Freeport Misconceptions
Date published:
In March 2021, Chancellor Rishi Sunak announced eight new freeport locations. Freeports are designated zones, usually around a port, where “different economic regulations” apply for businesses to benefit from. Those regions were:
- East Midlands Airport
- Felixstowe and Harwich
- Humber Region
- Liverpool City Region
- Plymouth
- Solent
- Teesside
- Thames
From October 2021, the Teesside Freeport has begun operations, though in its infancy. The government want Freeports to help regenerate economically deprived areas of the UK., and they have claimed that it will ‘level up’ the country in the process.
Supporters of freeports say that they can help increase manufacturing and encourage jobs/investment in areas that struggle to attract both. According to Sunak, these special economic zones will make it ‘easier and cheaper to do business’. They will also bring ‘investment, trade, and jobs to regenerate the regions across the country that need it most’. The name, however, has caused the most confusion.
‘Free’ ports?
Don’t take the word ‘free’ literally. The term ‘freeport’ does not mean that UK businesses shipping goods in and out of these designated ports can bypass VAT and duty obligations. They are not ‘free’ in this sense.
Even though these zones are within the UK geographically, they are legally outside of the country’s border for tax purposes. This means that they are not part of the UK’s Customs Zone. Once any goods you’re importing pass the freeport border, however, you must still pay for the VAT/Duty on those goods as normal.
There are ways to pay less on VAT/Duty, such as Inward (IP) and Outward (OP) Processing measures. An article on Inward (IP) and Outward (OP) Processing is available here. The standard importer’s goods, however, are not exempt from VAT/duty just because they were imported through a freeport.
Additionally, freeports don’t stop you from having to supply the correct documentation that you normally would when trading internationally. Rules of origin, SPS/POAO checks, CPC codes etc, are all still very important for importing and exporting, regardless of the port of entry.
Laws surrounding what can legally be traded internationally also all still stand. So too do the usual licenses required for certain goods, as well as trade embargos and sanctions against trading with certain countries.
What’s their purpose, then?
You might be thinking, if the usual rules still apply, then what’s the point? How can they stimulate the economy? Well, economic benefits are provided for those companies that operate within these freeport zones.
Tax reliefs for freeports include full business rates relief for all new businesses for five years, tax-free capital investment in plant and machinery, and national insurance relief for employers. Companies operating within freeport zones can benefit from deferring payment of taxes until their products are moved elsewhere. They can also avoid them altogether if they bring in goods to store/manufacture on site, before exporting them again.
These regions are also hailed as being able to provide jobs for those living near freeport zones and will hopefully stimulate the economy in that way. A report by consultancy group Mace has indicated that freeports might boost trade by £12 billion a year, creating 150,000 new jobs, however, there are concerns that freeports will simply move activity and jobs around the region, rather than creating new value.