Benefits of Using a Foreign Trade Zone

This article was last updated on July 13, 2022.

What is a Foreign Trade Zone?

Foreign Trade Zones are designated areas within the United States that are treated by Customs as if they are outside of the United States. By allowing merchandise to be entered into a zone free of duty, and allowing manufacturing processes to transform that merchandise, a Foreign Trade Zone can provide many opportunities for tariff and tax relief.

Why Use an FTZ?

There are many advantages to using a Foreign Trade Zone.

Duties and taxes due on merchandise entered into a zone are not due until the merchandise leaves the zone for consumption. An importer can use a FTZ to enter a large quantity of merchandise all at once, and defer duties and taxes until the merchandise is withdrawn.

If merchandise entered into a FTZ is later exported directly from the zone, no duty will be due.

How to Use an FTZ

An importer can use a FTZ to enter parts into the zone, assemble the parts (and create jobs by using domestic labor) and then export the finished product duty free.

Manufacturing is allowed inside a zone. In some cases, the finished product may be subject to a rate of duty that is lower than the duty that would have been due on the parts and materials themselves. When the finished product is withdrawn from the zone and entered into the US, the importer can pay duties at the lower tariff rate that applies to the finished product.

Merchandise subject to quota restrictions can be entered into a zone duty free until the merchandise is withdrawn from the zone. If the quota is filled, the importer can place the merchandise into a zone until the quota reopens. Some products may even be manufactured while in the zone and turned into a product not subject to quota.

Next Steps

In practice, using a FTZ can become much more complex. But with careful planning a FTZ can provide many competitive advantages.

C J can help you analyze your operations and determine if using a FTZ would make economic sense for your company.

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