Europe’s defense investment boom: France's regulatory framework

France is accelerating defense investment and industrial capacity under an increasingly interventionist regulatory framework focused on strategic autonomy, security of supply, and rapid rearmament. The August 2026 update to the Military Programming Law (LPM) significantly increases planned defense expenditure and supports domestic production, while investors must navigate the dedicated French and EU defense procurement frameworks, EU and French foreign investment screening, and stringent military and dual-use export controls.

Acceleration of defense investment and procurement

France substantially revised its defense trajectory through the August 2026 update to the 2024 – 2030 Military Programming Law (Loi de programmation militaire or LPM). The updated framework provides for an additional €36 billion of rearmament expenditure over 2026 – 2030, prioritizing munitions, drones, and counter-drone capabilities; air defense, electronic warfare, space, and long-range strike capabilities; and operational innovation. It expressly prioritizes national industrial capabilities and sovereign – or, where necessary, European – supply chains.

Defense and security contracts remain subject to a dedicated regime under the French Public Procurement Code. The August 2026 update expands the category of entities able to award defense or security contracts in connection with assistance to partner states. It also permits a designated operator tasked with developing ammunition production capacity and contributing to French supply to award qualifying contracts under the specialized regime.

Defense procurement: French and EU framework

French defense procurement remains subject to a dedicated regime under the French Public Procurement Code, which transposes Directive 2009/81/EC on the coordination of procedures for the award of certain public works, supply, and service contracts in the fields of defense and security. On 9 September 2026, the Commission proposed a Public Procurement Act to replace Directives 2014/23/EU, 2014/24/EU and 2014/25/EU with a single regulation. The proposal expressly excludes defense and security procurement within the meaning of Directive 2009/81/EC, which would remain under its own regime.

That carve-out is narrow. Security-sensitive procurement outside the strict defense carve-out would remain within scope: Buyers would assess risks arising from bidders’ ownership, financing, exposure to third-country laws, and supply-chain dependencies, with power to exclude operators or terminate contracts on security grounds. The proposal identifies railways and shipbuilding as dual-use sectors critical to military mobility, where the covered status of third-country operators may be restricted. Application appears realistic around 2029 – 2030, but the proposal remains at an early legislative stage and may change materially.

EU foreign investment framework

Regulation (EU) 2019/452, applicable since 11 October 2020, establishes a cooperation framework for foreign direct investment screening while leaving the substantive decision with the Member State concerned. Where a Member State screens a non-EU direct investment, it notifies the Commission and the other Member States. They have 15 days for an initial analysis and may request further information, followed by a further 20-day analysis window. Discussions are confidential, and Member States remain the sole decision-makers. Factors relevant to defense include effects on military capabilities; critical technologies and dual-use items; security of supply for critical inputs; access to sensitive information and the investor’s links to third-country governments, state bodies, or armed forces; prior conduct; and potential criminal risk.

The revised EU foreign direct investment screening regulation, which repeals Regulation (EU) 2019/452, was adopted on 17 June 2026, and will enter into force in January 2028. It will:

• Require every Member State to operate a national screening mechanism over a minimum scope, without affecting national decision-making autonomy.
• Cover investments by EU-established companies ultimately owned by third-country investors.
• Require Member States to take account of opinions from other Member States and the Commission.
• Harmonise procedural timelines; and focus the cooperation mechanism on files of European interest.

For defense, alignment with the minimum scope will require France to extend screening to the development, production, and marketing of dual-use items in Annex I to Regulation (EU) 2021/821. French screening currently covers only the most sensitive Annex IV items. The change is likely to bring more defense-adjacent and mixed civil-military businesses into review, particularly where technology has a credible military application.

French foreign investment screening

Scope: defense and dual-use activities

France’s foreign investment screening regime is a derogation from the freedom of financial relations between France and other countries under Article L.151-1 of the Monetary and Financial Code (CMF), justified by the public-order and public-security grounds. The current framework derives from the PACTE Law of 22 May 2019, the decree and arrêté of 31 December 2019, and Articles L.151-3 and R.151-1 et seq. CMF, as supplemented in 2020 and 2023.

The regime applies only for transactions involving three cumulative criteria:

1. A foreign investor, including a foreign national, a French national not tax-resident in France, a foreign-law entity, or a French entity controlled by any of them, assessed by looking through the whole chain of control;
2. A qualifying transaction, namely acquiring control, acquiring all or part of a branch of activity, or, for a non-EU/EEA investor, crossing 25% of voting rights (or 10% in a company listed on a regulated market); and
3. A French target carrying on a sensitive activity.

