About Freeports

Recently WealthManagment.com post an interesting article on and about Freeports.  Freeports are growing around the world, including here in the US in Delaware.  The Wealth Management article gives some good background and information about freeport storage facilities, how they work and what the benefits are.  The block quote below is only a portion of the article, please follow the source link for the full post.

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Recent headlines have depicted “freeports” as uber exclusive warehouses filled with billions of dollars of art, scandal and fraud. These headlines have left many to wonder, what exactly are freeports, how do they function, should they be used to store art and what type of art transactions occur in them?

 What Are They?

“Freeports” are areas where goods may be handled with less intervention from taxing and customs authorities. These areas are generally located in seaports and airports worldwide to facilitate international trade. Freeports were originally intended to provide areas where goods could be fabricated, stored and quickly transported by ship or plane to buyers around the world. Storage companies have built manufacturing and storage warehouses in freeports to facilitate this activity. In any discussion about freeports, questions about “bonded warehouses” commonly arise. Generally, bonded warehouses are synonymous with freeports because freeports are merely clusters of bonded warehouses in one location; however, freeports may have different tax implications.

 Historic and Current Use

Historically, freeports were used as spaces to store goods in temporary transit, free of taxes and customs duties until the goods reached their final destination. When goods are finally delivered to customers, they become subject to the taxes and customs duties of the country of delivery. Not subjecting the goods to taxes and customs regulations until final delivery results in a quicker turnaround time for various stages of such international trades.

Today, freeports are still being used to facilitate international trade. Not only do companies with high volume international sales employ freeports, but also private individuals use them for personal trading. Storage and logistics companies have built even more sophisticated and highly secure storage facilities in freeports to adjust to their expanded use, which provide for long-term and even permanent storage of luxury goods, such as fine art, rare books, historical artifacts, classic cars, vintage wine, jewelry, precious coins, classic musical instruments, sports memorabilia, entertainment and pop culture collections and gold. Companies are renting storage space in these high tech facilities to private individuals who’ve purchased goods for investment purposes and want to keep those goods in a safe location.

There’s no distinction in the treatment of goods being transported through or stored in the freeports—grains, cars and luxury goods all benefit from the tax suspension system in the freeports. There’s also no restriction on who may use the freeports—a business entity and a Russian billionaire are both entitled to benefit from the tax suspension system in the freeports.

Given the evolution of the freeports’ use, there’s been criticism that the reduced level of oversight originally intended to quicken the turnaround time of international trade is making it easier for bad actors to hide illegally acquired property in freeports and launder money. In response to these concerns, many freeports now provide their local customs jurisdiction with access to their inventory and owner lists. Owner lists are available because several freeports require owners to present customs invoices that state the owner’s name upon registration. Therefore, although customs duties don’t apply, the disclosure requirements to customs authorities are increasing.

 Security and Tax Benefits

Storing art in freeports has security and tax benefits. Freeports have evolved into areas with world-class state-of-the-art facilities that offer users both an immense security infrastructure and white-glove, museum-standard art amenities. The security infrastructure at freeports includes electronic monitoring and armed guards. The services offered generally include controlled temperature and humidity storage, museum-quality handling and packing, restoration, conservation, insurance, shipping, bespoke showrooms, private viewing rooms and office space. Thus, the storage facilities in freeports have become some of the safest places in the world to store art.

An added benefit, as previously discussed, is that freeports are tax suspension zones for certain, but not all, taxes. Sales taxes, value-added tax (VAT) and customs duties are due on final delivery to a destination outside of a freeport, and the laws of the country where the good is delivered govern the tax and customs process. The longer the art is stored in a freeport, the longer the obligation to pay such taxes and customs duties is delayed, and if the art never leaves a freeport, such taxes and customs duties will never be due.

If an individual purchased the art for purely investment purposes with no desire for personal use, there’s no incentive to move the art to a final destination outside of a freeport because the art is often more secure inside a freeport than at any other facility, any future sales can take place at the warehouse where the art is located and if the art requires any kind of servicing, specialty companies are at a user’s disposal.

Source: WealthManagment.Com