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France: Tax-Efficient Sectors

Tax Free Zones

Corsica Free Zone

The general conditions are:

  • The company must have located in Corsica prior to December 31, 2001.
  • The company must have a physical presence on the island in that management and property must be located there if the tax concessions are to apply.
  • The company must not employ more than 30 employees (in certain cases it is 50 employees).
  • Financial, banking and insurance companies cannot benefit from the scheme.

In 2003, new tax breaks were given to enterprises already established in Corsica, with tax reductions of 80%, 60%, 40%, and 20% in the years 2004 to 2007.

44 Mainland Districts

The objective of these schemes is to help to revitalize 44 economically depressed areas. The law is set out in article 44 of the General Tax Code. To be eligible for this scheme the following criteria must be satisfied:

  • The scheme must have been created prior to December 31, 2001.
  • Physical plant must be located in the zone and a significant level of the company's real economic activity must take place from within the zone.
  • Unlike other tax free zones the list of permitted economic activities which qualify for the scheme is wide.

French Overseas Territories

This scheme applies to a number of overseas territories which come under France's fiscal umbrella:

  • The scheme must have been created prior to December 31, 2001.
  • The scheme must relate to a priority sector of the economy. This includes most sectors of the economy but excludes banking and finance.
  • Ministerial approval is required and is granted according to whether the application serves the economic interest of the region.

Corporation tax is reduced as follows:

  • There is a full and unlimited exemption from corporate income tax for a period of 10 years. (This exemption does not apply to capital gains from the sale of fixed assets and shares in the company). Moreover the exemption period is even longer for certain sectors of economic activity such as entities engaged in the research & exploitation of minerals and entities undertaking certain activities in Guyana.
  • After the expiry of the corporation tax holiday the tax base is reduced to 66% of the actual profit made (this was applicable until 2002).
  • There is a 25 year exemption from corporate income tax on all undistributed profits reinvested in the enterprise.
  • There are unusually generous allowances which can be deducted from profits so as to reduce taxable income.

The law is laid out in articles 163,199, 217,1655 of the General Tax Code.

Many of the 2001 tax-free zones were due to lose their incentives in 2007; but after urban discontent in 2006, then French Prime Minister Dominique de Villepin said that the government would offer tax incentives to draw big companies to invest in tax-free zones in urban areas.

Villepin, speaking a month after urban unrest broke out in poor urban areas in many regions of France, said one aim would be to encourage big companies to give a helping hand to small and medium-sized businesses in the tax-free zones.

In return, he expected the big groups to make proposals on what they could contribute.

Speaking at a monthly press conference, the prime minister also said the government was looking at extending the scope of the tax-free zones and of prolonging and strengthening those which were due to lose their special status in 2007.

Villepin noted that at the beginning of November he had announced the creation of 15 new tax-free areas.

He said: "I want to set up a true partnership between business in favour of small and medium-sized companies operating in urban tax-free zones."

To this end "big companies will be able to deduct from their corporate taxes half of the amount they invest in the capital of small and medium-sized companies".

In return, the big companies "will have to commit themselves to accompanying the growth of the company which they are helping".



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