Defense activities that are sensitive ‘by nature’ include weapons, munitions, explosives, war materiel, armament programmes, and Annex IV dual-use items – whether the target contributes directly or indirectly to their design, production, or marketing. The scope also includes holding national defense secrets, cryptology, interception equipment, and the security of IT systems of operators vital to the nation. R&D in critical technologies – including AI, robotics, additive manufacturing, semiconductors, quantum, photonics, cybersecurity, and dual-use items – is covered where it involves a genuine technological breakthrough and has sufficient potential application in sensitive sectors. Many defense targets are mixed, such as manufacturers of aeronautical parts serving both civil and military aviation.

Procedure

An application must be made by the investor before closing. The DG Trésor conducts the review with the CIIEF, which brings together sectoral experts from the relevant ministries. Phase I lasts up to 30 business days (suspended if the file is incomplete) and determines whether the investment is eligible. Phase 2, if opened, lasts up to a further 45 business days to determine whether conditions suffice or the transaction must be refused. Silence at the end of Phase II is deemed a refusal.

For a non-EU/EEA investor crossing the 10% threshold in a listed company, a fast-track dispensation procedure may take up to 10 days. Under the decree and arrêté of 30 July 2026, the regime also covers French companies whose shares trade on certain third-country markets, including the London Stock Exchange and Nasdaq.

Conditions and post-closing monitoring

Outcomes include an out-of-scope decision, simple authorization, conditional authorization, or refusal. Conditions under Article R.151-8 CMF must be necessary, appropriate, and strictly proportionate, apply only to activities carried on in France, and generally last while the investor controls the target or holds a stake above the relevant thresholds.

Defense conditions may preserve war-materiel production in France and shield it from foreign laws that could obstruct it; protect know-how, including by requiring first filing of patents in France; or impose governance and security safeguards. These may include nationality requirements for the chief executive, security clearances for key staff, ring-fencing and IT segregation of sensitive information, and a security committee including a State representative with prior-approval rights over strategic partnerships, contracts or investments. Reporting duties may require an industrial capacity map and site inspections.

Refusal is available under Article R.151-10 CMF when conditions would be insufficient, when there is a serious presumption of specified criminal offences, when the investor has a relevant final conviction in the preceding five years, or when it has received an FDI sanction in that period. One defense example is a non-EU acquisition of a critical subcontractor to a major armament program, where extraterritorial foreign-law conditions could not be mitigated.

Conditions are monitored over time, coordinated by SISSE within the DGE, through reporting and on-site or document inspections. Breaches may trigger the police and sanction powers under Article L.151-3-2 CMF. Investors may seek revision or lifting of conditions under Article R.151-9 CMF through an adversarial procedure where economic or regulatory conditions change unforeseeably, the shareholding or chain of control changes, or the decision contains a revision clause.

The regime also carries significant enforcement consequences: Unauthorized transactions are void, and the government may seek unwinding or injunctions and impose fines up to the greater of twice the investment amount, 10% of annual turnover, or €1 million (for individuals) or €5 million (for legal entities).

Enforcement is practical as well as theoretical: The government has blocked or conditioned defense-related deals, including through its 2020 review of Teledyne/Photonis and its December 2022 veto of Flowserve’s acquisition of Segault.

Export controls

France maintains a prior authorization regime for exports of military equipment and related materials outside the European Union. Export licenses may take general, global, or individual forms, and the licensing framework can extend to commercial steps preceding physical export, including the communication of information during negotiations, acceptance of orders, and execution of contracts.

The regime operates alongside EU dual-use controls and applicable sanctions. Product classification, destination, end-user, and end-use analysis considerations are therefore important for businesses operating across civilian and defense markets.

Strengthening defense industrial capacity

The 2026 LPM update contains a broader package designed to accelerate French rearmament and reinforce the national defense industrial and technological base. It addresses strategically important production capacity and defense projects, with particular emphasis on increasing ammunition production and securing critical supply chains.

This creates potential opportunities not only for traditional defense contractors but also for technology, infrastructure, manufacturing, and supply-chain businesses capable of supporting increased French defense production.

French defense spending

The updated LPM establishes a substantially increased spending trajectory through 2030 and looks beyond that period towards further expansion. France has set an objective of increasing national defense effort from 2% of GDP in 2025 to at least 2.5% by 2030, with an objective of reaching 3.5% by 2035. The revised program allocates an additional €36 billion to rearmament over 2026 – 2030.

As in other jurisdictions, these headline figures indicate the scale and direction of government policy rather than a guaranteed procurement pipeline. Individual programs remain subject to applicable budgetary, procurement, and approval processes.

The EU framework sets the direction, but the regulatory landscape is shaped by how rules are implemented and enforced at national level. The following country views highlight the key legal considerations, differences and developments across major European jurisdictions.