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Freezones

12 March, 2024

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Free Zones are the states or ports the country declares as no-charged locations for a foreign investor to register their business. They can introduce their services or products without import duties, tax charges, and commercial regulations. These attributes attract more investors in the country, leading to an economic boost. Most free zones have nominal taxation to encourage economic activity in the country. The regulations depend on the country every free zone has different measures depending on the policies. 

The World Trade Organisation (WTO) controls and facilitates international trade and signed an agreement on the content of free zone conditions and benefits. However, the same characteristic enhances the interest of criminals, fraudsters, and money launderers in the free zones. 

Understanding Freezones 

Countries design free zones to protect investors from taxation and rigid regulations. Countries offer special incentives to foreign companies that will encourage trade, investment, and economic development. These free economic zones were designed after the collaboration of the group of countries. 

To develop a free zone, countries first make agreements according to both country’s foreign policies. They will set rules for how the trade works and what overcoming these trades will be. These rules will shape the trade and conclude how much trade will be free. This also provides the futuristic outcome of the trade before starting. Free zones are converted into different forms, such as port trade, industrial parks, central business hubs, export zones, etc. The primary aim of creating a free zone trade policy is that all countries in the trade area agree on measures and assets for each other to boost the economy.

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Types of Freezones 

Most governments designed four significant types of free zones to attract investors. Moreover, develop different legislation and obliged policies for the companies working under these. 

Free Ports

The larger area of the free zones is referred to as the broader free zone because, in free trade, there are various free economic zones. It depends on the government if they design a wider area individual free zone or different free trade zones for different economic activities. Incentives also vary from one free zone to another in serval zones. The nature of free ports directly depends on the government agreement with other countries on whether they follow a single free zone structure or rely on various free zones. 

Free Trade Zones 

These are designed near the entrance ports, such as airports, sea ports, or entrance borders. Because the countries developed them to store the products for duty-free re-exports around the country and provide them warehousing to facilitate their trade. The government’s focus in free trade zones is commerce, such as finished and semi-finished products. FTZs have sprung up all over the place in recent years; there are currently over 3,000 FTZs spread across 130 different countries. They also allow companies to import and export goods without incurring customs duties.

Export Processing Zone 

These export zones offer investors limited regulations and incentives for creating and designing their products, primarily focusing on exports. However, many export processing zones allow non-exporting activities. To attract more export-oriented companies, they are provided with special incentives, such as tax breaks and reduced regulatory requirements, to encourage the production of goods. EPZs simply aim to boost a country’s export capabilities and create employment opportunities.

Special Economic Zones 

A free zone tool for the positive shift in countries’ economies creates a specific, well-defined area for direct foreign investment. The primary aim of this zone is to import the parts, raw materials, and components to design the goods and export them into the international market. SEZs provide favorable investment opportunities with limited oversight from the regulatory authorities compared to other areas in the same region, including tax bypass and low labor rates.  

Vulnerabilities of Freezones

  • Corrupt and free trade zones enhance criminal activities around the globe and enable the transport of illegal goods. Money launderers use free zones to launder their illicit gain money. 
  • Limited regulations allow fraudsters to breach the country’s security and use financial services illegally. 
  • It is complicated for countries to keep the free trade zones secure and protect the worldwide economy from financial fraud. 
  • Identifying business and preventing money laundering is a challenging task in free zones
  • Counter-terrorism financing in the free zones is also complicated and complex without international compliance standards. 
  • The economic impact of the free zones does not directly benefit the individuals because it is created for businesses. 

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