4 Things You Need to Know About Freeports

Across the UK, there are some rather contentious topics that some may deem as good litmus tests for the company you find yourself in. Most recently joining the ranks of Brexit, Marmite or whether Yorkshire puddings should be part of a Christmas dinner, is the topic of freeports. 

As much as the benefits of freeports and any counter arguments against them make for a compelling conversation, perhaps a more important question for many would be – “Are freeports worth considering for my business?”  

In this article, we dive into the fundamentals of freeports and what a business should consider when deciding on its fit for their operations. 

WHAT ARE FREE PORTS?

Freeports are special economic zones (SEZs) established with the intention to regenerate the regional economies of its surrounding areas. 

Announced during the delivery of the UK budget earlier this year, there are eight Freeports located around England – East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City, Plymouth, Solent, Thames and Teesside.

Scotland, Wales and Northern Ireland are set to announce their own freeport policies.

These SEZs are situated near sea ports or airports allowing goods to arrive to the country without having tax charges applied until they move elsewhere in the UK. Alongside other relief concessions, freeports have been established with the aim to:

• Establish them as national hubs for trade and investments through diverse projects
• Create hotbed for innovation by focussing on private and public sector investment in R&D 
• Promote regional regeneration through high-skill job opportunities in ports linked to the areas around them.

HOW CAN FREEPORTS BENEFIT MY BUSINESS? 

A number of incentives have been announced with the establishment of the eight freeports around England. 

CUSTOMS INCENTIVES

From a customs perspective, imported goods into freeports can be processed or stored without customs duty. With this, businesses within these SEZs enjoy simplified customs procedures that allow them to manufacture/process goods using these untaxed imports before exporting them again, without paying the tariffs. 

Freeports also invert tariffs. Tariff inversion allows a business to apply a duty rate applicable to the processed product, rather than the tariff rate of the imports. In instances where the processed product rate is lower, businesses can save on capital regardless of import size. Customs tariffs are structured in a way that raw materials attract lower duty rates than semi-processed items leading to lower rates than finished products. In theory, this creates a knock on effect that encourages more local manufacturing and production. 

OTHER BENEFITS 

On top of customs benefits, businesses in these SEZs are offered temporary tax breaks which include tax reductions on their existing or newly acquired properties. Businesses operating out of the freeport area can also expect to pay less NI for their employees from April 2022. More information about incentives extending beyond customs can be found in the government guidance on freeports.

THE COUNTER-ARGUMENTS ABOUT FREEPORTS 

By design, freeports are established with the aim to increase investments, manufacturing, and encourage more diverse and skilled job opportunities in its surrounding areas. That said, they are not immune to criticisms from various perspectives. 

From a customs perspective, some companies in freeports will find that any benefit of the tax-efficient zones may be offset by exporting to certain countries including Singapore, Switzerland, Norway and Canada. They will be obliged to pay tariffs when exporting finished products to such countries. Acknowledging this, the Department of International Trade has attributed to provisions that aren’t uncommon surrounding FTAs which businesses choose to either benefit from the duty drawback or preferential rates under the FTA. 

Another study suggests that only 1% of UK imports by value could benefit from freeports. An August 2020 article by Financial Times stated that the UK Trade Policy Observatory (UKTPO) found that out of the 20 most imported inputs in the UK by value, accounting for around 40% of UK imports of intermediate goods, 12 were duty-free. None had a tariff of more than 4%. 

WHY SHOULD MY BUSINESS ENTERTAIN FREEPORTS THEN? 

Like many government initiatives designed to mobilise the economy, freeports may not be the solution for every business. However, there will be some that can indeed benefit from the incentives set up around freeports. 

Conversely, within the existing customs regulations, businesses that have no plans to physically relocating their operations to a freeport can actually still replicate many its customs benefits. With a combination of customs warehousing, inward processing, customs freight simplified procedures, a business can still attain benefits that are comparable to those associated with operating out of a freeport. 

The best way to benefit from these incentives thoroughly is to have a clear understanding of its suitability for your business and the appropriate procedures to achieve them.

GETTING CRYSTAL CLEAR ADVICE ON FREEPORTS SUITABILITY FOR YOUR BUSINESS

While there are numerous resources available to find out more about freeports and its suitability for your business, getting a good steer towards the right direction is not always easy. 

With over 50 collective years of experience from ex-Big four consultants in legal and accounting backgrounds, Barbourne Brook has immense exposure to businesses of various sectors and the unique customs requirements that they carry. Speak to a member of the team to find out if freeports are right for your business or learn more about Barbourne Brook’s approach to freeports here.