Sources of Cost Savings for U.S Foreign-Trade Zone Users
- Deferral of Duties: This benefit offers cash-flow savings because FTZs are considered outside the Customs territory of the United States and goods are not considered to be imported until they leave the zone and enter the U.S. stream of commerce. This allows a company to defer Customs duties until merchandise leaves the zone instead of having substantial monies tied up in inventory Customs duties.
- Reduction of Duties: As an FTZ user, you are allowed to elect a zone status on merchandise admitted to the zone. The zone status determines the duty rate that will be applied to foreign merchandise if it is eventually entered into U.S. commerce. Through this process, the lower duty rate can be applied — either the rate for foreign inputs or the rate for finished products manufactured in the zone. If the rate on the foreign inputs is higher than the finished product rate, the lower duty rate for the finished product can be used — a benefit only available through an FTZ.
- Elimination of Duties: Customs duties are never paid on goods that are brought into a zone and then re-exported or scrapped. No formal entry with Customs is filed and the goods never enter the U.S. stream of commerce.
Other benefits that can be realized by using a Foreign Trade Zone include the following:
- Weekly Entry: The Trade and Development Act of 2000 contains a provision permitting FTZ “Weekly Entry” procedures that can help zone users save time and money. Under Weekly Entry procedures, the zone user files only one Customs Entry per week rather than filing one Customs Entry per shipment. Customs no longer has to process an entry for each and every shipment being imported into the zone and the zone user no longer has to pay for the processing of each and every entry.
- Logistical Flexibility: Goods may be transferred from U.S. ports of arrival directly to a Foreign Trade Zone or between zones duty free. Products made overseas may be brought into a zone for storage or consolidation with other products, allowing distribution of complete shipments to customers. This not only provides flexibility but can improve supply-chain velocity.
- Supply Chain Security: FTZs can help a company achieve “best practices” when it comes to supply-chain security.
- Labor, Overhead, and Profit: No Customs duties are owed on labor, overhead, and profit attributed to operations conducted in an FTZ.
- Lower Taxes: By federal law, tangible personal property imported and held in a zone is not subject to state and local ad valorem taxes. For example, Kentucky law provides that “tangible personal property located in a Foreign Trade Zone as designated under U.S.C. Sec. 81” is subject only to state taxes (KRS 132.200 (11)), and that the state tax rate applicable to such property is $0.001 per $100 valuation (KRS 132.020 (1)(h)). This is an additional tax advantage that applies to any tangible personal property (regardless of import/export status) located in an activated Kentucky zone or subzone.