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UK Government to press ahead with plans to establish freeports

Posted on: 16 October 2020

The Government has reconfirmed its commitment to establishing freeports across the UK in an effort to increase trade and investment, boost innovation and create jobs.

In response to its earlier freeports consultation which closed in July, the Government has provided further clarity on how freeports in the UK will operate and provided details on the process to establish them.

Freeports operate as secure customs zones, usually located at ports, where business can be carried out inside a country’s land border, but where different customs rules apply. Other 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 is opting for a bespoke freeport model designed to create national hubs for trade and investment, promote regeneration and job creation, and encourage innovation. To achieve these objectives, the Government proposes five sets of measures – customs, tax reliefs, planning, regeneration funding and innovation.

The UK freeport model will require a primary customs site designated in or near a port (seaport, airport or rail port) within which the customs benefits will apply. Additional freeport subzones may also be permitted to enable multiple sites to benefit from the freeports customs model.

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.

Customs
Businesses operating in freeport customs sites will be able to take advantage of customs and tariff benefits, including simplified customs procedures to access freeports and duty suspension while goods remain in the freeport. Goods entering a freeport customs site will be eligible for duty deferral, duty exemption and duty inversion. Simplified declaration procedures for goods entering a freeport will also apply.

Tax
Under the proposals, businesses will be able to claim reliefs from key business taxes within the bounds of a freeport. However, these tax reliefs are likely to be time-limited, further details of which will be provided in due course.

Current proposals include offering business rates relief, Enhanced Capital Allowances and a freeports-specific Structures and Buildings Allowance to businesses within a freeport tax site, in addition to relief on non-residential SDLT on commercial land and property transactions.

The Government is also considering ER NICs relief to businesses located in a freeport tax site. However, it does not intend to offer a specific R&D tax incentive.

Commenting on the proposals, Mike Simms, BDO’s Head of Shipping said: “We welcome this initiative which should help encourage new investment, innovation and employment.

“As the UK enters a new post-Brexit trading era, businesses with international supply chains will need to rethink their logistics planning. Depending on the customs and tax benefits on offer, freeports could be a very attractive option for some, helping businesses to realise new international trading opportunities for the longer term. We may also see positive knock-on impacts for local economies in areas where freeports are located.

“Clearly, the roll-out of this policy will have significant implications for the maritime sector, particularly with respect to competition between freeports and non-free ports, so shipping companies will need to keep a very close eye on developments.

“Much will depend on the willingness of bidders to come forward and the final package of incentives on offer, but the Government has set out an ambitious timetable and does seem determined to make this work.”

The Government is encouraging freeport coalitions – consisting of international and local businesses, academic institutions, ports and local authorities – to work together on how their region can best meet freeports’ objectives.

A finalised policy and bidding process, including a clear bidding prospectus, setting out what freeports will offer and how interested parties might apply will be launched before the end of the year, with the first freeports expected to be open by the end of 2021.

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