1. Deferral of Duties
Customs duties are paid only when and if merchandise is transferred into U.S. Customs and Border Protection territory. This benefit equates to a cash flow savings that allows companies to keep critical funds accessible for their operating needs while the merchandise remains in the zone.
2. Reduction of Duties
In an FTZ, with the permission of the Foreign Trade Zones Board, users are allowed to elect a zone status on merchandise admitted to the zone. This zone status determines the duty rate that will be applied to foreign merchandise if it is eventually entered into U.S. commerce from the FTZ. This process allows users to elect the lower duty rate applied to either the foreign inputs or the finished product manufactured in the zone. If the rate on the foreign inputs admitted to the zone is higher than the rate applied to the finished product, the FTZ user may choose the finished product rate, thereby reducing the amount of duty owed.
3. Elimination of Duties
No duties are paid on merchandise exported from a FTZ. Therefore, a duty is eliminated on foreign merchandise admitted to the zone but eventually exported from the FTZ. Generally, duties are also eliminated for merchandise that is scrapped, wasted, destroyed, or consumed in a zone.
4. Elimination of Drawback
In some instances, duties previously paid on exported merchandise may be refunded through a process called “drawback.” The drawback law has become increasingly complex and expensive to administer. Through the use of a FTZ, the need for drawback may be eliminated, allowing these funds to remain in the operating capital of the company.
5. Labor, Overhead and Profit
In calculating the dutiable value on foreign merchandise removed from a zone, zone users are authorized to exclude zone costs associated with processing or fabrication, general expenses, and profit. Therefore, duties are not owed on labor, overhead, and profit attributed to merchandise produced in a FTZ.
By federal statute, tangible personal property imported from outside the United States and held in a zone, as well as that produced in the United States and held in a zone for exportation, are not subject to state and local ad valorem taxes.
U.S. quota restrictions do not apply to merchandise admitted to zones, although quotas will apply if and when the merchandise is subsequently entered into U.S. commerce. Merchandise subject to quota, with the permission of the Foreign Trade Zones Board, may be substantially transformed in a FTZ to a non-quota article that then may be entered into U.S. Customs and Border Protection territory, free of quota restrictions. Quota merchandise may be stored in a FTZ so that when the quota opens, the merchandise may be immediately shipped into U.S. Customs and Border Protection territory.
8. Zone-to-Zone Transfers
An increasing number of firms are making use of the ability to transfer merchandise from one zone to another. Because the merchandise is transported in-bond, duty may be deferred until the product is removed from the final zone for entry into the U.S. Customs and Border Protection territory.
FTZ status can support inventory control systems that run more efficiently, increasing their competitiveness.
Special Customs procedures, such as direct delivery and weekly entry, often apply to eligible FTZ users. These procedures expedite the movement of cargo, thereby supporting just-in-time inventory methodologies.
Source: National Association of Foreign Trade Zones