Using a Freeport customs site
Information about permitted activities, customs declarations, processing goods, record keeping, excise goods and supply of goods on a Freeport customs site.
Duties, import VAT and any applicable trade measures (such as anti-dumping or safeguarding duties) are suspended while imported goods are stored or processed in a customs site under the Freeports customs procedure.
The suspension of import duties does not apply to imported goods brought into a customs site for use or consumption in the site. For example:
- capital goods
- goods or materials to be used in construction within the site
- goods used to manufacture equipment to be used in the processing of goods within the site
Where imported goods undergo a period of storage in the customs site prior to being used or consumed within the site, they can be stored under the procedure with duties and import VAT suspended. When the storage period ends, and before use or consumption of the goods, a declaration from the Freeport customs procedure to free circulation must be made, and the customs charges paid.
Businesses who are authorised for the customs warehouse (CW) procedure can store imported goods, with import duties suspended, in a customs site. They can do this if they are not authorised for the Freeport customs procedure.
They can process goods in a customs site if authorised for the inward processing (IP) procedure. For IP, the customs site must be listed as a processing location in the business’s IP authorisation letter, as well as the nature of the processing to be carried out there. The business will be required to comply with both the general Freeport customs site rules as well as the specific rules relating to their CW or IP authorisation.
Businesses entering goods to a customs site in sealed or locked transport units, such as a shipping container, are required to open them so that the contents can be checked by the CSO. The CSO may also request goods to be removed for further inspection.
Some goods are not permitted to be declared to, or brought into, a customs site. Details of these goods are set out in a Public Notice made under regulation 18C.2 of the Customs (Special Procedures and Outward Processing) (EU Exit) Regulations 2018. HMRC may also prohibit or restrict any activity by an authorised business, where it is considered appropriate to do so for customs control purposes.
Domestic goods, meaning goods produced in the UK or otherwise in free circulation in the UK, can be used in a free zone. For example, goods used in support of the workforce or administration of the business. Domestic goods in a free zone are not held under the requirements of the free zone customs procedure, and accordingly authorisation is not required for domestic goods in a free zone.
However, commercial records for free zone businesses using domestic goods in a free zone will need to be sufficient to identify that they are domestic goods, when they were brought into the free zone and what they were used for. The business will also need to inform the CSO when domestic goods are brought into a free zone, and what they are, although the information does not have to be to the same level of detail as is required for free zone procedure goods.
When goods are declared to the freeport customs procedure they must be presented and cleared in accordance with the port customs model, before the goods can be released for movement to the free zone. Port customs models used can be such as, temporary storage or pre-lodgement of the declaration. Accordingly, presentation and clearance of the goods cannot take place in a free zone.
Goods can be moved from a port internal temporary storage facility to an external temporary storage facility and then declared by conduct to an adjacent free zone. Where the goods are declared to the freeport customs procedure, at the point they are released from the port for movement to the free zone, they are under the freeport customs procedure. They must be moved directly to the intended free zone.
In some circumstances, it may be difficult or impracticable to present the goods for pre-clearance examination in the usual manner, for example large components for assembly into offshore wind turbines, In these circumstances the free zone business should contact their authorisation supervising office for further guidance.
Simplified Customs Declaration Process (SCDP) apply to declarations to or from the freeport customs procedure. SCDP was formerly known as Customs Freight Simplified Procedures (CFSP). The processes are set out in the Simplified Customs Declaration Process handbook. Generally, SCDP can be used to declare goods to the freeport customs procedure, except where the goods have previously been declared to a customs procedure in the UK. A supplementary declaration is not required. The EIDR form of SCDP cannot be used to make an SCDP declaration for controlled goods.
An export declaration is not required for goods under the Freeport procedure. An export safety and security declaration is required where the goods have been held in the free zone for more than 14 days prior to re-export. This can be done electronically by form C21e on the Customs Declaration System (CDS) using PC/APC 0014/19Z.
An onward export notification is required where the goods are re-exported within 14 days of acceptance of the original declaration to the freeport procedure. PC/APCs 0014/19Z and 17X is used on form C21e on CDS for this.
