Scottish Green Freeports: An introduction and FAQs

• Forth Green Freeport; and
• Inverness and Cromarty Firth Green Freeport.

Freeports operate differently in different countries and there is no single description or definition. The Scottish Government's Economic Development Directorate describes a green freeport as:

"…a large, zoned area within a defined boundary which includes a rail, sea or airport. Operators and businesses in the zone can benefit from a package of tax and other incentives through a combination of devolved and reserved levers."

It is worth noting that tax reliefs will not be available across the entire green freeport zones and will only be available within the designated tax sites. Further information on these sites is provided below.

Eight freeports have been set up in England. Seven of these are around seaports (Freeport East (Felixstowe and Harwich), Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames) and one is anchored to East Midlands Airport. The tax sites for the English freeports were mostly designated in 2021 and 2022, with a few designations in 2023 and 2024. All the English freeports apart from Humber Freeport are now fully operational (i.e. eligible for seed capital and retention of business rates, which was backdated to the designation of the tax sites.) Two freeports are also being set up in Wales – Anglesey Freeport and Celtic Freeport.

The aims of the UK Government freeport policy were:

• To establish freeports as national hubs for global trade and investment across the UK: intensifying the economic impact of UK ports by enhancing trade and investment and generating increased economic activity across the country;
• To promote regeneration and job creation: creating high-skilled jobs in ports and the areas around them, prioritising deprived communities to level-up the UK economy; and
• To create hotbeds for innovation: creating dynamic environments, capitalising on new ideas and fostering the conditions to attract new businesses, investors and innovation.

In February 2022, it was announced that agreement had been reached between the UK and Scottish Governments for the UK Government to provide support for two "green freeports" in Scotland. The difference between the English freeports and the Scottish green freeports are the latter's focus on contributing to the Scottish Government's Net Zero agenda. The announcement set out that applicants for green freeport status in Scotland would require to meet the following criteria:

• make a contribution towards a just transition to net-zero emissions by 2045, delivering net-zero benefits and creating new green jobs; and

• demonstrate how they would support high-quality employment opportunities that offer good salaries and conditions, and how fair work would be embedded in the green freeport area.
  

The concept of "just transition" is one that appears throughout the Scottish Government's climate change agenda; it is embedded within the Climate Change (Scotland) Act 2009 through changes introduced in 2019 by the Climate Change (Emissions Reduction Targets) (Scotland) Act.

The Scottish Government is committed to ensuring that the transition to Net Zero should be inclusive and achieved without leaving people behind. One of the key features of the Scottish green freeport policy is a focus on applying the freeport benefits to businesses that are actively contributing towards the achievement of the Scottish Government's Net Zero goals and which can demonstrate a commitment to treating workers fairly whilst doing so. While the business cases for each of the green freeports are being developed, it remains unclear if each freeport's application has satisfied the Scottish Government's requirement that they promote and contribute to the Scottish Government's Net Zero commitments, or if certain "green criteria" may need to be met by businesses to obtain some of the proposed green freeport reliefs and incentives.

Some of the key advantages are:

Accessing seed funding

Each green freeport can access a maximum of £25 million of seed capital funding once the Full Business Case (referred to further below) is approved. The UK and Scottish Government guidance sets out the intention that this seed funding will principally be applied to:

• Site assembly and remediation works; and
• Transport infrastructure connecting sites within the green freeport to each other, the immediate surroundings, other assets within the green freeport's outer boundary, or to the wider Travel to Work Area.

Tax incentives

The proposed Forth Green Freeport tax sites are at Grangemouth, Rosyth and Mid-Forth (Leith and Burntisland).

The proposed Inverness and Cromarty Firth Green Freeport tax sites are Cromarty Firth Tax Site, Ardersier Tax Site and Inverness Tax Site.

Within the designated tax sites there will be a number of tax reliefs, including:

• Land and Buildings Transactions Tax (LBTT) relief on the purchase or lease of qualifying non-residential property;
• enhanced capital allowances; and
• National Insurance Contributions (NICs) relief.
  

The LBTT relief has been introduced by the Scottish Government and is similar to the existing SDLT relief which applies to the English freeports, whilst enhanced capital allowances and NICs reliefs are existing UK Government reliefs. As referenced above, the tax reliefs only apply within the tax sites, and not within the wider green freeport zones.

