international trade and vat free zones

Introduction & DeclarationPlease note that Free Zones will not be

available within the UK with effect from July 2012.

If you wish to obtain benefits similar to those under the Free Zone arrangements you are advised to consider customs warehousing arrangements.

IntroductionFree Zones are special areas, usually near

ports or airports, for the storage of imported goods under beneficial customs conditions. When goods are held in a Free Zone, import duty, VAT and excise duties are suspended on goods imported from outside the European Community until the goods are released into free circulation, used or consumed within the Free Zone.

IntroductionFree Zones can help you to manage the process

of importing goods more effectively and/or improve cashflow. Once you are authorised to operate in a Free Zone (or you have chosen an operator who is already authorised to operate on your behalf) you can enter your goods and then remove them when it suits your business. You may also, if authorised by HM Revenue & Customs (HMRC), carry out certain handling or processing operations on the goods while they remain in the Free Zone.

IntroductionThere are currently five Free Zones in the

UK, and another Free Zone on the Isle of Man. They are supervised by Free-Zone managers. This guide shows you how to use Free Zones, how to get the authorisations you need and how to remove your goods.

About Free ZonesPlease note that Free Zones will not be


Free Zones are officially defined areas of land in the UK and throughout the European Community (EC) where customs duties, including Common Agricultural Policy (CAP) charges, are suspended on goods imported into the Free Zone from outside the EC. VAT and excise duties are also suspended until the goods are removed from the Free Zone or used or consumed within the Free Zone.

About Free ZonesFree Zones can provide a number of important

benefits to businesses importing goods into the European Union (EU). Some possible benefits of using Free Zones include:Improved cash flow management by removing the

obligation to pay VAT or import duty at the same time as goods are physically transported into the UK - you can meet your import tax obligations closer to the time you sell the goods

Better flexibility in choosing destinations for your goodsAs an alternative to using the dedicated Free Zone

facilities, similar benefits can be obtained by using customs warehousing.

VAT and duty in Free ZonesGoods brought from outside the EC and held in

a Free Zone are treated as being outside the customs territory of the EC even though they are physically within it. However, any UK and EC prohibitions and restrictions still apply.

In the Free Zone you can store goods without paying import VAT, excise duty or import duty (including CAP agricultural charges) until you remove the goods.

VAT and duty in Free ZonesImport VAT on your goods is suspended in

Free Zones. Traders must pay VAT when the goods are removed from the Free Zone or used within it.

Import duties (including agricultural charges) are also suspended, as long as the goods are not released for free circulation. Excise duty is also suspended until the goods are released to the UK market or used in the Free Zone.

Free Zones in the UK & Isle of ManThere are currently five Free Zones in the UK and

one in the Isle of Man. The UK Free zones are located in: Liverpool, Prestwick (Ayrshire, Scotland), Sheerness (Kent), Southampton and Tilbury (Essex). Each is controlled by its Free-Zone manager and supervised by the local Customs office.

Free Zones exist in many other EU countries, including Bulgaria, France, Germany, Denmark, Finland, Greece, Italy, Portugal, Spain and Sweden.

Free Zones in the UK & Isle of ManUK Free Zones are known as 'Type II' Free

Zones. This means that they are run in a similar way to a customs warehouse. Other EU countries run 'Type I' Free Zones, with a perimeter fence, and checks are made on goods as they are entered to and removed from the Free Zone.

Free Zones in the UK & Isle of ManOperators of Free Zones have to be authorised by HM

Revenue & Customs (HMRC). To be authorised you must apply in writing to the relevant HMRC Office, setting out:What you intend to do in the Free ZoneThe kind of goods that will be moved thereWhere the goods will come fromHow you will move the goodsRelevant general company information

You will also need a letter of support from the Free Zone manager who should be aware of your proposed business intentions and practices.

What goods can be placed in Free Zones?Please note that Free Zones will not be


Two types of goods can be placed in a Free Zone:Goods from outside the European

Community (EC), known as non-Community goods

Community goods (goods acquired from within the EC), including those from the UK

What goods can be placed in Free Zones?The same restrictions apply to goods brought

into a Free Zone as to goods imported into the UK. If you want to enter goods such as firearms, ammunition, explosives, controlled drugs or goods requiring a public health certificate, you will need to hold the relevant licence and present it to the manager of the Free Zone when the goods are entered.

A Customs declaration is required for all non-Community goods entering a Free Zone.