In either case, an additional information statement is required in DE 2/2 to declare the number of days the goods have been held in the free zone prior to re-export. The code ‘FZPER’ should be used followed by the number of days. Evidence that the goods are to be removed for export must be provided to the customs site operator.
Read more on making customs declarations for controlled and non-controlled goods at Declaring goods and paying tax when using a UK freeport customs site.
Regulation 27F of CIDEER sets out the circumstances that a declaration by conduct for a free zone procedure may be made and defines what the required conduct is for the declaration. You can read more information on Regulation 27F of CIDEER in the Free zone legislation section of this handbook.
Where a free zone business uses a customs intermediary who is not authorised for the free zone procedure, to make customs declarations on their behalf, the intermediary must act in direct capacity of the business.
The throughput period covers the agreed period of time in which the imported goods are to be processed. The length of the throughput period will vary depending on the nature of the processing, but it should reflect the actual time it usually takes to complete the processing of the imported components into the intended product.
Unless there are any aggregation arrangements, the throughput period starts on the day the goods are allocated to processing in the freeport business records. This can happen at the time the goods are imported and declared to the procedure, or at a later point if the imported goods are to be stored prior to being processed.
Throughput periods can be managed by aggregating goods allocated to processing on a monthly or quarterly basis. For example, for monthly aggregation, all goods allocated to processing throughout the month of January are treated as allocated on the 31 January. Their throughput period starts on the 1 February. For quarterly aggregation, all goods allocated to processing throughout the quarter from 1 January to 31 March are treated as allocated on the 31 March. Their throughput period starts on the 1 April. Aggregation arrangements must be agreed with HMRC first.
Within thirty days of the end of the throughput period, the processed goods are required to be discharged from the procedure by making a declaration to another customs procedure (or to free circulation). Alternatively, if the business wishes to store the processed product under duty suspension, they can be allocated in the records to storage under the Freeport customs procedure. The authorised business should contact their supervising office if it becomes necessary to change the throughput period.
A Bill of Discharge is not required to be submitted to HMRC for goods processed under the Freeport customs procedure. However, the business records must contain a complete audit trail of the processing activities. This should start from when the goods to be processed enter the procedure, to when the processed goods either exit the procedure or are allocated to storage under the procedure. This includes quantity, rate of yield, customs value, and commodity codes.
Identical or very similar free circulation goods can be used in a free zone activity, in place of the duty-suspended imported goods. This is known as equivalence. The basic principles of equivalence apply to processing under the freeport customs procedure in a similar way as to the inward processing customs procedure.
There is no requirement to keep equivalent free circulation goods physically segregated from their duty-suspended counterparts in a free zone. However, the authorised business must maintain a record of which are free circulation equivalent goods and which are duty suspended goods. The use of equivalence in a free zone is subject to HMRC approval and can be applied for either as part of the free zone business authorisation application, or any time after the authorisation is granted under the notification of changes procedures set out in the authorisation letter.
Read more about processing or storing similar goods to replace UK Freeport customs special procedure goods.
At present an economic test is not required to process goods under the Freeport customs procedure. An economic test in this context means a test to determine whether the processing of imported goods under duty-suspension would be disadvantageous to UK domestic producers of the same type of goods. It requires the importer to demonstrate why they cannot use domestic goods.
The import duty liability in respect of goods either processed or subjected to usual forms of handling in a free zone may be determined by reference to the goods as they stood at the time the declaration to the free zone procedure was made. This is instead of by reference to the processed goods at the time the declaration from the free zone procedure to free circulation is made, should the declarant elect to do so.
In some circumstances however, for example for goods subject to trade measures, the import duty liability must always be determined by reference to the goods as they stood at the time the declaration to the free zone procedure was made.
