What to Know About Free Trade Zones for Your Business
From individuals to large manufacturing companies, any size importer or exporter can take advantage of what’s known as a “foreign-trade zone” – or “FTZ”. However, many industrial businesses are unaware of the sizable cost savings and other benefits they can achieve by taking advantage of the FTZ program.
Utilizing an FTZ can significantly reduce costs from customs duties, taxes, and tariffs. This can help businesses improve their global competitiveness and reduce their need to engage with bureaucratic processes.
International companies looking to set up an industrial business in the U.S. might be familiar with free, foreign, or export processing zones. These are some other commonly used names for FTZs.
What is an FTZ?
A free trade zone is an area the U.S. government classifies as being outside of U.S. customs territory, despite a location within the borders of the U.S. They were established by the federal government in 1934. Most FTZs are located near Customs and Border Protection (CBP) ports of entry as they fall under the jurisdiction of CBP authorities.
A free trade zone is an area the U.S. government classifies as being outside of U.S. customs territory, despite a location within the borders of the U.S.
The purpose of these “zones” is to provide a place to store commercial products without having to deal with formal customs entry procedures and payment of customs duties. As such, FTZs are a popular location for warehouse facilities.
Benefits of Using FTZs for Your Industrial Business Here are some of the benefits that FTZs offer industrial companies who locate their operations or warehouses in these areas:
· 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 doesn’t 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 doesn’t 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, which is 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 better 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 hold its goods indefinitely in an FTZ until a port opens up, or if there are quotas on a good, 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 transshipping 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 crossdocking 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.
How to Utilize FTZs In order to utilize FTZs for your industrial business, you must be able to track your inventory, trace manufacturing and production orders, determine whether material came from domestic or international sources, and classify goods for duty deferrals and reductions. How much a company can save using FTZs really depends on the size of its operation and its business model. Reducing merchandise processing fees alone can save a business thousands of dollars per year.
In order to utilize FTZs for your industrial business, you must be able to track your inventory, trace manufacturing and production orders, determine whether material came from domestic or international sources.
Are you interested in learning more about FTZ and whether these might be appropriate for your warehouse or industrial business? Contact us today!
In the meantime, stay tuned for our upcoming article on Bonded Warehouses vs. FTZ Warehouses where we’ll explain the key distinctions between these two types of properties.
About the ComReal Miami Industrial Team: The ComReal Miami Industrial Team has been assisting companies with their South Florida real estate needs for over 30 years. The industrial team specializes in the sales and leasing of industrial properties. Visit www.MiamiIndustrialTeam.com and/or call 786-433-2380 for more information.