Getting authorisation to operate in a Free ZonePlease note that Free Zones will not be


If you want to use a Free Zone, the procedure depends on how you plan to operate. If you want to run a business within a Free Zone, you need authorisation from Customs and a supporting letter from the Free-Zone manager.

Getting authorisation to operate in a Free ZonePlease note that Free Zones will not be available

within the UK with effect from July 2012.If you do need to apply for authorisation to run a

business within a Free Zone, you should write to the Customs office for that Free Zone with the following information:The nature of your business, and details of what you plan to

do in the Free Zone (for example, any handling or processing)

The name, address and VAT number of your company, including the correct legal entity

The full names of the directors or partnersDetails of any associated businesses

Getting authorisation to operate in a Free ZoneIf you do need to apply for authorisation to run a business

within a Free Zone, you should write to the Customs office for that Free Zone with the following information:The identity and details of any building in the Free Zone that

will be used and a description of the goods involvedWhere the goods are from and their customs statusThe methods that will be used to declare goods into the Free

Zone and remove them from the Free ZoneDetails of the stock records that will be maintained, including

any computer software that will be usedAny other relevant informationEnsure you have a letter from the manager of the Free Zone

supporting your application

Getting authorisation to operate in a Free ZonePlease note that Free Zones will not be available

within the UK with effect from July 2012.

Customs officers from HM Revenue & Customs (HMRC) will send you a letter of authorisation setting out the conditions for your use of the Free Zone, including keeping the Free-Zone manager informed, providing information, keeping records up to date and ensuring employees observe customs laws. Additional authorisations are required to use the Customs Freight Simplified Procedure (CFSP) or to build inside a Free Zone.

Getting authorisation to operate in a Free ZoneThe responsibilities of a Free-Zone operator are as

follows:Accurate records must be kept of all goods entering and being

removed from the Free ZoneThe consignment must be examined by yourself or your agent,

to ensure that the number of packages or weight and types of goods received agree with the goods described in the Free-Zone declaration

With goods in containers, you must check the identifying number of any seals and ensure they are intact

Ensure that the goods are taken directly to the Free Zone stated in box 49 of the C88 (SAD) declaration, without any delay and delivered intact - the goods must be transported direct to the designated premises and entered to the Free-Zone procedure as soon as possible

Getting authorisation to operate in a Free ZoneThe responsibilities of a Free-Zone operator are as

follows:Provide the Free-Zone manager with a copy of the C88 (SAD)

declaration (before or at the time of arrival) of the goods moving into the Free Zone

Provide the Free-Zone manager with an explanation of any discrepancies that have been brought to your attention, regarding your Free-Zone stock entering or already held in the Free Zone

Ensure all duties due on any discrepancies in goods received at the Free Zone are paid, if they cannot be properly accounted for

If it is specified in your authorisation, you should notify the supervising office for your Free Zone of the arrival of the goods

To ensure that your Free-Zone authorisation is valid for the goods concerned

Getting authorisation to operate in a Free ZoneAnyone can apply to HMRC to have an area of land

designated as a Free Zone. Whether you are successful depends on whether the Free Zone will be economically viable, whether you have local authority planning approval and various other factors. It is unlikely, for instance, that you could operate a free zone in your home.

A new Free Zone will need to be clearly defined with a map showing the boundaries of the Free Zone. The Free Zone will be set up by Statutory Instrument through Parliament for a defined time period as agreed with HMRC.

Getting authorisation to operate in a Free ZoneIf approved as a Free-Zone manager, you will need to

abide by the conditions and obligations listed below:If specified in your authorisation, notify the supervising office

for your Free Zone of the arrival of the goods - the supervising office will already have agreed the method of notification with you.

Ensure your Free-Zone designation is valid for the goods concerned.

Allocate to each entry the next consecutive stock number or stock numbers from the Free-Zone records stock number master list.

Enter in the Free-Zone record details of the goods actually received and check whether the quantity is more or less than the quantity declared on the Free-Zone entry.

Getting authorisation to operate in a Free ZoneIf approved as a Free-Zone manager, you will need to

abide by the conditions and obligations listed below:Establish and resolve any discrepancies.If you receive two copies of the C88 (SAD) declaration for

endorsement as evidence for Inward Processing (IP) purposes, you should endorse the reverse of both copies with: Stock reference number(s) Quantities and values of the Free-Zone goods Your signature and the date Any discrepancies found between the details of the

declaration and the goods actually entered to the Free Zone

Getting authorisation to operate in a Free ZoneYou should retain one copy and send the other to

the IP trader.

