The French government has ultimately abandoned its plan to reform the LODEOM, the payroll tax exemption scheme that has been one of the main competitiveness levers for overseas territory businesses since the 1980s. The decision, long-awaited after a unanimous mobilization of Réunion's economic stakeholders, preserves a total package of €750 million in fiscal and social advantages.
€750 Million on the Line
The executive's proposed reform would have cut two complementary mechanisms:
- €350 million in social contribution exemptions (the LODEOM social scheme itself),
- €400 million in investment tax credits (tax relief for investment).
For an island where 85% of chamber of commerce members are micro-enterprises with fewer than 10 employees, and where the employment rate is only 52% versus 70% on the mainland, both mechanisms play an irreplaceable structural role.
An Industry Under Pressure
Réunion's manufacturing sector directly employs 22,000 people and accounts for 6% of regional GDP. It had already been struggling: construction lost 1,500 jobs over two years, while industry shrank at 1.4% per year. Over 1,100 business failures had been recorded in recent years.
Faced with these figures, Regional Council President Huguette Bello had described the proposed reform as «a threat to employment for all Réunion families.» The local MEDEF made its position crystal clear: «Stop this cutting. Don't touch social LODEOM.»
Why It Matters
LODEOM has existed since the 1980s and has been recognized by the European Union as a structurally justified compensation for the geographical constraints of outermost regions. Its preservation sends a stability signal to Réunion's entire economic fabric, which aspires to develop new sectors — renewable energy, agri-food, digital — in a maintained tax relief environment. For outside investors, it confirms that Réunion retains an attractive fiscal framework, differentiated from mainland France by recognized structural advantages.