(S,P) UK businesses thinking about trading at minimum costs should deep-dive into the opportunities UK freeports provide. We explain the options and benefits + explainer video.
With 11 sites planned across the UK, English Freeports offer tax breaks and streamlined customs for businesses.
East Midlands Airport,
Felixstowe & Harwich,
Liverpool City Region,
Review each port below.
What are freeports?
Freeports operate as secure customs zones, usually located at ports or airports, where business can be carried out inside a country’s land border, but where different customs rules apply.
Freeports around the world offer a mixture of customs flexibilities; reliefs from duties, import taxes and administrative burdens; tax measures to incentivise private investment; regulatory flexibilities; and investment in infrastructure.
The UK Government has opted for a bespoke Freeport model which aims to achieve three objectives:
To establish Freeports as national hubs for global trade and investment across the UK
To promote regeneration and job creation
To create hotbeds for innovation
To meet these objectives, the government is proposing to combine five sets of measures – customs, tax reliefs, planning, regeneration funding, and innovation.
Freeports are special areas (‘special economic zones’ (SEZs)) within a country where business activity is subject to different rules from those in the rest of the country.
The Freeport model
"Under the freeport model, imports will be exempt from customs duties, but experts believe the more powerful incentive is a plethora of tax reliefs, that will be available on a site of up to 600 hectares in size within the special economic zone. From this week, there will be reliefs on business rates and stamp duty, and enhanced capital allowances to encourage building work and investment. There is also relief on national insurance contributions for staff employed in the zone, to spur job creation".
Watch the video
The UK Freeport model will have two components:
Customs free area
Ports need to designate a primary customs site designated in or near a seaport, airport or rail port within which the benefits of the customs will apply. Additional Freeport subzones may also be permitted to enable multiple sites to benefit from the Freeports customs model.
Tax relief area
Freeports will also include a defined site within which Freeport tax reliefs will apply – operating in a similar way to existing Enterprise Zones. The purposes of the reliefs will be to incentivise business investment in capital assets and employment. However, clear eligibility criteria will apply to prevent tax evasion and avoidance.
How will customs duties apply in the Freeport tax sites?
The Freeports customs offer, which includes simplifications and duty suspension benefits, will only apply in the designated and HMRC-approved Freeport customs sites.
Freeport tax sites will therefore not automatically receive any relief from customs duties unless they are also designated and approved as a customs site.
However, tax sites and customs sites are permitted to overlap wholly or in part. In such circumstances, any part of the tax site that is also within the customs site will be eligible for duty deferral, inversion and exemption, as well as the other tax reliefs applicable in the tax site.
Any part of the tax site that is not also within the customs site will not be eligible for duty deferral, inversion and exemption; only for the other tax reliefs applicable in Freeport tax sites.
Where are the boundaries of Freeports?
the boundaries of those customs sites would need to be clearly defined, secured and approved. Any changes to the customs site boundary will need prior approval from HMRC, triggering a fresh authorisation process Further guidance on authorisations, including rules for adjusting the Freeport customs site designated area, will be issued in due course.
Maps of Freeports, Freeport customs sites and Freeport tax sites
Access a list of Freeport maps, Freeport customs site and Freeport tax site locations legislated for within them, and a statement on the designation process. These maps show Freeport maps, Freeport customs sites and Freeport tax sites which are designated and recognised in law as geographical areas where businesses can benefit from customs and tax reliefs to bring investment, trade and jobs to regenerate regions across the country that need it most.
What will be the customs treatment of goods moving into a Freeport?
It will be possible to move goods under duty suspension from a port of entry to a separate Freeport customs site. The customs procedures and processes for this will be set out in due course.
Will goods moving to a Freeport customs site necessarily do so under the Freeport authorisation, or could they do so under existing authorisations such as temporary storage or other customs procedures?
All businesses operating within Freeport customs sites will need to be approved by HMRC to operate in that site. Where a business wishes to move goods to a Freeport customs site under another customs procedure, they will need to get the additional appropriate authorisations from HMRC and comply with the rules and procedures of that authorisation.
