The Benefits of Using a Foreign Trade Zone
From large manufacturers to individuals; or any size importer or exporter can take advantage of a foreign-trade zone (FTZ). However, many companies are unaware of the sizable cost savings and other benefits they can achieve by taking advantage of an FTZ program. Utilizing an FTZ can significantly reduce costs or customs duties; taxes and tariffs; improve global market competitiveness; and minimize bureaucratic regulations. Outside the United States, there are many other names for FTZs, including free, foreign, or export processing zones. Below are some benefits of using an FTZ.
Deferral, reduction, or elimination of certain duties. FTZs allow the most duty deferral of any kind of customs program. Companies can bring goods into the FTZ without duties or most fees, including exemption from inventory tax.
Relief from inverted tariffs. In some cases, tariffs on U.S. component items or raw materials have a higher duty rate than the finished product, putting a U.S. manufacturer at a cost disadvantage to an importer. However, by participating in an FTZ, the U.S. manufacturer pays whichever duty is lower. In many cases the tariff of the manufactured good is zero, eliminating any costs associated with importing raw materials and goods. There is no way to take advantage of inverted tariffs without operating in an FTZ.
Duty exemption on re-exports. Since an FTZ is considered outside the commerce of the United States and U.S. Customs, a company importing components or raw material into the FTZ does not pay customs duty until it enters U.S. commerce. If the good is exported from the FTZ, no customs duty is due.
Duty elimination on waste, scrap, and yield loss. Since a manufacturer operating in an FTZ does not pay duties on imports until its goods leave the FTZ and enter the United States, it essentially is paying for the duties on the raw materials after they have been processed. Thus, duties owed do not include manufacturing by products, such as waste, reducing the amount of goods taxed.
Weekly entry savings. Instead of filing an entry every time a shipment enters the country, an importer operating in an FTZ only needs to file one customs entry a week, reducing bureaucratic headaches and costs associated with entry filings. There is a 0.21-percent merchandise processing fee for every entry, with a minimum of $25 and a maximum of $485 per entry for goods with a value of over $230,952. A company with 10 shipments a week, each of which are over $230,952, would save $226,980 annually with weekly entries. Weekly entries also save on customs brokerage fees.
Improved compliance, inventory tracking, and quality control. FTZs allow companies to more closely track their inventory. By bringing goods into an FTZ warehouse that you control, you can identify and classify goods at the warehouse instead of at the port at a Customs control location.
Indefinite storage. A company can keep its goods indefinitely in an FTZ holding them until a port opens up, or if there are quotas on an item, waiting until they can be entered into U.S. Commerce without falling under quota restrictions.
Waived customs duties on zone-to-zone transfers. FTZs can be used to manage trans-shipping operations, saving money on manufacturing processing fees. While most companies are focused on using FTZs for exports, FTZs can also be used to take advantage of cross-docking and transferring goods from one FTZ to another without paying Customs duties. Many mid-level companies, in particular, are using this capability to transfer goods to FTZs both within and outside the United States.
Merchandise Entering a Zone May Be:
• Assembled • Cleaned
• Destroyed • Displayed
• Mixed • Manipulated
• Manufactured • Processed
• Re-labeled • Repackaged
• Repaired • Salvaged
• Sampled • Stored
If your business is involved, or considering becoming involved in international trade, consider the many advantages offered by Foreign Trade Zones. Call for a detailed informational package which further explains the many advantages offered by the Zone.