Records must be kept for a minimum of 5 years after discharge of the goods from the procedure. They should contain details of all goods brought into, stored or processed in, and removed from the free zone, such as (but not limited to):
- the authorisation number of the free zone business responsible for the goods
- the customs declarations used to place the goods under the procedure and to discharge the procedure
- information that clearly identifies any documents, other than the customs declarations, connected to the placing goods under the procedure and their discharge
- details of marks, identifying numbers and kind of packages, the quantity and commercial or technical description of the goods and (where relevant) details of any containers used
- the location of the goods and details of any movements that have taken place
- the customs status of goods, including whether they are UK or non-UK goods
- details of any usual forms of handling that have taken place on stored goods, including any resulting changes in tariff classification and valuation
- details of any processing that has taken place, including the relevant throughput periods and allocation dates, the rate of yield, and any use of equivalence
- where accounting segregation is used, information about type of goods, customs status and, where appropriate, origin of the goods
- where appropriate, details of any transfer of rights and obligations that have taken place
- movements of goods to, and receipts of goods from, other free zones
- a record of any lost or damaged goods
- any additional information HMRC may ask you to keep
Excise goods are controlled goods for the purposes of the freeport customs procedure. A full declaration is required — a C21i declaration or declaration by conduct cannot be used. SCDP can be used if so authorised.
An authorised Freeport excise business is one that is both authorised for the freeport customs procedure and approved to operate a free zone excise warehouse. A free zone excise warehouse is a secure area within a free zone, or freeport customs site, for the receipt, storage or processing of excise goods declared to the freeport customs procedure. It allows for imported excise goods to be stored or processed under excise duty suspension as well as the suspension of customs duties. Excise goods declared to the freeport customs procedure must be deposited in a free zone excise warehouse operated by an authorised Freeport excise business.
Excise goods that have been processed in a free zone excise warehouse must be stored within the free zone excise warehouse and not any other area of the free zone. This is only where the intention is for the processed excise product to be stored before being discharged from the freeport customs procedure.
Imported excise goods to be stored in a free zone excise warehouse should be declared to freeport excise warehousing on Customs Declaration System (CDS) and transported directly to the free zone excise warehouse. Businesses must follow the guidance for importing controlled goods into the freeport procedure. Read more at Declaring goods and paying tax when using a UK Freeport customs site.
The use of the Excise Movement and Control System (EMCS) will not be required while goods are subject to the freeport customs procedure. This is when the goods are moving:
- from a place of import to a free zone excise warehouse
- from a free zone excise warehouse to a place of export
- within or between freeport excise warehouses
When the goods are released from the free zone excise warehouse and entered to home consumption, UK import duty, excise duty and import VAT must be paid as a standard warehouse removal. If the goods are to be removed from the free zone excise warehouse as free circulation goods, but excise duty is to remain suspended, you must follow the procedures set out in section 8 of excise notice 197 using the Registered Consignor procedures.
Supplies of free zone procedure goods between free zone businesses are zero-rated for VAT purposes, provided the supply would normally be taxable (but not zero-rated) for VAT purposes and the supplier is authorised to make the supply.
Supplies of services between free zone businesses that are carried out in a free zone or in relation to free zone procedure goods are likewise zero-rated where the supply would otherwise be taxable (but not zero-rated).
The business receiving the supply of services must inform the supplier that is is eligible for such zero-rating before the VAT invoice for the services is issued.
The reference ‘free zone’ is required to be stated on a VAT invoice that relates wholly or partly to any such supply of goods or services.
Under section 57A of the VAT Act 1994, the business is required to make an onward supply of those goods outside the free zone within three months where:
- a free zone business removes its goods from the free zone by making a declaration to free circulation
- those goods were supplied to the business at zero-rate VAT in the free zone
- services in relation to those goods were carried out in the free zone and supplied to it at the VAT zero-rate
If it does not do this it may have to account for output tax on the value of those goods as if an onward supply had been made. This is known as the free zone VAT exit charge, and is an anti-avoidance measure intended to prevent businesses that are not able to fully reclaim VAT on their purchases from gaining an unintended VAT advantage by relocating to a free zone.
Retail sales are not permitted in a free zone, other than sales to:
- individuals travelling outside the UK
- members of international organisations
- members of NATO forces
- individuals covered by diplomatic and consular arrangements
- remote and online customers, where goods are picked and dispatched to order