Can goods move freely between geographically distinct customs zones within a Freeport? Can goods move from one Freeport’s customs site to another’s? Can they move from a Freeport customs site to another port, not in the Freeport outer boundary?
Goods will be able to move between customs sites that form part of a Freeport, or between customs sites in two different Freeports, under procedures that will be set out in due course. Goods will also be able to move between a Freeport customs site and non-Freeport customs site under relevant procedures – or to a conventional port of entry for export.
How do I apply to use the Freeport customs special procedure?
If you’re a business that wants to move goods into or out of a Freeport customs site, you will need to apply to use the Freeport customs special procedure.
Are freeports new?
"Touted by the government as a Brexit benefit, freeports are in reality nothing new. Seven sites operated under the status across the UK between 1984 and 2012, including at locations picked once more by the government for its new flagship project, such as Liverpool and Southampton. More than 70 still operate in 20 EU member states – including in Barcelona, Bremerhaven and Venice. However, MEPs have recommended ending freeports within the bloc, warning of the risks of money laundering and tax evasion. Concerns that freeports will do little for the UK economy appear to be borne out by historical and international evidence. In a potential sign of their limited scope, Treasury estimates suggest the exchequer will lose just £50m a year as a result of companies taking up freeport tax breaks".
How do I declare goods and pay tax when using a Freeport customs site?
If you’re authorised to use the Freeport customs special procedure, you'll need to declare the goods and pay any tax due on goods you move into or out of a customs site.
How do I processing or storing identical goods to replace Freeport customs special procedure goods?
Find out how you can process or store identical free circulation goods in place of goods that you have declared to the Freeport customs special procedure.
Free of Duty
Typically, importers bringing goods into a Freeport do not have to pay duties until the goods leave the freeport and enter the domestic market. No duty at all is payable if goods come into the freeport and are then re-exported. So they come into the freeport and then leave again without entering the domestic market.
Cheaper if processed in a Freeport!?
If raw materials are brought into a Freeport from overseas and processed into a final product before entering the domestic market, then duties could be payable on the final good and not on the raw materials, usually making the final good cheaper.
There will be simplified declaration procedures for goods entering a Freeport to balance trader facilitation and ensuring the security of the border.
Businesses bringing non-controlled goods into the Freeport will need to make a customs declaration into their commercial records, while traders bringing in controlled goods, including those that are subject to excise duty will need to complete a simplified frontier declaration.
So, in summary, operating in a Free Zone can have the following benefits:
simplified customs procedures;
relief on customs duties relating to handling and processing of goods destined for re-export;
cash-flow benefits of not having to pay duty until the goods are released for free circulation in the domestic economy (or used or consumed within the free zone.
A business can import goods into a Freeport without paying tariffs, process them into a final good and then either pay a tariff on goods sold into the domestic market or export the final goods without paying UK tariffs.
The primary success story for Free Ports remains the UAE! The Jebel Ali Freeport in Dubai, one of the largest in the world, has had success as a hub through its highly liberal approach to taxation:
0% corporation tax
no income tax
no taxation at all.
Further, 100% foreign ownership is permitted along with no restrictions on repatriation of profits or controls on foreign currency exchange.
There are no import or export duties relating to the zone except for sales made into the UAE. It is also relatively easy to obtain work permits for foreign nationals, and there are guarantees of no corporate or even personal income taxes for between 15 and 50 years from set up.
One claim to fame for Freeports is that they are alleged of fostering money laundering and tax evasion, to the detriment of the national economy. As a report by the European Parliament suggests (see download below), in a way, goods in Freeport are technically "in transit" but there are never any time limits. Goods are not expected to "arrive" at a certain time in a certain place.
Unfair Value growth & Money laundering
This system may allow the stored goods to gain value, and it then allows for tax-free sales. Goods can enter a Freeport, stay there indefinitely and trade an unlimited number of times without ever having been taxed. Lack of scrutiny can facilitate trade-based money laundering, So there is a fear of relaxed oversight, lack of transparency,
trade data and systems integration.
Not less but more control?
