenge, open to all entrepreneurs investing in France regardless of nationality. Up to 30 projects have been selected for the 2017 theme Risk Reduction, and they received between EUR1 million and EUR3 million in start-up funding. The winner, announced in 2018, was Paris-headquartered Shift Technology, which applied artificial intelligence technology to tackle fraudulent insurance claims.

  8. Business France and other government agencies are particularly nurturing of foreign investment in tech sectors. 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. The French Tech initiative includes an acceleration investment by the French government of EUR200 million to foster start-up ecosystems in and outside France. 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.

  9. French law stipulates that acquisitions in certain sectors deemed crucial to France's national interests relating to public order, public security and national defence are subject to prior notification, screening and approval by the economy and finance minister. Other sectors requiring approval include energy infrastructure, transport networks, public water supplies, electronic communication networks, public health protection and installations vital to national security. As a recent example of how France's government remains engaged in strategic sectors, in January 2017 the government sold 100 million shares in energy utility ENGIE. The French government now owns 28.7% of the energy utility and controls one-third of the voting rights. The French state owns 83.1% of Electricité de France and has reserved the right to retain a golden share in any restructuring of Areva, the French nuclear and renewable energy company. In February 2019 the Senate approved plans to reduce the state's share of the capital of ENGIE to 23.6%.

  10. National security and defence are the main reasons given for why the French government must review any investment in specified sectors that involves the acquired control of a French firm, surpasses a 33.33% ownership threshold or involves any part of such a firm that has established headquarters in France.

  11. The French government imposes the same conditions on domestic and foreign investors in cultural industries: all purveyors of movies and television programmes (that is, 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 content quotas (minimum 40% French and 20% EU).

  12. 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 94 countries around the world. BITs between France and the following countries have been signed but are not in force: Angola, Belarus, Brazil, Colombia, Ghana, Guinea, Iraq, Mauritius, Syria and Zimbabwe. France previously had a BIT with Syria, and a new BIT has been signed but has not yet entered into force.

  13. France has treaties with investment provisions in force with 56 individual countries and economic blocs worldwide.

  14. 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 such as Prime d'Aménagement du Territoire pour l'Industrie et les Services (PAT) regional planning grants 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 small- and medium-sized enterprises with the objective of promoting the development of businesses in priority regional zones, including EUR30 million in direct government subsidies.

  15. France is a member of the Organisation for Economic Co-operation and Development, the WTO, and the United Nations Conference on Trade and Development.

  16. According to the 2019 FDI Confidence Index compiled by A.T. Kearney, France gained two places to fifth out of 25, the country's highest-ever ranking. It was attributed to an improving business environment and a decrease in the corporate tax rate.

  17. According to Business France's 2018 report on foreign investment in France, the country set a new record with 1,323 foreign investment projects from nearly 60 different countries.

Sources: WTO – Trade Policy Review, International Trade Administration, US Department of Commerce, UNCTAD, French Treasury in the US, Le Portail de l'Économie des Finances de l'Action et des Comptes Publics, A.T. Kearney, Business France

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Free Zone of Le Verdon – Port de Bordeaux (Zone Franche du Verdon – Port de Bordeaux)

The Port of Bordeaux is the focal point for agricultural and industrial trade in south west France. Its imports include chemical and petroleum products, fertilisers and animal feed. Exports are dominated by grains, forest products and oilseeds
The Port of Bordeaux has trade relationships with 300 world ports. It boasts modern facilities to serve the busy cargo volume, including six dedicated cargo-handling terminals. A free economic zone is a designated area in which companies are taxed very lightly or not at all in order to encourage economic activity. A free trade zone is an area in which goods may be landed, handled, manufactured or reconfigured, and re-exported without the intervention of customs authorities.
Investment incentives- The government provides corporate investors with incentives for capital investment in small companies. Under the plan, a French company or French subsidiary of a foreign company that invests in a minority shareholding (less than 20%) in a small- and-medium-sized enterprise (SME), either directly or indirectly (that is, through a fund) would benefit from a five-year, linear amortisation of their investment. To qualify, SMEs must allocate at least 15% of their spending to research.