Non-domestic rates (NDR) relief

NDR relief will be available for businesses occupying property in the Scottish green freeport tax sites.

In the English freeport tax sites, 100% relief from NDR is available for new build, and a reduced relief for extension to premises. In the Scottish green freeport tax sites, it is expected that NDR relief will also be available but full details have not yet been confirmed. This is a topic we will continue to monitor. Forth Green Freeport intends to publish a set of investment principles which those investing in the freeport area will be expected to subscribe to.

Customs benefits

The proposed Forth Green Freeport customs sites are at Burntisland and Edinburgh Airport.

The proposed Inverness and Cromarty Firth Green Freeport customs sites are at Invergordon Service Base, Admiralty Pier, Nigg Energy Park and Port of Inverness.

Various tariff benefits will apply to authorised businesses operating in the customs sites, including:

• duty suspension (where import duties will not apply to authorised businesses operating in green freeport customs sites for storage or processing; duties will only be payable where goods are declared for home use in the UK);
• duty flexibility (calculating import duties based on value); and 
• duty exemption for re-exports;
  

as well as non-tariff benefits, such as simplified import declarations.

For local authorities: NDR retention

Indications from the UK and Scottish Governments are that the relevant councils will be permitted to keep the non-domestic rates growth on green freeport tax sites above an agreed baseline, rather than those rates being redistributed centrally. While accountability for the appropriate disbursement of the retained NDRs, as public funds, will lie with the relevant council, it will be for the green freeport governing bodies to set the strategic direction for the application of those funds.

We are currently in the "Set Up Phase".

In April 2023, the Department for Levelling Up, Housing and Communities and the Scottish Government published joint guidance on the "Set Up Phase" and the three stages of this are Scottish and UK Government approval of:

1. an Outline Business Case (OBC) and Full Business Case (FBC) – ‘the Business Case Process’;
2. proposed tax sites – ‘the Tax Site Process’; and
3. proposed customs sites – ‘the Customs Site Process’.
   

Forth Green Freeport submitted its OBC to the Scottish and UK governments on 24 November 2023. 

Falkirk Council and the Highland Council are the Accountable Bodies for the Forth Green Freeport and the Inverness and Cromarty Firth Green Freeport respectively.  Their key responsibilities are:

• Receiving the capital funding payable in respect of each green freeport;
• Accepting responsibility for ensuring that relevant regulations and best practice standards (including in respect of public procurement) are met for the application of the seed capital funding; and
• Delivering value for money and the policy objectives in the application of the seed capital funding.
  

It is anticipated that the Councils' roles as Accountable Bodies will come to an end once the development and seed funding projects are completed. The green freeports will then be run by the green freeport governing bodies.

The OBCs and FBCs allow the green freeports the opportunity to build on their successful bids and to set out for both the Scottish and UK Governments their wider and more detailed strategic visions.

These documents will allow both Governments to have confidence in what the green freeports want to achieve and that they are set up to deliver those aims.

Maps of the proposed tax sites within the green freeports were included in the successful bids and revised maps were included in the OBCs.

The precise outline of the tax sites is currently being considered and assessed to ensure the sites meet the criteria (size, shape and potential to deliver the strategic objectives) established in the bidding prospectus issued by the UK and Scottish Governments.

The tax sites will not be approved until the OBC has been approved. Once the tax sites have been approved, they will be designated by the UK Government. This will trigger the availability of the LBTT and NDR reliefs, and the UK Government tax reliefs (enhanced capital allowances and NICs relief).

The OBC includes a tax site management strategy to encourage well-aligned investment. The joint Scottish and UK Government guidance on the set up of the green freeports indicates that best practice would include the use of contractual agreements, formalising the obligations of landowners and the green freeport governing body under the tax site strategy.

HMRC approval of the customs sites within each green freeport is required before a site can be designated. This is not expected to take place until 2024.

Where a business seeks to benefit from customs site benefits, specific HMRC authorisation will also be required.

Current indications suggest:

• Approval of the OBCs and the tax sites being designated during spring 2024; and
• FBC approval and (including HMRC approval of the customs sites) and the green freeports becoming operational during spring 2024.