As part of the 2021 Budget announcement, the UK Chancellor confirmed the locations of eight regional "Freeports" to include Plymouth, Solent and Thames.
What are the features of a Freeport?
We think investing in a Freeport could be advantageous for many businesses in many different sectors. We discuss some of the key features and expected benefits below.
The government intends to create 'tax sites' in Freeports. Businesses in the tax sites will be able to benefit from:
- An enhanced 10% rate of Structure and Buildings allowance for constructing or renovating non-residential structures and buildings within the tax site. This means that business' investment will be fully relieved in 10 years. To qualify, the structure or building must be brought into use on or before 30 September 2026;
- An enhanced capital allowance of 100% for companies investing in plant and machinery for use in Freeport tax sites. This allowance will apply to both main and special rate assets and will be available under 30 September 2026;
- Full relief from Stamp Duty Land Tax on the purchase of land or property for use for a qualifying commercial purpose within tax sites in England; and
- Full business rates relief in Freeport tax sites in England. Available to all new businesses and certain existing businesses where they expand, until 30 September 2026. The relief will apply for five years from the point at which each beneficiary first receives relief.
- Businesses operating within Freeport customs sites will receive duty deferral while goods remain on site and duty inversion if the finished goods exiting the Freeport attract a lower tariff than their component parts.
- Businesses may also receive a customs duty exemption on goods that are imported into a Freeport, processed into finished goods and subsequently re-exported (this is subject to the UK's trade agreements). They will also be able to suspend import VAT on goods entering the Freeport.
- Businesses located within the Freeports will be able to apply for new "local development orders" which lead to a more relaxed/streamlined planning regime.
- Freeports will be brought into 'closer alignment with existing rights for airports'. The government is also looking at a simpler framework for environmental assessment.
- The government also intends to introduce an employer National Insurance contributions relief for eligible employees in all Freeport tax sites from April 2022 or when the tax site is designated after this date. This would be available until at least April 2026.
- Customs site operators will be responsible for ensuring goods on site follow correct customs process and will need to obtain authorisation for their customs sites. Further guidance on Customs sites will follow in subsequent articles.
- One of the key delivery requirements set out in the Freeports Bidding Prospectus is that bidders must prevent illicit activity and adhere to the OECD Code of Conduct for Clean Free Trade Zones and the Money Laundering Regulations 2017.
- Freeports must have a governance structure in place which meets the government's core standards and the National Local Growth Assurance Framework.
- Tim Williamson commented that "the Chancellor's Freeport model would not have been allowed pre-Brexit due to EU rules governing trade and state aid. For example, the tax reliefs offered to businesses in Freeports will not require prior agreement from the European Commission. However, under the Brexit trade deal, subsidies will need to be justified otherwise they can be challenged in the UK courts. In our view there are many intriguing and commercially sound reasons for considering investing in a Freeport in the UK"
- "Note too that the Department for International Trade has confirmed that where a free trade agreement (negotiated by the UK Government and another jurisdiction) includes duty exemption prohibitions, businesses can choose either to benefit from the duty drawback, or the preferential rates under the free trade agreement (FTA) (provided they meet the rules of origin test under that FTA). The EU/UK FTA is not in scope however.
- In our experience of working with and supporting businesses on their strategy, it is very important to ensure they pay close attention to the interwoven framework because it is multi-layered and regularly evolving.