
Huw Witty Partner, Head of Tax
Freeports: how do they benefit businesses in the UK?
Freeports are areas that although are within a country’s geographical borders, are effectively outside the country’s customs borders. As well as the customs benefits that this brings, the Freeports being created in the UK will further benefit from incentives relating to tax, planning, regeneration and infrastructure.
The creation of Freeports in the UK has long been on the agenda of the Conservative Party. In 2016, writing as a backbench MP, Rishi Sunak authored a report extolling the benefits of Freeports, arguing that the UK should take advantage of the ‘economic freedom’ provided by Brexit to create Freeports across the nation. Boris Johnson referred to Freeports in his first speech as Prime Minister and the Conservative Party Manifesto included a commitment to create up to ten Freeports around the UK.
Freeports are being positioned as one of the ways the Government will achieve its ‘levelling-up’ agenda. The October 2020 consultation on Freeports claimed that they will attract investment and create jobs in some of the ‘most deprived communities around the UK’.
Whilst Freeports are designed to create new economic activity some critics argue that they only divert existing business into the area. However the Government’s main aim may be to make the UK’s Freeports more competitive than their EU rivals.
The UK is no longer subject to the EU’s state aid rules post-Brexit. Although there are Freeports in Europe (and there were Freeports in the UK until 2012), it has been argued that their effectiveness is limited by EU state aid rules. Some of the measures being applied to Freeports in the UK would not have been allowed under EU state aid rules. Whilst the UK Freeport measures go beyond EU state aid rules the UK remains bound by World Trade Organization rules on subsidies and its commitments under free trade agreements.
Each Freeport zone will include, as the name suggests, a port. Bids were invited from sea and shipping, air and rail ports. Seven of the eight Freeports will be located around shipping ports and one around an airport. The outer boundary of a Freeport is 45km/25 miles (this means that the furthest permitted distance between any two sites within the same Freeport is 45km). Under the proposed timetable Freeports will begin operations from late 2021.
The locations of the Freeports are as follows:
On submission of a business case these sites will be able to access a share of £175 million of seed capital funding to support the development of Freeport sites. The expectation is that all Freeports will receive similar shares of the available £175 million fund, which would amount to nearly £22 million per site (larger bids will be considered in exceptional circumstances). This funding is for capital costs only and guidance states that proposals for seed funding are to be focused primarily on land assembly, site remediation, and small-scale transport infrastructure.
One of the main advantages for businesses considering setting up in a Freeport is that goods that arrive into Freeports are not subject to customs duty or import VAT unless and until the goods enter the UK market. Freeports are therefore particularly beneficial for businesses which buy goods with a high customs duty, such as textiles, and then process and re-export them, or sell them in other duty free markets such as airports. Operating out of a Freeport avoids the need to use bonded warehouses or Customs Warehousing Regimes. It has also been argued that businesses operating out of Freeports will face less ‘red tape’ and reduced paperwork costs.
Freeports will benefit from the following:
These reliefs apply until 30 September 2026; it is not clear what will happen after that point.
It is also proposed to allow employer National Insurance contributions relief from April 2022, until April 2026 (this is subject to parliamentary approval).
If you are considering setting up a business in a Freeport to take advantage of the incentives detailed above, our experienced lawyers can provide expert advice on all the relevant aspects of tax, property, employment and corporate law. Please contact Huw Witty, Head of Tax, or Rachel Bennion, Trainee Solicitor, for further information.
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