- The government also recognises that in certain areas, designated as regional assistance zones and rural regeneration zones, employment can be boosted by encouraging the setting up of new businesses by offering tax reliefs/exemptions on a descending scale for the first five years.
Research and development (R&D) incentives- 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 the technical benefits of geographical proximity. The Research Tax Credit (Crédit Impôt Recherche - CIR), innovative new company status (Jeune Enterprise Innovantes and Jeune Enterprise Universitees), the National Investment Programme and La French Tech all form part of this innovation policy.

- The CIR offsets R&D expenditure 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 SMEs. The French government provides tax credits to support up to 30% of a firm's first EUR100.0 million in R&D costs and an additional 5% in credits above this threshold. Additionally, an innovation tax credit is available that reduces the cost of innovation expenditure by 20% up to a maximum of EUR400,000.

- Innovative new company status is for small- and-medium-sized start-up enterprises which must have been set up less than eight years ago, must be at least 50%-owned by individuals or certain firms in the venture capital sector (or research and education institutions or foundations), not the product of a spin-off and must invest an amount for research that represents at least 15% of tax-deductible expenses. If the start-up is eligible, it is entitled to exemptions from personal or corporate income tax, exemption for the first financial year when it is taxed on profits (followed by a 50% exemption for the next year when a profit is posted) and exemption from the local economic contribution and property tax for seven years. 

- La French Tech initiative, launched in 2013, supports the growth of start-ups and digital companies by providing funding under the umbrella of the National Investment Programme. La French Tech aims to accelerate the growth of start-ups throughout France, accrediting 17 French Tech cities by 2019 and expects the total revenue raised by start-ups in the ecosystem to reach EUR4.7 billion in 2019. Additionally, La French Tech aids in the internationalisation of start-ups and aims to attract foreign investors, corporations, start-ups and talent. A network of French Tech Hubs in foreign cities helps French companies to connect with the global marketplace. La French Tech Ticket is a 12-month Paris-based accelerator programme that focuses on bringing international start-ups to France by offering budding entrepreneurs benefits which include a residence permit, a grant of EUR25,000 and free mentoring in a Parisian start-up incubator.
Other incentives: the use of patented or patentable technology in manufacturing- Companies that are involved in the manufacturing of products in France containing patented or patentable technology or companies that incorporate such technology into goods that are manufactured in France benefit from a reduced effective rate of tax.

- In the case of a licensing arrangement between connected French companies, the licensor will benefit from a reduced 15% tax rate on royalty income, whereas the licensee company will benefit from a tax deduction of 33.33%. In order for a licensee company to benefit from full deductibility for royalties paid, the rules require that the licensee company effectively exploit the rights available to it.

Sources: Port of Bordeaux, Ministry of Public Accounts and Civil Administration, La French Tech, Fitch Solutions

8. Taxation – 2019

  • Value Added Tax: Standard rate 20%
  • Corporate Income Tax: 31%

Source: EC Europa

8.1 Important Updates to Taxation Information

  • Recognising that corporate taxes in France are higher than those in other leading industrial countries, the government plans to progressively reduce the nominal corporate tax rate (for companies with revenues exceeding EUR7.3 million) from 31% to 25% by 2022.

  • From January 2019, millions of public and private employees will now have income tax deducted at source. In July 2019 the French parliament adopted a Digital Services Tax, which will mean that companies will need to assess their liabilities because an advance payment of the tax will be required in November 2019. The law states that tech companies with global revenue of more than EUR750 million and EUR25 in French revenue are required, by providing services to users in France, to pay 3% tax on the total annual revenue. The Office of the United States Trade Representative expressed concern and was instructed by President Trump to begin an investigation into the legislation as a possible unfair trade practice. About 30 companies will be affected, only one of them from France, and the tax is expected to yield EUR500 million in 2019.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate income tax (CIT) ratesThe company tax rate for France is 31% (plus a 3.3% social security surtax on the portion of corporate tax due exceeding EUR763,000 before offsetting tax credits; a surtax not appliable to companies with turnover below EUR7,630,000).