On the other side of the spectrum, one could argue that goods are under
customs supervision and thus are often more controlled than elsewhere because
traceability is one of the logistical services offered. The UK government has indicated that Freeports will have robust security to tackle illicit activity and that HMRC and Border Force will continue to conduct compliance checks on goods within the Freeport.
We already have low to no duty
The trade deal with the EU and a low duty regime means that the economic benefit might not be as relevant in the UK as it would be in countries with higher duty or high taxes. Moreover, to suspend customs duty, often, suspensive regimes can be used (even though this may be complicated to set up). So while some businesses may benefit, it will not reduce or stop the border friction with the EU.
How will the EU react?
Do we care? Yes, I hope UK businesses do! The relationship with our closest neighbours matter. The European Parliament is sceptical about free ports for the reasons mentioned and the EU so far has been doing their utmost to ensure a level playing field. Will eight new Freeport at their front door cause more friction?
Freeports around the UK
East Midlands Airport
The UK’s only inland freeport, located close to Derby and Nottingham, will include three sites with East Midlands airport at its heart. A new rail freight interchange next to the Toyota factory is planned, while the Ratcliffe-on-Soar coal-fired power station – one of three remaining in Britain, due to close in 2024 – is included as a site to be redeveloped.
Felixstowe and Harwich
Known as Freeport East, it includes Britain’s busiest container port and two major ferry ports. Felixstowe has been among the most jammed up ports in the world during the supply chain chaos this autumn, with severe backlogs and stacked up containers. Planners aim to create 13,500 new jobs and an economic boost worth £5.5bn over 10 years. However, the site’s new Gateway 14 industrial park has drawn swathes of objections from local residents.
Comprising the four ports of Hull, Goole, Immingham and Grimsby. With the area already a hub for offshore wind, the freeport will also include low-carbon energy projects, chemical works and rare earth minerals processing; key for batteries used in electric vehicles. A tax site will be located next to Siemens’ rail factory in Goole, which is currently under construction.
Liverpool City Region
The freeport at the UK’s main transatlantic docks will stretch inland to the port of Salford, at the end of the Manchester ship canal. The plan includes three low-tax zones: The 3MG Mersey Multimodal Gateway at Widnes - birthplace of the chemicals industry – the Wirral Waters regeneration area, and the former Parkside colliery near St Helens, where a freight hub has been planned for more than a decade.
Former Ministry of Defence docklands, used by the Royal Navy for centuries, will be redeveloped under the plan. Local planners hope to use three sites – Devonport South Yard, Langage Energy Zone and Sherford Business Park – to focus on marine and defence innovation, manufacturing and light processing, warehousing and staged imports.
Taking in the ports of Southampton, Portsmouth and most of the Isle of Wight, the freeport planners hope to build on the area’s advantages in proximity to international shipping lanes on the English Channel. With Southampton the busiest export port for vehicles, stronger freight links to industrial heartlands in the midlands and north are planned.
Although pitched as a way to boost regional growth away from London, the capital will have a freeport on the Thames. London Gateway and Tilbury ports will have tax zones, as will Ford’s Dagenham engine plant on the banks of the river. The emphasis will be on introducing electric and autonomous vehicle technology along the A13 corridor into London.
Scotland, Wales and Northern Ireland A freeport is planned in each of Scotland, Wales and Northern Ireland. However, progress has been slow amid disputes between Westminster and the devolved administrations. The Scottish government wants a “green port” model, including rules forcing businesses to pay the real living wage within them, but has faced difficulties with the Treasury. The Welsh government has similar plans, and faced similar issues. The Treasury said it remains committed to establishing freeports in each nation and region.
The case for or against Freeports has been made a while ago. The result was a foregone conclusion. Not out of necessity but political will, the UK embarks on more evidence of divergence from the EU, where free ports are reduced and limited to minimal, exceptional structures and seen as not compatible with international obligations, the same ones the UK is signed up to. While surely an exciting project and a boost for the selected ports, will we really see the hype of activity (and controversy?) that we see in Jebel in the UAE? More importantly, maybe, do we really want that in the UK?
Links & Download
The study from the European Parliament in 2018
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