Free Zones are geographic areas in which a governmental authority offers incentives, different from the host country’s regular policies, to companies operating in the region. Given the nature of these incentives, designated zones are often said to function as “growth poles” for the region, or even beyond.
Within the European Union, 74 Free Zones are defined under the Community Customs Code. Exemptions beyond customs arrangements can include services such as grants offered for research and development and advanced infrastructure. But tax incentives may also be offered and these may, especially on a regional level, distort competition. As such, the tax regime applied needs to be compliant with internal market and State aid rules.
As for customs regulation, the Modernised Community Customs Code, to take effect by the end of June 2013, may also have an effect on those Free Zones in which there is currently no physical control of goods leaving and entering the zone. A measure mostly meant to streamline customs procedures amongst Member States but also underlining the importance of sufficient regulatory oversight in such zones to avoid institutional problems and organised crime.