- The normal corporate tax rate will be 28% for 2019 (on income up to EUR500,000)
- 28.0% in 2020
- 26.5% in 2021
- 25% by 2022
Capital Gains TaxTaxed as CIT
Withholding TaxThe withholding tax came into force on January 1, 2019. With its introduction, credits and tax reductions continue to be considered in the calculation of tax on income. Payments to resident corporations are not subject to WHT. Payments to non-resident entities in non-treaty countries are subject to 30% (21% if in another EU country) on dividends, 0% on interest and 31% on royalties. Different rates apply if a country has a tax treaty. For example, if the country of residence is Hong Kong, the rates levied are 10% on dividends, 0% on interest and 10% on royalties.
VAT
Standard rate of 20%. A lower rate of 10% generally applies to sales of certain medicines and transport. A rate of 5% applies to food products, sales of books and servivces provided to disabled persons. Some sales and services are taxed at 2.5%. Companies pay two instalments in July (55% of the VAT due in July of the previous year) and in December (40% of the VAT due in July of the previous year). Any balance must be paid at the time of the teletransmission of the annual declaration of regularisation.
Real Estate TaxSince January 1, 2018, the solidarity tax on wealth (ISF) has been removed and a new tax, the tax on real estate assets (IFI) was established. The IFI concerns persons holding a net property portfolio of more than EUR1.3 million. Tax rate range from 0.5% for portfolios worth between EUR800,000 and EUR1.3 million up to 1.5% on portfolios worth more than EUR10 million.
Territorial economic contribution3% (capped to a certain amount of the value added by the company; maximum rate)
Social security contributions

The contributions are shared between employer and employee; the employer's share of contributions represents 40-45% of the gross salary, while the employee’s share represents approximately 20%-23% of the remuneration. Because the contributions are assessed using various ceilings, the average rate decreases as the gross salary increases.

Employers' contributions made to additional medical coverage schemes (which are mandatory and collective) are taxable.

Sources: Le Portail de l'Économie des Finances de l'Action et des Comptes Publics, Fitch Solutions
Date last reviewed: August 20, 2019

9. Foreign Worker Requirements

9.1 Foreign Worker Permits

Non-EU citizens require a work permit in order to work within the country. EU citizens do not require a work permit, but their employer must inform the job office about their employment. Citizens of the EEA – the EU member states, Iceland, Norway and Lichtenstein and Switzerland – do not require a visa to enter, reside and work in France. No work permit is needed by foreigners from outside the EU if they have a permanent residence or family reunion permit, have been granted asylum, study in France or have a Blue Card.

Employers must first request authorisation from the authorities, using form 15187*02 to hire foreign workers if the employment contract exceeds 90 days. A visa will reflect the duration of the employee's stay in France and the nature of the employment contract a long-stay visa equivalent to a 12-month residence permit will bear the statement 'salarié' ('employee') for a permanent employment contract and 'travailleur temporaire' ('temporary worker') for a fixed-term contract. It must be validated within the three months of arriving in France. Along with the visa application, the employee must submit the work permit that was received by the employer.

9.2 The Blue Card

The Blue Card is intended for any stay associated with highly qualified employment. A foreigner holding a Blue Card may reside in France and work in the job for which the Blue Card was issued or change that job under the conditions defined. High qualification means a duly completed university education or higher professional education which lasted for at least three years. Alternatively, a minimum of five years' relevant professional experience relating to the activity for which the work permit is being granted. The Blue Card is issued with a term of validity three months longer than the term for which the employment contract has been concluded, but for a maximum period of three years. The Blue Card can be extended. One of the conditions for issuing the Blue Card is a wage criterion – the employment contract must stipulate a gross monthly or yearly wage that is at least 1.5 times more than the gross average annual wage.

9.3 Short-term Work Visas

Short-term work visas can be granted by the embassy upon application for a maximum period of 90 days, which must be used within 180 days. The visa must be for the purpose of employment, and the application must be submitted, beside general requirements, with a work permit, employment contract and proof of having secured accommodation.

9.4 Seasonal Work Visa

Seasonal workers (travailleur saisonnier) can be hired for seasonal work such as tourism and agriculture. As a foreign employee, it is not permitted to work in France for more than six months in any 12-month rolling year, although it is possible to have several employers provided each requests authorisation through form 15187*02. For a contract in the following season the employer must reapply for a permit. Seasonal workers are issued with a multi-year residence permit and a long-stay visa, each bearing the statement 'travailleur saisonnier'. The permit is obtained by attending the local police station within two months of arriving in France.

