Setting up your head office in a free trade zone: top 4 restrictions

A free zone is a defined area offering special tax advantages.

They were created in 1996 to encourage the economic development of under-valued, often unattractive areas. Companies that decide to locate there benefit from a more favorable regulatory environment.

In legal terms, this is a ZFU (Zone Franche Urbaine), or ZFU-TE (Zone Franche Urbaine Territoire Entrepreneur).

In rural areas, you can locate in a ZRR (Zone de revitalisation rurale), or a ZRU (Zone de revitalisation urbaine).

Among the expected benefits, an exemption from corporate income tax, CFE (Cotisation Foncière des Entreprises) and property tax, and a reduction in registration fees for the acquisition of a business or transfer duties are among the advantages that attract many entrepreneurs.

Let's take a look at the rules you need to know to set up your business in this type of territory.

What activities are permitted in a free zone?

To benefit from the advantages offered by a free trade zone, you need to carry out an industrial, commercial, craft or liberal activity.

It is essential to have a physical presence in the specified location, such as a warehouse or offices.

You have to provide services and be physically present in the area.

You can run your business as a sole trader or as a company, with no particular restrictions on the legal status you can adopt. 

Companies involved in car manufacturing, shipbuilding, the textile industry, the steel industry, road transport, non-professional real estate leasing, equipment leasing or construction and sales are not eligible for free zone status.

How do you hire employees?

Of course, it's possible to grow your business by hiring new employees. However, the total number of employees is limited to 50.

Companies must comply with a local hiring clause

In concrete terms, 50% of employees must have been with the company for at least one year (on permanent or fixed-term contracts).

In addition, they must reside in a ZFU or in a priority urban district (QPV) of the urban unit in which the ZFU is located.

Lastly, at least half of the employees hired on or after January 1, 2015 on permanent contracts or fixed-term contracts of at least 12 months since the company was set up must live in a ZFU or a priority urban development district (QPV) in the urban unit in which the ZFU is located.

This local hiring clause is required from the second employee onwards.

Labour movements must be reported to URSSAF by April 30 each year. 

What are the rules governing share capital?

Your company's share capital must be less than 25% owned by a company with more than 250 employees. 

What about sales?

The law imposes a maximum sales figure beyond which a company located in a ZFU cannot benefit from tax advantages.

It is set at 10 million euros a year

All the rules governing the organization of ZFUs are in force until December 31, 2020.

How do you transfer your head office to a ZFU?

If you're a sole trader, simply complete administrative form P2, available from your local CFE (Centre de Formalités des Entreprises).

Proof of address is also required.

For companies, the formalities are more onerous, requiring an update of the articles of association, followed by publication of a legal announcement in an approved newspaper.

Naturally, it must be approved by the company's partners or shareholders. 

All you then need to do is file your dossier with the commercial court clerk's office, including the minutes attached to the legal announcement, the M2 form and the company's updated articles of association.

As you can see, locating your business in a ZFU can offer many advantages, but also some notable drawbacks.

Before making your decision, it's important to consider the nature of your project, and your company's growth prospects , particularly in terms of recruitment, sales and shareholding.