Free zone legislation
Information about the legislation used in relation to Freeports.
A ‘free zone’, also known as a Freeport customs site, is defined as an area in the UK designated by the Treasury as a ‘special area for customs purposes’ under section 100A of the Customs and Excise Management Act 1979 (CEMA).
A ‘responsible authority’, also known as a Customs Site Operator (CSO), is referred to as a person appointed in the order, designating the free zone as a responsible authority for that free zone.
A ‘free zone business’ is defined in regulation 2 of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER) as a person authorised to declare goods for a free zone procedure or to carry out a free zone activity, or both.
A ‘free zone activity’ is defined in regulation 2 CIDEER as the declaring of goods for a free zone procedure or the carrying out of any industrial, service or commercial activity, or both, in a free zone on goods declared for a free zone procedure.
Section 3 of the Taxation (Cross-border Trade) Act 2018 (TCTA) provides that goods may be declared for free circulation or for a ‘special customs procedure’.
Section 3.4.a cites a ‘storage procedure’ as one of these special customs procedures.
A ‘free zone procedure’, also known as the Freeport customs procedure, is defined in paragraph 2.1 of Schedule 2 to the TCTA as a storage procedure whereby goods are declared for storage in a free zone, as opposed to in a customs warehouse.
This schedule sets out that a declaration for goods to be kept in a free zone constitutes a declaration to a ‘storage procedure’. It provides the power to make regulations imposing requirements on any person in relation to a storage procedure.
For example, in respect of goods to be kept in a free zone, a requirement that the carrying out of any activity or processing of the goods is subject to authorisation.
Read more on Schedule 2 of the Taxation (Cross-border Trade) Act 2018.
This act provides the legal basis for the designation of a free zone and its responsible authority, and the powers to vary or revoke such a designation. S.100F covers the powers of search in respect of goods entering or leaving a free zone, and enables an officer to enter and inspect any building in a free zone and to examine any goods there.
Read more on Section 100A of the Customs and Excise Management Act 1979.
These regulations introduced amendments to various customs statutory instruments in order to set out the regulatory requirements and conditions for those operating and using free zones designated since 8 November 2021. Free zones in the UK prior to this date were subject to the requirements and conditions set out in the Free Zone Regulations 1984 (S.I.1984/1177).
All current free zones in the UK now operate under the regime provided for in the 2021 regulations.
Read more on The Free Zones (Customs, Excise and Value Added Tax) Regulations 2021.
Regulation 2
Regulation 2 of CIDEER defines the meaning of:
- free zone
- free zone activity
- free zone business
- responsible authority
Paragraph 2 provides for a distinction between goods declared to a storage procedure under a customs warehouse procedure and goods declared to a storage procedure under a free zone procedure.
Regulation 4.1.f
This regulation states who is required to notify HMRC of the importation of goods that are to be kept in a free zone. This is either the free zone responsible authority or the person approved to carry out the free zone activity.
Regulation 27F
Regulation 27F sets out the circumstances in which a declaration by conduct for a free zone procedure may be made and defines what the required conduct is in respect of such a declaration.
It states:
- the conduct declaration may be made by or on behalf of a business authorised to declare goods for a free zone procedure
- an entry in the declarant’s records is required
- notification requirements, where applicable, have been complied with
- the goods are not of a type specified in a reference document for the free zones
- the free zone business notifies the responsible authority of the receipt or transfer of the goods, and that the content, form and manner of the notification must comply with HMRC specifications
- the circumstances that a previous customs declaration for the goods does not preclude future declaration by conduct for the goods
- the circumstances in which someone may make a declaration by conduct for the free zone procedure on behalf of another person
Regulation 29 and 35
Regulations 29 and 35 sets out that the acceptance of a declaration by conduct for a free zone procedure occurs at the time the conduct occurs. A supplementary declaration is not required.
Regulation 103
Regulation 103 states that imported goods, and goods that have been removed from the free zone procedure not in accordance with the correct removal procedures, are presumed not to be domestic goods unless it is shown that they are.
Read more on The Customs (Import Duty) (EU Exit) Regulations 2018
Regulation 2
Regulation 2 defines the meaning of
- free zone activity
- free zone business
- responsible authority
- customs office
It provides for a distinction between goods declared to a storage procedure under a customs warehouse procedure and goods declared to a storage procedure under a free zone procedure.
Regulation 3.1 and 3.2
Regulation 3.1 and 3.2 specifies the requirement to be authorised to declare goods for a free zone procedure. It also sets out the requirement to carry out any industrial, service or commercial activity on goods in a free zone where that activity is other than that specified in an HMRC notice for which authorisation is not required
Regulation 9.1B
Regulation 9.1B introduces a requirement for someone to be authorised to carry out a free zone activity, a HMRC officer must believe it is possible to exercise control of the goods, and that doing so would not outweigh the benefits to the applicant of carrying out the activity.
Regulation 10.1 and 11.1
The provisions concerning the period for which an authorisation for a customs procedure is to have effect in regulation 10.1, and the provisions concerning retrospective authorisation for a customs procedure in regulation 11.1 do not apply in respect of free zone procedure authorisations. Accordingly, there is no specified end date in respect of an authorisation for the free zone procedure, and an authorisation cannot be granted retrospectively.
Regulation 12
Regulation 12 provides that, a customs intermediary who is not authorised for the free zone procedure, but who acts on behalf of a principal who is so authorised can only act in a direct capacity. For example, in the name of the authorised principal.
Regulations 18A to 18J
Regulations 18A to 18J make provision for certain requirements, conditions and responsibilities that apply in respect of a free zone authorisation.