9.5 French Tech Visa

Introduced in March 2019, the French Tech Visa was designed by the French Directorate for Companies and the Ministry of Interior Affairs to be the most open start-up employee visa in the world. There are no diploma requirements, it is valid for four years and renewable, it automatically extends to the employee's spouse and dependent minor children, it is free and the evaluation process is the same for every nationality. Companies must be registered in France and are eligible for the visa if they have JEI status, if they have received specific state funding for innovation within the last five years, if they are backed by qualifying French venture capital or if they are part of a cohort of a qualifying partner accelerator/incubator.

9.6 Localisation Requirements

In order to foster better integration of legal migrants, the French government has doubled the number of free French language lessons available to new arrivals to 400 hours and has extended civic training lessons to teach French values and offer practical support on finding a job.

9.7 Visa/Travel Restrictions

France is one of 26 countries in the Schengen Area, which means that there is one common visa and no border controls. All non-EU/EEA/Swiss nationals who wish to stay in France for longer than 90 days will need to apply for a long-term French visa. Holders of a long-stay visa need to contact the French Immigration and Integration Office immediately upon arrival in France.

Sources: France Diplomatie, France-Visas, La French Tech, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
Aa2 (Positive)
04/05/2018
S&P GlobalAA (Negative)
08/11/2013
Fitch Ratings
AA (Stable)14/06/2019

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201720182019
Ease of Doing Business Index
29/19031/19032/190
Ease of Paying Taxes Index
63/19054/19055/190
Logistics Performance Index
N/A
16/160N/A
Corruption Perception Index
23/18021/160
N/A
IMD World Competitiveness31/6328/6331/63

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201720182019
Economic Risk Index RankN/A18/20222/202
Short-Term Economic Risk Score
71.971.571.3
Long-Term Economic Risk Score74.674.875.4
Political Risk Index RankN/A29/20229/202
Short-Term Political Risk Score
80.279.475.6
Long-Term Political Risk Score80.680.680.6
Operational Risk Index RankN/A22/20119/201
Operational Risk Score70.572.371.8

Source: Fitch Solutions
Date last reviewed: August 20, 2019

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Over the 2017-2018 period, the French economy grew at its fastest pace since 2011, aided by a cyclical upswing in the eurozone and strong business confidence, the latter of which is being supported by President Emmanuel Macron's structural reform agenda. Macron's reform drive is aimed at addressing factors that have largely been responsible for France's economic underperformance over the past few years. Many of the reforms will take a number of years to be implemented and fully filter through to stronger growth, but the president will remain committed to fiscal consolidation in the long-term. France's budget deficit will widen driven by a series of one-off measures to support lower income households.

OPERATIONAL RISK
The French economic model, historically characterised by high levels of public spending and progressive taxation, generous welfare provisions and persistent fiscal deficits, is likely to persist over 2019 amid stalled reform momentum.

Source: Fitch Solutions
Data last reviewed: August 21, 2019

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: France short term political risk index
Graph: France short term political risk index
Graph: France long term political risk index
Graph: France long term political risk index
Graph: France short term economic risk index
Graph: France short term economic risk index
Graph: France long term economic risk index
Graph: France long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: August 20, 2019

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
France Score71.860.171.183.272.8
Developed States Average72.464.671.376.377.4
Developed States Position (out of 27)161817521
Developed States Average72.464.671.376.377.4
Developed States Position (out of 27)1618175
21
Global Average49.650.349.849.049.2
Global Position (out of 201)19
41285
26

