Shall I move my business to a UK Freeport?

Updated: 3 days ago

Import Duty plagued businesses sinking under red Brexit tape may eye on setting up shop in one of the new free ports in 2022. But hold on! Let's check out these benefits and challenges first.


Eight new English Freeports will be created and based in

  • East Midlands Airport,

  • Felixstowe & Harwich,

  • Humber,

  • Liverpool City Region,

  • Plymouth,

  • Solent,

  • Thames and

  • Teesside.

These Freeports are set to start operations in 2022 and cover sea, air and rail ports in England. Their creation is linked to high hopes: support jobs, trade and investment. Described as "humming hubs of high-quality manufacturing, titans of trans-shipment and warehouses for wealth-creating goods and services" by the UK government.


But


Freeports are special areas (‘special economic zones’ (SEZs)) within a country where business activity is subject to different rules from those in the rest of the country.


Benefits

Some of the benefits in official papers relate to

  • reduced administrative burden,

  • relief from duties and import taxes, and,

  • ease tax and planning regulations.

Free of Duty

Typically, importers bringing goods into a Freeport do not have to pay duties until the goods leave the freeport and enter the domestic market. No duty at all is payable if goods come into the freeport and are then re-exported. So they come into the freeport and then leave again without entering the domestic market.


Cheaper if processed in a Freeport!?

If raw materials are brought into a Freeport from overseas and processed into a final product before entering the domestic market, then duties could be payable on the final good and not on the raw materials, usually making the final good cheaper.


Simplifications

  • There will be simplified declaration procedures for goods entering a Freeport to balance trader facilitation and ensuring the security of the border.

  • Businesses bringing non-controlled goods into the Freeport will need to make a customs declaration into their commercial records, while traders bringing in controlled goods, including those that are subject to excise duty will need to complete a simplified frontier declaration.

So, in summary, operating in a Free Zone can have the following benefits:

  • simplified customs procedures;

  • relief on customs duties relating to handling and processing of goods destined for re-export;

  • cash-flow benefits of not having to pay duty until the goods are released for free circulation in the domestic economy (or used or consumed within the free zone.


A business 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.


Go Jebel!

The primary success story for Free Ports remains the UAE! The Jebel Ali Freeport in Dubai, one of the largest in the world, has had success as a hub through its highly liberal approach to taxation:

  • 0% corporation tax

  • no VAT

  • no income tax

  • no taxation at all.

Further, 100% foreign ownership is permitted along with no restrictions on repatriation of profits or controls on foreign currency exchange.


There are no import or export duties relating to the zone except for sales made into the UAE. It is also relatively easy to obtain work permits for foreign nationals, and there are guarantees of no corporate or even personal income taxes for between 15 and 50 years from set up.


Challenges

One claim to fame for Freeports is that they are alleged of fostering money laundering and tax evasion, to the detriment of the national economy. As a report by the European Parliament suggests (see download below), in a way, goods in Freeport are technically "in transit" but there are never any time limits. Goods are not expected to "arrive" at a certain time in a certain place.


Unfair Value growth & Money laundering

This system may allow the stored goods to gain value, and it then allows for tax-free sales. Goods can enter a Freeport, stay there indefinitely and trade an unlimited number of times without ever having been taxed. Lack of scrutiny can facilitate trade-based money laundering, So there is a fear of relaxed oversight, lack of transparency,

trade data and systems integration.


Not less but more control?

On the other side of the spectrum, one could argue that goods are under

customs supervision and thus are often more controlled than elsewhere because

traceability is one of the logistical services offered. The UK government has indicated that Freeports will have robust security to tackle illicit activity and that HMRC and Border Force will continue to conduct compliance checks on goods within the Freeport.


We already have low to no duty

The trade deal with the EU and a low duty regime means that the economic benefit might not be as relevant in the UK as it would be in countries with higher duty or high taxes. Moreover, to suspend customs duty, often, suspensive regimes can be used (even though this may be complicated to set up). So while some businesses may benefit, it will not reduce or stop the border friction with the EU.


How will the EU react?

Do we care? Yes, I hope UK businesses do! The relationship with our closest neighbours matter. The European Parliament is sceptical about free ports for the reasons mentioned and the EU so far has been doing their utmost to ensure a level playing field. Will eight new Freeport at their front door cause more friction?


Conclusions

The case for or against Freeports has been made a while ago. The result was a foregone conclusion. Not out of necessity but political will, the UK embarks on more evidence of divergence from the EU, where free ports are reduced and limited to minimal, exceptional structures and seen as not compatible with international obligations, the same ones the UK is signed up to. While surely an exciting project and a boost for the selected ports, will we really see the hype of activity (and controversy?) that we see in Jebel in the UAE? More importantly, maybe, do we really want that in the UK?



Link

Response to government consultation

The study from the European Parliament in 2018

EPRS_STUD_627114_Money laundering-FINAL
Download • 949KB

About Customs Manager Ltd.

Stressed about Brexit? Wondering about the vital role that exports and imports can support your global growth strategy? Need to clear the border faster, with fewer costs and cut out the risk?


The solution is easy: Get a Customs Manager! They are global trade superstars!


At Customs Manager Ltd, we have lots of them, all ready to help you! Together, we devote all our passion and energy to fast track growth faster internationally. Working with us means to have your own multilingual Customs Manager on standby to help you trade effectively, efficiently and, of course, compliantly, wherever you want to go in the world. Look to us for helpful advice, insightful and fun training and relevant trade intelligence services that ensure you stay up-to-date and compliant!


Our Services

  • Expert Advice: Bespoke consulting service from certified, multilingual specialists on all customs and global trade matters with more than 15 years of experience.

  • Project support: Small or large, we help! Easy, uncomplicated - a helping hand when needed

  • Friendly and insightful training: Whatever way, form, time or length - you decide. We bring knowledge, insights and fun. Any customs or global trade topic.

  • Trade Intelligence: All the tools to save you time and ensure you excel in compliance, never missing any update or the law change. Relax, we've got you covered.


Free Updates

www.customsmanager.org

Question? Answer:

info@customsmanager.org


Free Explainer Videos, Expert Discussions, Webinars on Customs and Global Trade

https://www.youtube.com/channel/UCDXImKOEKHFlTDtEguXDAEA


Hot News (that cannot wait)

https://twitter.com/mielkenarne?lang=en


Professionally? OK

https://www.linkedin.com/company/69768402/admin/


Important Notice

Customs Manager Ltd. owns the copyright in this document, except for external documents and links we refer to or make available.

You are not allowed to use this information in any way that infringes the intellectual property rights in it. You may have to hold a valid licence to use this information. A licence can be obtained by becoming a Premium subscriber to the Customs Managers’ Trade Intelligence service, Professional Legislative Monitoring (PLM). As a Premium subscriber, you may download and print this information which you may then use, copy or reproduce for your own internal non-profit-making purposes.

However, under no circumstances are you permitted to use, copy or reproduce this information with a view to profit or gain.

In addition, you must not sell or distribute this information to third parties who are not members of your organization, whether for monetary payment or otherwise.

This information is intended to serve as general guidance only and does not constitute legal advice. The application and impact of laws can vary widely based on the specific facts involved. This information should not be used as a substitute for consultation with professional legal or other competent advisers. Before making any decision or taking any action, you should consult a Customs Manager Ltd. professional.

In no circumstances will Customs Manager Ltd, be liable for any decision made or action was taken in reliance on the information contained within this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.



63 views0 comments

Copyright Customs Manager Ltd. 2021

A company established in England and Wales

Company No. 12994125