Introduction
Foreign Trade Zones (FTZ) are utilized by companies that import large amounts of goods as well as those who wish to defer and eliminate import taxes. A Foreign Trade Zone can be an effective, cost-reducing strategy for any logistics operation. The number of FTZ’s continues to grow each year and according to a report published in 2018 by NAFTZ, there are 195 active FTZs in the United States with more than 3,300 companies utilizing the program. At the very minimal, FTZs allow product to be stored, assembled and/or processed with U.S Customs duties deferred until the product is ready to enter United States consumer circulation. However, if you plan to re-export your goods, you may be able to avoid import duties.
What are Foreign Trade Zones?
Foreign Trade Zones are located near major ports of entry to the United States. They are secure areas and are supervised by the U.S Customs and Border Protection Agency (CBP). According to U.S. Customs and Border Protection, CBP is responsible for the transfer of merchandise into and out of the FTZ as well as matters involving the collection of revenue. However, FTZs are technically operating outside of CBP’s territory. An FTZ’s most advantageous element, is the ability to import merchandise or material into the United States without formal customs entry, or the deferral of customs duties and excise taxes altogether. Furthermore, if approved by the CBP, merchandise or raw materials may be able to enter the country without formal examination. Not only do FTZ’s import merchandise, but they also deal with a tremendous amount of exports each year. NAFTZ’s 2018 report states that U.S. Foreign Trade Zones exported a total of $75.7 Billion in merchandise alone in a single year. With the high import and export volume, approximately 420,000 individuals were employed throughout the country. Not only are FTZ’s booming, but they are also supplying jobs for hard working Americans.
How are Import Duties and Taxes Applied?
When the manufactured, assembled, or processed goods are arranged to enter the United States, the duties on the imported material or product will become due. The manufacturer, or importer, will pay the duties either on the product itself or the material and parts that produced the product; whichever is cheaper. However, if the final product or held material is re-exported outside of the United States, the importer or manufacturer will not be charged a customs duty.
How are Customs Duty Taxes on Re-Exported Goods Avoided?
For example, when a manufacturer ships their industrial fans into an FTZ within the United States to add an additional part, the industrial fans never leave the designated FTZ once inside the United States. Following assembly, the fans are immediately re-exported out of the United States. Due to the industrial fans never having a conventional entry into the United States consumer market, duties on the imported product will not be paid.
Additional Benefits of an FTZ
There are several benefits that an FTZ covers that goes beyond the primary benefit of import duty deferral or import duty exemption. Although, depending on the type of operation, the benefits and advantages may vary. Companies maintain their money on hand for an extended period, or eliminate the duty draw back process. In addition, companies may be able to alleviate the pressure from merchant processing fees (MPF), the fee assessed on all goods entering the United States Customs territory. However, while utilizing an FTZ, an importer may pay one MPF entry fee on all shipments entering the customs territory during a seven-day period as opposed to paying a single entry MPF on every shipment entering U.S Customs territory. In addition to lower processing fees, an importer has no restrictions on the duration of time for storing merchandise in an FTZ. This is particularly beneficial when tariffs may be enforced. Businesses are able to import a large amount of product and store them indefinitely before having to pay a higher duty tax on their merchandise. While operating inside of a zone, a vendor is able to sell goods to a company that is located within a different FTZ or subzone within the United States. The sold goods are able to be transferred between the seller’s zone and the purchaser’s zone duty free on the purchased goods.
Overview
Although certain businesses may not have considered this in the past, Foreign Trade Zones have many benefits that a wide range of companies can utilize to their advantage. The first step for any company is getting set up to utilize an FTZ. Third party logistic companies (3PL) can be extremely helpful while trying to navigate this process. 3PL’s offer unique services and solutions to help with consumer needs. 3PL’s are able to maximize flexibility, increase revenue, and provide reasonable pricing for their clients. While navigating this decision process, Fifth Wheel Freight can be a viable source to assist with consulting purposes within this process. FWF offers our clients in depth market knowledge from our industry experts whom can provide insight into optimal logistics operations. See the link below to contact an FWF expert for further information on integrating your supply chain needs into this process.