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: France vs global and regional averages
Graph: France vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk
Index
Crime and Security Risk Index
Denmark80.474.876.288.382.3
Netherlands78.465.978.288.680.7
Sweden78.067.778.187.578.6
Switzerland
77.775.077.675.183.2
New Zealand77.473.775.772.188.3
United States77.281.375.3
82.969.3
Canada77.074.375.476.781.6
United Kingdom
76.871.479.078.578.2
Norway76.264.072.280.887.9
Finland
74.255.874.183.483.7
Ireland73.966.878.072.079.0
Austria73.760.871.980.581.5
Luxembourg72.854.277.680.079.3
Germany72.365.569.081.273.6
Australia72.067.872.168.379.9
Japan71.872.465.577.971.5
France71.860.171.183.272.8
Iceland71.460.667.269.688.1
Belgium71.358.272.883.271.1
Spain71.359.468.980.976.0
Liechtenstein70.759.878.161.583.2
Portugal69.451.766.580.978.4
Israel67.471.464.671.162.7
Isle of Man
65.869.162.449.382.4
Malta64.654.969.060.873.7
Italy63.754.559.776.264.3
Greece58.054.249.268.959.6
Developed Markets Averages72.464.671.376.377.4
Global Markets Averages
49.650.349.849.049.2

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: August 20, 2019

11. Hong Kong Connection

11.1 Hong Kong’s Trade with France

Graph: Major export commodities to France (2018)
Graph: Major export commodities to France (2018)
Graph: Major import commodities from France (2018)
Graph: Major import commodities from France (2018)

Note: Graph shows the main Hong Kong exports to/imports from France (by consignment)
Date last reviewed: August 20, 2019

Graph: Merchandise exports to France
Graph: Merchandise exports to France
Graph: Merchandise imports from France
Graph: Merchandise imports from France

Note: Graph shows Hong Kong exports to/imports from France (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: August 20, 2019


2018
Growth rate (%)
Number of French residents visiting Hong Kong201,850
-1.1

Source: Hong Kong Tourism Board


2017Growth Rate (%)
Number of French residing in Hong Kong
2,228-1.5

Source: United Nations Department of Economic and Social Affairs – Population Division


2018
Growth rate (%)
Number of European residents visiting Hong Kong1,961,448
1.7

Sources: Hong Kong Tourism Board


2017Growth rate (%)
Number of developed states citizens residing in Hong Kong65,6801.6

Source: United Nations Department of Economic and Social Affairs – Population Division
Date last reviewed: August 20, 2019

11.2 Commercial Presence in Hong Kong


2018
Growth rate (%)
Number of French Companies in Hong Kong373
8.7
- Regional headquarters92
13.6
- Regional offices11917.8
- Local offices1620.6

Source: Business Expectation Statistics Section of the Hong Kong Census and Statistics Department

11.3 Treaties and agreements between Hong Kong and France

  • Hong Kong and France have a comprehensive double taxation agreement that has been effective from December 1, 2011.
  • Hong Kong and France have an investment promotion and protection agreement that entered into force on May 30, 1997.
  • France has a BIT with Hong Kong that entered into force on May 30, 1997, and a BIT with Mainland China that entered into force on August 20, 2010.
  • France has a tax treaty with Mainland China that has been applicable since January 1, 2015.

Sources: Hong Kong Inland Revenue Department, Hong Kong Trade and Industry Department, UNCTAD, State Administration of Taxation of The People's Republic of China

11.4 Chamber of Commerce or Related Organisations

The French Chamber of Commerce and Industry in Hong Kong
Address: 21/F, On Hing Building, 1 On Hing Terrace, Central, Hong Kong
Tel: (852) 2294 7721

Source: French Chamber of Commerce and Industry in Hong Kong

Association France-Hong Kong
Email: marc.allard@hktdc.org
Tel: (33) 1 4742 4150
Website: www.association-france-hongkong.org
Please click to view more information.

Source: Federation of Hong Kong Business Associations Worldwide

Consulate General of France in Hong Kong and Macau
Address: 25/F & 26/F, Tower II, Admiralty Centre, 18 Harcourt Road, Admiralty, Hong Kong
Email: informations@consulfrance-hongkong.org
Tel: (852) 3752 9900
Fax: (852) 3752 9901

Source: Consulate General of France in Hong Kong and Macau

11.5 Visa Requirements for Hong Kong Residents

HKSAR passport holders are entitled to visa-free entry to Schengen Area countries lasting no more than 90 days in any six-month (180-day) period from the date of first entering the territory of the member states.

Source: Consulate General of France in Hong Kong and Macau
Date last reviewed: August 20, 2019

Content provided by Picture: Fitch Solutions – BMI Research
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