The Concept Behind Free Zones And Georgian Reality
A Free Zone is set up in a part of a specific region or a geographical location where any legally permitted production of goods and services are exempt of taxation (fully or partially, depending on legislative framework) and other bureaucratic barriers. It is of high importance that such zones act as a one-stop shop, cutting excessive adherence to official rules and formalities, simplifying administrative procedures. This situation leads to reduced transactional costs for international companies.
Why do governments decide to set up Free Zones? The primary factors are:
- Attracting of Foreign Direct Investment (FDI);
- Incentivize economic activities in a specific region;
- Development of the new markets;
- Reduce unemployment rates;
- Boosting technological skills.
There are four main types of Free Zones:
- Free Trade Zones - typically located near seaports or airports, mainly offer exemptions from national import and export duties on goods that are re-exported. Local services gain, though there is little, if any, value added to the goods traded.
- Export Processing Zones - these go a step further by focusing on exports with a significant value added, rather than only on re-exports.
- Special Economic Zones – these apply a multispectral development approach and focus on both domestic and foreign markets. They offer an array of incentives including infrastructure, tax and custom exemptions, and simpler administrative procedures.
- Industrial Zones – these are targeted at specific economic activities, e.g. media or textiles, with infrastructure adapted accordingly.
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