It sets out requirements such as:
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the details to be specified in an approval notification issued for the authorisation of a free zone business:
- the free zones in which the goods are to be kept
- the authorised activities to be carried out there
- who the authorised person is and whether they are also authorised to declare goods for a free zone procedure
- that once the declaration to the free zone procedure has been accepted by HMRC the authorised person ensures that the declared goods are moved directly to a free zone, and notifies the responsible authority for that free zone of the details of those goods
- the rate of yield of goods processed into other goods is specified in the approval notification, and that this can be either as specified by the applicant and accepted, or by HMRC
- that an authorised person does not declare for a free zone procedure, or bring into a free zone, certain goods as specified in Notice 7, made by virtue of Regulation 18C.2
- the authorised person complies with HMRC requirements in respect of segregating, marking, or otherwise identifying goods in the free zone, and making goods available for examination
- the circumstances in which HMRC is required to be notified that goods are to be kept in a free zone
- the record keeping for goods in a free zone, as set out in a notice listed as Notice 15, made by virtue of regulation 44.3
- that HMRC is notified of an intention to carry out an activity in a free zone, by detailing the proposed activity in the authorisation application form — as listed in Notice 8, made by virtue of Regulations 18E.2.b, 18E.3, 18E.4 and 18E.5
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to notify the responsible authority of the removal of:
- goods from a free zone and ensure the form and manner of the notification is as specified in a Notice 9, made by virtue of Regulation 18F.2
- domestic goods
- goods held under another customs procedure
Any person removing chargeable goods in contravention of such notification requirements is liable to import duty on those goods, unless the removal was unintended or due to unforeseen circumstances. Notification must be given to the responsible authority as soon as reasonably practicable. The notification and any further evidence provided with it must be sufficient to demonstrate the customs status of the goods to the responsible authority.
There is a requirement that holders authorised to declare goods for free zone processing cannot also export those processed goods under preference arrangements. Some UK free trade agreements prohibit goods that entered the UK without customs duties and are later exported under preference agreements, known as duty drawback clauses.
The regulations also detail circumstances and conditions where:
- a business can choose to determine the duty liability by reference to the goods as they stood at the time of the application for the free zone procedure, or it can do so after the authorisation has been granted
- once it has elected to determine the duty liability in this way it must not determine the duty liability by reference to the processed goods
- the processing activities or operations must be in accordance with regulation 18G.2 of the Special Procedure Regs (qualifying processes and operations)
- the processing must take place within the specified throughput period, as set out in either the authorisation letter or as otherwise notified to the authorised business by HMRC
- in some circumstances the business is required, without election, to determine the duty liability by reference to the goods as they stood at the time of the declaration — for example where the imported goods are subject to trade measures
These regulations bring goods declared for a free zone procedure within the scope of:
- the Transfer of Rights and Obligations (TORO) provisions
- the supplementary provisions for discharge of a special customs procedure
- the equivalent goods provisions, such that similar free circulation goods can be used in a free zone activity in place of duty suspended imported goods
Read more on The Customs (Special Procedures and Outward Processing) (EU Exit) Regulations 2018.
Paragraphs 14 and 39 of schedule 1 to the Transit Regulations provides that where certain transit procedures are discharged and immediately beforehand the goods are in a free zone, the goods may be treated as having been declared for a free zone procedure.
Read more on The Customs Transit Procedures (EU Exit) Regulations 2018.
Known as the Export Regulations.
Regulation 7
This regulation provides that where goods of a declaration for a free zone procedure has been made but that procedure has not been discharged, are deemed to have been exported in accordance with the applicable export procedure (see section 35 TCTA) if the conditions in paragraph 2B are satisfied.
Regulation 59B.1B
This regulation sets out the conditions for making an ‘onward export notification’ for goods that have been declared for a free zone procedure. This regulation is contained in part 8A of the Export Regulations and regulation 7.1 and 7.2A provide that goods in respect of which part 8A (onward export) applies will be treated as having been exported in accordance with the applicable export procedure.
Regulation 59D
Regulation 59D provides that if the goods have not been exported within 150 days beginning with the day on which the notification was given, the notification will be treated as having been withdrawn.
Read more on The Customs (Export) (EU Exit) Regulations 2019.
These regulations make provision for penalties in respect of contravention of the free zone requirements.
More information is available at Civil penalties for contraventions of free zone requirements in this handbook and The Customs (Contravention of a Relevant Rule) Regulations 2003.
Part 14A, titled ‘Excise Goods in Free Zones’, contains six new regulations, 85A to 85F. These new regulations:
- define the meaning of certain terms relating to free zones and the free zone procedure, ‘relevant excise goods’ and ‘revenue trader’
- set out the requirements of holding excise goods in a free zone
- set out the authorisation requirements for operators of a free zone excise warehouse
- set out the approval requirements for owners of goods in a free zone excise warehouse
- set out the excise duty point and the person liable to pay the excise duty where a contravention of the requirements of Regulations 85B, 85C or 85D occurs, or where the goods are abandoned
- set out the penalty and appeal provisions in respect of a contravention of the requirements of Regulations 85B, 85C or 85D
Read more on The Excise Goods (Holding, Movement and Duty Point) Regulations 2010.
A new zero-rate Group titled ‘Group 22 — Free Zones’ provides for the circumstances in which supplies of goods and services taking place in a free zone are zero-rated for VAT. it defines the meaning of certain terms relating to free zones and the free zone procedure.
Read more on schedule 8 to the Value Added Tax Act 1994.
Regulation 14 requires the reference ‘free zone’ to be stated on a VAT invoice that relates wholly or partly to a supply of goods or services falling within Group 22 of Schedule 8 to the VAT Act 1994.
Read more on The Value Added Tax Regulations 1995.