Start planning for freeports now - Laura Petrie
A “free trading zone” means that port operators (and companies operating there) can defer tax duty and import VAT on goods, as well as other employee-related contribution deductions. This allows for advanced manufacturing of technologies for the energy industry, while also offering tax and customs incentives. These benefits will help to attract investment to the energy industry and the local areas, as well as boosting the job market and opportunities for the wider supply chain.
The finalisation of regulations surrounding the operation of Scotland’s freeports is expected to take about 12 months, and a further 12-18 months for their full development. While this might seem a lengthy wait, companies that wish to use freeports should start preparations now.
Access to a freeport can benefit businesses in many ways, whether in the energy industry or not. The tax benefits of operating import, manufacture and export activities within a free trade zone provide significant savings for businesses that import raw materials (e.g. steel, concrete) to manufacture items that will never be used onshore in the UK. Similarly, organisations can benefit from differing tax rates if the raw materials are manufactured into different goods within the free trade zone, before being 'exported' into the UK. The full potential is yet to be determined but these principles are inherent in other freeports worldwide, so the UK will likely follow suit.
For now, businesses wanting to use the freeports for manufacturing should consider how operating within a free trade zone would impact on their tax status and whether their operations could be relocated there.
For companies servicing the offshore energy industry, establishing a place of business within the free trade zone may be possible. Passing on cost-efficiencies to customers can be a competitive advantage. Furthermore, relief on national insurance contributions is expected to be available to employees who spend at least 60% of their time working within the free trade zone. To ensure all employees benefit and no business is disadvantaged, the freeports intend to reinvest the NIC reliefs into training and skills development.
Accordingly, relocation to the free trade zone should be considered, including whether employees can move there under current contracts (i.e. can their place of work be dictated by the employer).
There are other benefits to consider too. Increased investment in the area means increased footfall and accommodation demand – either for a company's workforce or in the provision of temporary and permanent accommodation.
Industries involved with energy services should also consider whether they want to be involved in business centred around the freeports. Plans have already been proposed for a green hydrogen plant near the ICF freeport - warmly welcomed by local distilleries. Development of that site provides significant opportunities for the supply chain and also for new property development to benefit from the energy produced.
Businesses interested in the freeports should use the time they have now to conduct commercial health checks. Reviewing policies, procedures and standard contract terms to ensure they comply with current regulations, and preparing free trade zone-specific versions, will ensure readiness ahead of the freeport's formal opening.
Freeports are a significant long-term investment with wider implications for Scotland and the energy industry. This should be a green light for interested businesses to start planning now, so they are ready when the freeports go live.
Laura Petrie, Partner, Brodies LLP
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