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What are freeports and how can they benefit my business?

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What are freeports and how can they benefit my business?

Key learnings

  • Freeports are designated areas within a country where goods can be stored, processed, and traded without being subject to certain customs and tax regulations.  
  • The benefits of freeports include tax incentives, simplified customs procedures, improved efficiency, and the ability to draw on cluster strength.  
  • Freeports have a ripple effect on the surrounding areas, with increased investment leading to the growth of supporting infrastructure. 

Freeports have become a common talking point in the UK over the last few years, with the first ones in England becoming operational in December 2022, and the selection of two Green Freeports announced by Scottish Government in January 2023. In this article, we’ll introduce what freeports are and their potential benefits to your business.

What is a freeport? 

A freeport is a designated area within a country where goods can be stored, processed, and traded without being subject to certain customs and tax regulations.  

While located geographically within a country, freeports essentially exist outside its borders for tax purposes. 

Freeports are located around ports, airports, or other transportation hubs and are intended to facilitate global trade and investment. The vision is for them to become hotbeds for innovation and to promote regeneration through creating jobs and attracting investment. 

They are particularly attractive to manufacturers of goods because of their tax savings and logistics infrastructure. 

What is a Green Freeport?

Working in partnership with the UK Government, Scottish Government has adapted the UK Government’s freeport model.

Designed to fit the Scottish context, Green Freeports aim to boost innovation and inclusive growth within communities, while supporting Fair Work First practices, creating new green jobs, upholding the highest environmental protections, and supporting economic transformation.

What are the benefits of freeports? 

The benefits of freeports can be split into those businesses that locate in the freeport and access the tax incentives and customs benefits directly, and those which benefit indirectly.  

Locating in a freeport can provide your business with a range of benefits that can help to reduce costs, improve efficiency, and access international markets more easily.  

These include: 

1

Tax incentives

One of the main benefits of operating in a freeport is the ability to take advantage of tax incentives.  

Freeports offer various tax breaks and exemptions on goods that are stored or processed within the zone, which can significantly reduce your operating costs.  

In addition, your business can benefit from tax incentives such as:  

  • No stamp duty on all freehold and leasehold premises.  
  • Five years of zero business rates.  
  • Pay zero employer's National Insurance contributions for three years on the earnings of all new hires up to £25,000 per annum – this can be claimed for any new employee within 10 years of the start date of the investment.
  • Full rebates for construction and machinery investment.   
  • Uncapped capital investment and capital allowances. 

These are based on freeports in England. Scotland, Wales and Northern Ireland devolved governments propose to offer the same or very similar incentives but check locally. 

2

Customs benefits

Freeports provide simplified customs procedures, streamlined regulatory requirements, and exemption from customs duties on goods that are imported into the zone for processing or re-export. This makes it easier for businesses to move goods in and out of the country and can help to reduce logistics costs. 

3

Improved efficiency

As freeports are typically located near ports or airports, it’s easier to access international markets.  

Infrastructure is built around the freeports to make it easier to move goods in and out of the area with services such as cargo handling, warehousing and logistics management on offer. 

This can improve your business's efficiency – and increase your profits – by reducing transport costs and improving supply chain management. 

4

Draw on cluster strength

Building on their local strengths, freeports become industry clusters that draw together complementary businesses to create a whole ecosystem.  

You may draw on the support of other local businesses who could offer lower prices due to being in the freeport.  

Networking and industry events to share knowledge, a natural gravitation of relevant skilled workers to the area, and enhanced local infrastructure are some other benefits you can expect. 

The ripple effect 

While there are lots of strong advantages to being located inside a freeport, your business can still benefit outside of one because of the ripple effect. 

The development of freeports attract a wealth of opportunities to the areas in which they are established. With increased investment, the supporting infrastructure grows. 

The businesses within the freeport will need professional services, transport, catering, maintenance and so on.  

Successful applications for freeports have largely focused on improving the economic prosperity of the surrounding areas.  

They create more skilled jobs, encouraging relocation to the areas. This impacts on demand for housing, schools, transport, community facilities, leisure and culture. These too need various operational and professional support.  

For Scottish Green Freeports, there is an additional focus on creating new green jobs and environmental protections.

Next steps… 

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