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Foreign Trade Zones & Other Duty Deferral Programs

Foreign trade zones, bonded warehouses and temporary importation bonds provide opportunities to defer duty liability. ST&R and STTAS have extensive experience with these programs and offer a wide range of services that help our clients defer, limit or reduce their duty liabilities.

Foreign Trade Zones

Utilizing FTZs can increase cash flow by delaying duty payments on imports, reducing duty liability through pre-import product manufacture, and eliminating the need to pay duty altogether for imported merchandise used in the manufacture of exported products. ST&R and STTAS can help you evaluate the benefits of FTZs for your company, assess your expected return on investment with our FTZ Calculator, and then implement and maintain effective zone operations.

What is an FTZ?

A foreign-trade zone is a designated location authorized by the U.S. government to promote manufacturing and exports. Merchandise within an FTZ is considered outside the customs territory of the U.S., but foreign merchandise in a zone is within the territory and jurisdiction of the U.S. and is considered imported.

Merchandise in a zone may be assembled, exhibited, cleaned, manipulated, manufactured, mixed, processed, relabeled, repackaged, repaired, salvaged, sampled, stored, tested, displayed and destroyed. The federal FTZ Board must specifically authorize any production activity, which is defined as activity involving the substantial transformation of a foreign article or activity involving a change in the condition of the article that results in a change in the customs classification of the article or in its eligibility for entry for consumption. Retail trade in zones is not allowed.

Why Use an FTZ?

FTZs offer a number of benefits that help you gain a competitive edge in the global economy by increasing your cash flow and lowering your overall supply chain costs.

Duty Elimination. Imported goods are not subject to customs duties or excise taxes while in an FTZ, and duties and fees may be eliminated entirely if the goods are eventually exported. Items destroyed within the zone are also exempt from duty payments.

Duty Avoidance. When zone production results in a finished product that has a duty rate lower than that of the foreign input (an inverted tariff), the importer can elect to pay duty at the rate applicable to the finished goods.

Duty Deferral. Duties and most related fees and taxes on goods in an FTZ are not paid until the finished goods enter U.S. commerce.

Tax Incentives. Foreign goods and domestic goods held for export are exempt from state and local inventory taxes, and FTZ status may make a site eligible for other state or local benefits as well.

There are many other benefits associated with FTZs as well. The weekly entry benefit allows companies to file one consumption entry for an entire week of withdrawals from FTZs into U.S. commerce, reducing merchandise processing fees and brokerage fees. With privileges such as direct delivery, transit times to an FTZ can be minimized by reducing hold times at crowded ports of entry. By tracking zone inventory for U.S. Customs and Border Protection reporting purposes, loss at end of year reporting is minimal. Operating in an FTZ is also considered a best practice in the Customs-Trade Partnership Against Terrorism due to the heightened security required at zone facilities.

How Can We Help?

ST&R and STTAS professionals have substantial experience working with clients on all aspects of the FTZ process. In particular, STTAS offers a complete range of services to help you take full advantage of the benefits associated with FTZs, including the following.

  • customized cost/benefit analysis
  • feasibility and assessment studies
  • preparation and coordination of FTZ applications
  • zone and subzone modifications
  • business process and compliance reviews
  • evaluation and selection of FTZ operating software
  • FTZ/import compliance training
  • development and implementation of import compliance program
  • full managed services and consulting related to daily FTZ operation

Bonded Warehouses and Temporary Importations

Bonded warehouse users can increase cash flow by deferring the payment of duty until they withdraw goods from the warehouse and eliminating duty payments on goods to be exported. Temporary importation bonds offer additional opportunities to avoid, delay and reduce duty payment for one year on certain eligible goods, such as those intended for temporary import and subsequent export or for temporary transit within the United States. We assist companies with the process of setting up and maintaining a bonded facility and/or facilitating temporary importations.

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