EU free zones: What do they offer to businesses?

Free trade zones are an increasingly popular solution for facilitating world trade. Today, there are over 5,000 of these areas around the globe, and it is estimated that they account for up to 20 percent of world trade. While many such zones are located in developing and emerging countries, they can also be found in developed economies. In the EU, these regimes are known as free zones and can offer a range of benefits for businesses bringing non-union goods into the bloc.

So, what can free zone areas offer to businesses and what do firms need to know in order to take advantage of them?

What are EU free zones?

Free zones are designated areas within the EU's customs union that allow companies to import goods to the bloc without the need to pay import duties or other taxes, while other commercial policy measures also do not apply. They are roughly equivalent to similar schemes in other jurisdictions around the world, such as the US' free trade zones.

Any member state may establish a free zone provided it communicates this to the European Commission. It will be up to each national government to determine the specific requirements relating to these zones, including the kinds of goods admissible and the nature of any operations to which items may be subjected within them. As such, it will be important for any enterprise looking to take advantage of these to ensure it is familiar with local laws.

Where are EU free zones located?

As of 2023, there are 62 active free zones around the EU. This marks a slight decline from previous years - in 2007, for instance, there were 78 - with several countries such as the Czech Republic and Germany significantly reducing their number of zones. However, some other member states, such as Italy and Spain, have bucked this trend with an increase in free zones in recent years.

Currently, 18 of the 27 EU member states have active free zones, with a further two (Hungary and Cyprus) only having inactive zones. The EU countries without a free zone are Austria, Belgium, Finland, Ireland, Slovakia, Sweden and the Netherlands.

How do free zones work?

Free zones allow businesses to import non-EU goods into the bloc's territory without the need to pay normal import duties, taxes or other measures as long as the items remain in the designated zone. This can allow for the storage or processing of items before they are released into the full EU market - at which time any outstanding duties will need to be paid - or let goods be placed into another special procedure such as inward processing, temporary admission or end-use procedures. Goods may also be re-exported outside the bloc without paying any taxes.

EU goods may also be moved into these free zones for storage, usage or processing. This may allow companies to add value to items or undertake manufacturing operations that may require both EU and non-EU components without the need to pay duties until finished products are shipped out of the zone or exported.

The benefits of EU free zones

Free zones allow companies to defer or avoid a range of taxes, which enables them to better manage cash flow and keep goods closer to their final destination in order to respond more quickly to fluctuating supply and demand. 

While research by the European Commission suggests that the overall economic benefits of free zones vary throughout the bloc, the areas do support business creation and help stimulate new industries and activities to support diversification. Overall, it found the use of free zones accounts for up to 19 percent of annual regional GDP and up to six percent of regional investments.

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