UK: Freeports reintroduced; simplified import procedures, suspended customs tariffs and import VAT

UK: Freeports reintroduced; simplified import procedure

“Freeports” are secure zones based around regional sea, air, and rail ports where business can be conducted inside a country’s land border, but where different customs rules and other favourable arrangements apply.

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Following the UK’s exit from the European Union, the UK government reintroduced freeports with the objective of:

  • Promoting regeneration and job creation in deprived areas
  • Creating new national hubs for global trade and investment
  • Creating hotbeds for innovation

In the UK Chancellor’s Budget (3 March 2021), the following eight new freeports were announced—East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside, and Thames.

Discussions continue about future freeports in Scotland, Wales, and Northern Ireland.

Customs and trade benefits

Simplified import procedures apply for freeports. Tariffs and import value added tax (VAT) on goods brought in from overseas will be suspended, unless and until the goods enter the UK domestic market.

When raw materials or components brought into the freeport are processed into finished goods in the secure zone and then re-exported, no UK tariffs or import VAT will apply (subject to exporter choice when free trade agreement “Duty Drawback Prohibition” clauses apply). Raw materials can be imported tariff free into a freeport, manufactured, and then brought into the domestic UK market at lower finished goods tariff rates (when applicable) resulting in a “duty inversion”  benefit.

Freeport criteria, other benefits

A freeport must be contained within a 45km diameter outer perimeter, unless a special case can be demonstrated. No more than 600 hectares of that can be designated as being where the tax incentives that are on offer apply.

The investment incentives include the following:

  • Land purchased for a “qualifying use” in these zones will be free of stamp duty land tax until 30 September 2026.
  • 100% enhanced capital allowances provided for expenditure on plant and machinery up to 30 September 2026.
  • 10% structures and buildings allowance (instead of the usual 3% per annum) allowed for expenditure incurred within these designated tax sites, provided that the structure or building is brought into use on or before 30 September 2026.
  • Full business rates relief for five years will apply in freeport tax sites in England. This will be available to all new businesses, and certain existing businesses when they expand, until 30 September 2026.

There are job creation incentives including relief from employer’s National Insurance Contributions (NIC) for eligible employees based in freeports from April 2022, or as/when a site is designated (if later)—available until at least April 2026 and, subject to review, to April 2031. The employer NIC incentive is a 0% rate for three years per employee on up to £25 thousand per annum of earnings.

Other freeport benefits include:

  • £175 million seed capital fund to provide matched or part-matched public funding for investment in regeneration of sites and qualifying infrastructure
  • Streamlined planning process to aid brownfield site development and increased regulatory flexibility for carrying on innovative activities

Read an April 2021 report prepared by the KPMG member firm in the UK

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