It is common for the terms ‘Freeport’ and ‘Special Economic Zone’ to be used interchangeably. However, the two are very different things and whilst they fall under the same category, there are major differences between the two. If you are looking to invest in SEZs, it is important to understand what is the difference between a Special Economic Zone and a Freeport to ensure that you are setting your business up in the correct area for your goals and requirements.
What are Freeports and Special Economic Zones?
Freeports and Special Economic Zones are geographically-defined investment zones within a country. Within the zone’s borders, businesses can operate with different financial benefits and tax relief than other areas of the country. The zones are designed to encourage investment with incentives that attract businesses to set up within the zone. While there are many different types of zones that offer financial incentives, they all operate differently and are catered towards specific industries. Ultimately, all of these Special Economic Zones are created to encourage economic growth. Special Economic Zones attract Foreign Direct Investment which is hugely beneficial to the country. Foreign Direct Investment refers to any investment made by a company or individual in one country into business interests located in another country. Overseas businesses looking to expand into the UK would contribute FDI by setting up within an SEZ.
Special Economic Zones are present in many countries across the world with each country operating their SEZs differently. Every Special Economic Zone benefits from Foreign Direct Investment. With SEZs covering a vast range of industries, they attract a wide variety of overseas businesses. In the UK, Freeports are one of the primary types of SEZ and are crucial to the future of global trade.
How is a Freeport different from a Special Economic Zone?
Often, when people are referring to a Freeport, they may use the term Special Economic Zone. However, the two mean different things.
A Special Economic Zone refers to all geographically-defined investment zones. It is the umbrella term for any area that receives financial incentives for business growth. Types of Special Economic Zones include Enterprise Zones, Industrial Parks, Technology Parks and Freeports.
A Freeport is just one type of Special Economic Zone, one that is specially designed for the trade industry. Located close to airports and seaports, Freeports facilitate global trade and attract Foreign Direct Investment through incentivising overseas businesses to set up within the UK. Businesses can benefit financially from setting up at a UK Freeport whilst also enjoying the advantages of simplified customs procedures, great onward connections and a new consumer market to target.
One of the most prominent differences is the type of industry. Freeports are specialised for international trade and are primarily focused on the trade industry of import and export. There is a strong emphasis on the customs benefits that they offer which is extremely advantageous to overseas businesses. Other SEZs focus on science, technology, manufacturing and other industries.
The other major difference between Freeports and other Special Economic Zones is the location. Dealing with import and export, Freeports are conveniently located close to airports and seaports to allow for easy trade across the globe. Other SEZs are found in more urban locations, usually designed to develop technology, investment and housing.
How is a Freeport Similar to a Special Economic Zone?
As a Freeport is a type of Special Economic Zone, there are plenty of similarities between SEZs and other Special Economic Zones. On a broad scale, most SEZs benefit from similar tax relief with the exception of taxes that may be relevant to that SEZs specific industry.
Benefits of all UK Special Economic Zones
0% Stamp Duty Land Tax
All Special Economic Zones in the UK, regardless of their location or industry, benefit from 0% Stamp Duty Land Tax. SDLT is a UK tax applied to all property purchases, both residential and non-residential. It can be a financial burden for businesses setting up in the UK but SEZs waive this tax and businesses can benefit from 0% Stamp Duty Land Tax.
Up to 100% Business Rate Relief
Businesses within any Special Economic Zone can benefit from up to 100% Business Rate Relief for five years. Business Rates are a local property tax in the UK, applied to most non-residential properties.
Streamlined Regulations
Administrative processes are streamlined in SEZs which is majorly beneficial to businesses. While regulatory processes in each SEZ are catered to each specific industry, it is consistent through all Special Economic Zones that the relevant administrative processes are simplified.
Other Types of Special Economic Zone
Enterprise Zone
Enterprise Zones are broad Special Economic Zones that encourage a diverse range of businesses to start up or expand. 48 zones are currently set up across the UK and each zone has an individual industry it focuses on with many catered towards manufacturing and low carbon energy.
Investment Zone
Investment Zones are typically located around a university or local research institution. These tax sites are strategically positioned to encourage redevelopment of brownfield areas with twelve locations across the UK. Investment zones currently receive £80m worth of flexible support that can be used between spending and tax incentives in a five year period.
Technology Park
A technology park is a hub for science and technology that supports innovation and the growth of high-tech startups. Technology parks are also known as science parks and provide tech businesses with low tax opportunities to set up and expand.