On 10 February 2020 the UK government published a formal consultation on its plan for the creation of up to 10 freeports across the country. We have set out below the main issues covered in the consultation paper to provide you with an overview on what may happen in the coming months.
In order to level up the country and benefit from leaving the EU, the UK Government is planning to create up to 10 freeports in different locations across the country with the aim to enhance the economic activity of businesses operating in those areas. If the plan will be implemented, the freeports will have different customs rules than the rest of the country, in order to attract inward investment and increase productivity.
In doing so, the UK Government aims to create a UK freeport model which should work for rail, sea and airports. This means that sites used for freeports may be located in strategic positions and not only along the coast.
The UK freeport model includes tariff flexibility, customs facilitations and tax measures. To support the creation of freeports the UK Government is also considering planning reforms, additional targeted funding for infrastructure improvements and measures to incentivise innovation.
What is a freeport?
Freeports are defined in the consultation paper as ‘secure customs zones located at ports where business can be carried out inside a country’s land border, but where different customs rules apply. They can reduce administrative burdens and tariff controls, provide relief from duties and import taxes, and ease tax and planning regulations’.
In particular, the UK Government has designed an ambitious new customs freeport model allowing ‘businesses operating in freeport customs sites to access a range of benefits and new opportunities to boost their international competitiveness. The UK Government’s vision is for freeports to become international hubs for manufacturing and innovation, with the tariff and customs benefits on offer incentivising businesses to locate manufacturing and processing of imported goods in the sites, and with streamlined customs procedures reducing administrative costs for businesses’.
Tariff and customs are matters reserved to the UK Government and, therefore, they are not devolved to Scotland, Wales or Norther Ireland. As such, the freeport model may have a UK-wide application.
The core customs and tariff benefits proposed by the UK Government in relation to import of goods are:
(i) Duty suspension – No tariffs, import VAT or excise to be paid on goods brought into a freeport from overseas until they leave the freeport and enter the UK’s domestic market.
(ii) Duty inversion – If the duty on a finished product is lower than that on the component parts, a company could benefit by importing components duty free, manufacture the final product in the freeport, and then pay the duty at the rate of the finished product when it enters the UK’s domestic market.
(iii) Duty exemption for re-exports – A company could import components duty free, manufacture the final product in the freeport, and then pay no tariffs on the components when the final product is re-exported.
(iv) Simplified customs procedures – the Government intends to introduce streamlined procedures to enable businesses to access freeports.
The UK Government is also evaluating whether the benefit relating to the Enterprise Zones (EZs) may apply to the freeports. The EZs are designated geographical areas offering tax incentives and reduced regulation to encourage private sector growth.
If so, businesses that will be re-located in a freeports may benefit from one of the following two incentives which are currently applying to EZs:
(i) Business Rates Discount worth up to £55,000 per year for five years (£275,000 in total) for each new business starting up or relocating to the EZs; or
(ii) for EZs located in certain areas, Enhanced Capital Allowances for new companies making new investments in plant and machinery.
The freeports are also expected to benefit from a favourable and flexible regulatory framework with regards innovative technologies allowing businesses and consumers to trial these new technologies. The UK Government would like to remove legal barriers to their implementation, creating an optimum environment for the development of new technological solutions and broader innovative activity.
Regulatory sandboxes will be launched by the UK Government in order to facilitate the trialling and testing of new technology and processes.
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If you wish to hear more or discover how your business may benefit from the intended freeport model, please do not hesitate to contact Andrea Ferrarese at our London office (see www.fsreg.com for our contact details).
Disclaimer: This article provides general information only. It is not comprehensive and does not constitute the provision of legal, investment or regulatory advice. FS REG is not responsible for any action taken or omitted to be taken on the basis of the information contained in this article. © 2020 FS REG Limited (www.fsreg.com). All rights reserved.