In cases of discrepancy (if you do not own the goods) you must inform the Free-Zone operator immediately so they can investigate what has happened and provide you with a satisfactory explanation and/or supporting evidence. Goods received in excess of the entered quantity must be regarded as dutiable and provisionally entered to the Free Zone until the matter has been resolved.

Getting authorisation to operate in a Free ZoneIt is not necessary for you to routinely report to your

supervising office all discrepancies between import entry documents and goods received but you should have in place a system to investigate and resolve under- or over-shipments. A report will only need to be made if the discrepancies are not resolved within 14 days.

If you receive a preference certificate (as per the paragraph above), you should endorse it with the stock reference number for the consignment it covers and the date of entry to Free Zone of the goods. This is to avoid the risk of losing preferential treatment if the certificate's time limit expires before the goods are removed from the Free Zone and declared to free circulation.

Entering goods into a Free ZoneNon-Community goods can be entered into a

Free Zone in a number of ways:Directly from importFrom Community Transit (CT)From a Customs warehouseFollowing Inward Processing (IP)Following Processing under Customs Control

(PCC)After a claim for duty relief on rejected imports

has been approvedAfter temporary import

Entering goods into a Free ZoneYou need to comply with the relevant transfer procedures

for each customs procedure. Volume 3 of the Tariff contains the full list of customs procedure codes (CPCs) for each option.

Goods can also be returned to a Free Zone after they have been temporarily removed, or if they are being transferred from a different Free Zone (in the UK or another European Community country).

If you want to bring non-Community goods (those from outside the European Union) into a Free Zone, you will need a Customs declaration.

Entering goods into a Free ZoneTo enter goods to the Free-Zone procedure

using the normal arrangements, you must declare the goods for entry to Free Zone on the Single Administrative Document C88. It's particularly important to complete boxes 8 (with trader/Free-Zone manager identity and/or address, consignee and number as appropriate), 30, 31, 37 and 49.

Box 37 includes a seven-digit CPC indicating where the goods are coming from.

Entering goods into a Free ZoneA third party such as an agent or freight

forwarder can enter goods into a Free Zone on your behalf. You must give them clear written instructions.

If authorised to use Customs Freight Simplified Procedures (CFSP) you may also use CFSP to enter goods into the Free Zone.

Entering goods into a Free ZoneOnce goods are released from Customs, you

should take them directly to the Free Zone as soon as possible. You need to give a copy of the Customs declaration to the manager of the Free Zone, who will record the details in the Free-Zone manager's records. Any discrepancies between the quantities of goods declared and actually received should be resolved within 14 days.

What you can do with goods in a Free ZoneInformation Sheet INF 8/C 1247 may be used to

assess the customs debt applicable to goods before usual forms of handling have been carried out in customs warehouses or Free Zones.

There are four types of operation you can carry out in a Free Zone: storage, handling, processing and destruction.

You can store goods in a Free Zone for an unlimited time (although time limits may apply to some CAP goods).

What you can do with goods in a Free ZoneYou can do whatever minor handling is

required to keep the goods in good condition or to prepare them for sale. The tasks (known as 'usual forms of handling') include repairing damage or removing damaged components, reconstruction after transport, stocktaking, conservation (of food goods), and packing or repacking. If you're not sure whether what you want to do is considered a 'usual form of handling', you should seek advice from Customs.

What you can do with goods in a Free ZoneSubject to specific authorisation by HM Revenue &

Customs (HMRC) you can process goods. This includes both manufacture and assembly. You need authorisation to process non-Community goods under Inward Processing Relief for goods that will be re-exported or under Processing under Customs Control (PCC) to process non-Community goods for the Community market. In all circumstances involving processing work you must consult with the Free-Zone manager and HMRC supervising office before you undertake such work.

You can destroy unwanted goods provided Customs are notified in advance and stock records are updated as required.

Removing goods from a Free ZoneNormally, you lodge a declaration on the Single

Administrative Document (SAD), also called the C88, to remove goods from a Free Zone. The manager of the Free Zone can do this on your behalf.

However, make sure these SAD boxes contain the following information:Box 21 - GBBox 25 - the code for the mode of transport by which the goods

entered the EU - 1 to 9Box 30 - the location code for the Free Zone concerned Box 37 -

a Customs Procedure Code (CPCs) in the 40 78 seriesBox 49 - type Z followed by the 7-digit authorisation number.

