Very simply, the definition of a Freeport is an area (port) within the boundary of a certain country that for the purposes of customs is considered to be legally outside of that country.
What this means in practical terms is that any goods entering the country through a Freeport will benefit from not having to pay import tariffs.
A company sending goods under normal circumstances will be required to pay the tariff and also follow the appropriate import regulations.
However, a business that chooses to operate with a Freeport area can receive incentives from Government, such as a tax break.
A great example is the Canary Islands Freeport, in which businesses pay as little as 4 percent tax, rather than the 25 percent that companies in the rest of Spain pay. (It isn’t clear at this stage at what level the UK Government are setting their parameters).
There has already been a consultation period in the UK, with the Government having confirmed that sea, air and rail ports in England had until the end of 2020 to bid for Freeport status.
The idea is for businesses to begin trading in these areas as quickly as practicable in 2021, and various other incentives have already been put in place, for those willing to do so:
- A streamlined planning processes to aid brownfield redevelopment
- A package of tax reliefs to help drive jobs, growth and innovation
- Simplified customs procedures and duty suspensions on goods
The creation of the Freeports are intended to help the UK benefit from post-Brexit growth, helping to boost trade and the economy. To be extensively marketed overseas, it’s hoped that that large-scale international investment will be received on the back of a successful Freeport pitch.
One of the proposed, and immediate, benefits will be a boost for the manufacturing industry.
Let’s use the example of a company that makes personal computers or mobile phones.
The assembly of the same would normally require them to first have the parts made in various corners of the world. These would then be shipped, thereby incurring import duties before the unit has even been built. Once made, the item is then exported, potentially incurring further cost.
If the manufacturer is operating out of a Freeport, there are no tariffs to be paid either way, the computer/mobile device can be produced at lower cost and with a tax break to boot.
Freeports have proved to be workable in other countries, as businesses seek to take advantage of working within an area where the different customs rules apply.
It’s worth noting that there are already 80 Freeports within the EU, and the UK did actually have five until 2012 (including Liverpool and Tilbury), but law dictated that they were allowed to expire.
It’s understood that Teesport, Felixstowe/Harwich and London Gateway/Tilbury are all bidding for the English Freeport license this time around.
One Freeport will be assigned for each country in the United Kingdom as a start point, with the possibility of more dependant on the relative success of the first four.
The Government have also released a handy set of pointers for companies to take note of:
- At the centre of the new Freeports policy is an ambitious new customs model, drawing on international best practice. The flexible model will improve upon both the UK’s existing customs arrangements and the Freeports the UK had previously.
- The government will also introduce a package of tax reliefs on investment by businesses within Freeport tax sites, new measures to speed up planning processes to accelerate development in and around Freeports and new initiatives to encourage innovators to generate new ideas to create additional economic growth and jobs.
- A firm 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 government wishes to deliver Freeports as soon as possible and will make further announcements in due course.
- We want all the nations of the UK to share in the benefits of Freeports. As such, we are working constructively and collaboratively with the devolved administrations to ensure Freeports are a UK-wide offer that will enable the creation of Freeports in England, Wales, Scotland and Northern Ireland.
- Freeports will be selected through a fair, transparent and competitive process, and will be expected to collaborate closely with key partners across the public and private sectors. The Bidding Process for locations to become a Freeport in England will open by the end of 2020.