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Why investing in France tops the agenda for foreign businesses

2 August 2021

Regis Leleu

Head of France

Regis Leleu

Head of France

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Low French corporate tax, pro-business reforms and an unprecedented stimulus package now make the country Europe’s top investment destination

Before the health crisis hit last year, France had claimed Europe’s top spot for foreign investment, ahead of Germany and the UK. Despite the economic upheavals of the pandemic, it has maintained that position for a second year.

According to the latest report by global consultants EY, France attracted 985 foreign direct investment (FDI) projects in 2020, compared with 975 for the UK and 930 for Germany.

Even though FDI fell, as it did in other European countries, France maintained a high number of projects, showing the confidence of foreign investors.

There are several reasons. Since the election of Emmanuel Macron in 2017, the government has strived to overturn France’s image as a high-tax, “business unfriendly” country, bringing in a vast programme of pro-business reforms.

France’s corporate tax falling in line with OECD

To improve competitiveness, French corporate tax has been progressively lowered since 2018, when it stood at 33%, among the highest in the world. Next year, it will be cut from the current 26.5% to 25%, bringing the standard rate for all companies close to the OECD average.

All companies, regardless of sector, will benefit. However, government plans to transform the economy after the Covid-19 pandemic will be the key to boosting competitiveness even further.

The unprecedented €100bn “Relaunch France” stimulus package is paving the way for far-reaching initiatives to benefit businesses and attract foreign investors. The package will be split three ways:

  • A third will support the transition to a greener, more sustainable economy
  • Another third will provide financial support to companies to employ and train workers
  • The remainder will help create the most favourable conditions for companies to grow their business and protect jobs.

These measures, along with the lifting of restrictions and the acceleration of the vaccine campaign, are expected to fuel an economic rebound in the second half of 2021.

As a result, France’s central bank has upped its 2021 growth forecast to 5.8%, outpacing the euro-area average. In 2022, it expects expansion of 4.1%.

France first for R&D tax breaks

Pharmaceutical industry research and development helped draw foreign investment to France in 2020, as the world raced to find a vaccine or treatment for Covid-19. This is expected to continue, along with investment in tech and digital innovation.

The government provides attractive tax incentives for entrepreneurs developing new businesses, beating the UK and Germany for its effective corporate tax rate on R&D. Companies spending on scientific and technical research benefit from a tax credit equivalent to 30% of their initial investment, up to €100m per year.

This, along with the role of Bpifrance, the public investment bank, has become a powerful booster for innovative start-ups. The greater Paris area is home to 12,000 French start-ups, exceeding the numbers around London and Berlin.

Further afield in Bordeaux, a significant number of start-ups across many industries are emerging in Montpellier and Lyon. The number of French start-ups nationally has quadrupled in five years, enabling France to boast 16 unicorns in June 2021, according to government website, La French Tech.

It found that despite the pandemic, the start-up ecosystem has continued to thrive, with France retaining its number-two spot in Europe for venture capital raised.

Real estate investment in France on the rise

France’s real estate sector has always been appreciated by foreign investors., who face no restrictions on ownership.

Paris, the world’s most popular destination, is the primary target for real estate investment in France, particularly in the retail, hotel and residential sectors. Real estate prices have historically been attractive compared with other major European cities and demand for office space is expected to grow as more companies and organisations set up in France.

According to the New Financial think tank, Paris has attracted 102 of the 440 British firms that opened units in the European Union, second only to Dublin’s 135. Since Brexit:

  • The Bank of America has moved 400 employees to Paris
  • JP Morgan has inaugurated new European headquarters in Paris, where it aims to house 800 staff by 2022
  • Goldman Sachs has signed a 12-year lease for 80% of a newly refurbished building to become its Paris base.

In 2019, just before the health crisis, Paris became the world’s leading commercial real estate investment market, according to real estate company Jones Lang LaSalle.

This was supported by the promise of the Grand Paris Express, Europe’s biggest infrastructure project, which will add four fully automatic metro lines, two extended lines and 68 stations to the Paris region by 2030.

Regional markets are also emerging as destinations for foreign investors and funds seeking attractive yields. Thanks to its location on the main European transport axes, Lyon has acquired key status for logistics and industrial premises. Lille – just 40 minutes from Brussels and an hour from London, Amsterdam and Paris by high-speed rail – is emerging as another location attractive for international companies.

France has all the economic assets needed to restart strongly and emerge as a more resilient and attractive location for international investors.

How Intertrust Group can help in France

  • company formation
  • accounting and reporting
  • domiciliation and management
  • independent directorship and fiduciary services
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