Removing goods from a Free ZoneAlternatively, you can apply to use Customs Freight

Simplified Procedures (CFSP) to remove your goods. The Local Clearance Procedure (LCP) can be used. In this case, you need to use specific CPCs on the Supplementary Declaration.

Some goods may have to be examined by Customs before they are released. If this applies to your goods, you need to notify Customs that you want to remove your goods from the Free Zone 24 hours in advance.

It is an offence to remove goods from a Free Zone without Customs authority.

Removing goods from a Free ZoneYour obligations on removing goods from a Free

Zone depend on where the goods are going:

If your goods are to be put into free circulation once they leave the Free Zone, import duty and any other charges must be paid. A Customs declaration is required. This can be done either on the SAD (C88) or electronically via Customs Freight Simplified Procedures (CFSP).

Removing goods from a Free ZoneIf your goods are being removed to another European

Community (EC) country, you will need to decide whether they should be put into free circulation on removal - paying the import duty and any other customs charges due - or whether they should remain in duty suspension, in which case you will need to enter the goods to Community Transit or another customs suspense procedure such as inward processing or customs warehousing.

If your goods are being exported to a non-EC country, you do not need to pay import duty or other customs charges. A Customs (re-)export declaration is required. This can be done either on the SAD (C88) or electronically via the National Export System (NES).

Removing goods from a Free ZoneThe electronic NES allows you to submit export

documentation electronically. There are two types of procedure, normal and simplified. The normal procedure consists of a full declaration on a SAD (C88). There are two types of simplified procedure:

Simplified Declaration Procedure (SDP), which can be used at the UK frontier

Local Clearance Procedure (LCP), which can only be used at an approved inland location

Removing goods from a Free ZoneYou need Customs approval to use NES (SDP or

LCP). You can obtain it by completing Form C&E 42. You then need to have your Free Zone approval amended to include the use of simplified procedures.

You have to be able to prove that you have disposed of your Free Zone goods in the correct way. How you do this depends on whether you are exporting directly or indirectly, and whether you are using inland clearance or Community Transit.

Free Zones and the Single Administrative Document (C88)To enter non-Community goods into a Free Zone,

you have to complete the Single Administrative Document (SAD) also known as form C88. This contains details about your goods and is used to convey key information when goods are entered into and removed from the Free Zone. Customs Procedure Codes (CPCs) recorded in the SAD indicate the customs procedure relating to the goods.

Free Zones and the Single Administrative Document (C88)These sections of the SAD are particularly important:

Box 8 contains details of whoever will place the goods into the Free Zone. In some cases, this can be the manager of the Free Zone.

Box 30 contains the location code of the Free Zone.Box 31 contains a description of the goods. This description

must be detailed enough to allow someone to identify the goods, and should include the container numbers if your goods are in containers.

Box 37 contains a CPC in the 78 series. The CPC you use is dependent on whether your goods are coming from outside the European Community or another customs procedure.

Box 49 Enter type Z followed by the 7-digit authorisation number of the Free Zone Operator followed by country code GB.

Free Zones and the Single Administrative Document (C88)Codes for British Isles Free Zones currently

operating are as follows:Liverpool - FZLPrestwick - FZK From Port of Sheerness - FZS From Port of Tilbury - FZYIsle of Man - FZX

Where to go for helpIf you wish to obtain benefits similar to those

under the Free Zone arrangements you are advised to consider customs warehousing arrangements.

Free Zones are supervised by the Free-Zone manager. All Free Zones will have a supervising office within HM Revenue & Customs (HMRC). They will be able to help you with general queries on using Free Zones and specific questions about the particular Free Zone under their supervision.

Where to go for helpIf you require any further assistance you can

contact the HMRC Excise & Customs Helpline on Tel 0845 010 9000.

If you have a complaint or suggestion, you should try to resolve it with the local Customs office first. If the issue is not resolved to your satisfaction, you can ask the independent Adjudicator to look into it. You can call the Adjudicator's Office Enquiry Line on Tel 0300 057 1111.

FormalitiesAll the information provided is for informational purposes

only and you should seek specialist personalised advice as required. As such, we accept no liability for the actions taken by the readers of this slideshow.

All information was provided by Business Link and is covered by Crown Copyright.

All information is available as shown below: BusinessLink (2012) Free Zones. Available at:

http://www.businesslink.gov.uk/bdotg/action/layer?r.i=1080220871&r.l1=1079717544&r.l2=1087348553&r.l3=1087348570&r.l4=1079819709&r.s=sc&r.t=RESOURCES&topicId=1079819709 [Accessed: 29th August 2012]

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