Foreign Trade Zone (FTZ) Benefits

Foreign Trade Zone (FTZ) Benefits

What is Foreign Trade Zone (FTZ)?

A Foreign Trade Zone (FTZ) is a zone authorized as exempt from many regular US Customs rules and regulations. There are many Foreign Trade Zone (FTZ) Benefits that importers can take advantage of to improve:

  • cash flow
  • increase global logistics efficiency
  • reduce redundant or unnecessary logistics costs
  • retain flexibility

Foreign Trade Zone (FTZ) Benefits

The Foreign Trade Zone (FTZ) Benefits will vary depending upon the type of operation involved and authority granted by the Foreign-Trade Zones Board and Customs. Zones may provide some or all of the following benefits.

The benefits associated with zone use will vary depending upon the type of operation involved and authority granted by the Foreign-Trade Zones Board and Customs. Zones may provide some or all of the following benefits:

  • Duty Exemption
  • Deferral
  • Duty Reduction or Inverted Tariff
  • Merchandise Processing Fee (MPF) Reduction
  • Streamlined Logistics
  • Quota Avoidance

Duty Exemption

There are no duties or quota charges on re-exports (exception applies for exports to Canada and Mexico under NAFTA). By using a Foreign-Trade Zone companies avoid the lengthy Customs duty drawback process. Users that destroy goods in an FTZ do not pay duty on the goods the destroy and that can benefit a company with fragile imports or with manufacturing processes that result in large amounts of scrap.

Duty Deferral

Customs duties and federal excise tax deferred on imports until they leave the zone and enter the U.S. Customs territory. (Zone merchandise may move in-bond, Zone-to-Zone transfers without payment of duty.) Unlike bonded warehouses or temporary importing under bond programs, there is no limit on the length of time that merchandise may remain within the Zone, whether or not duty is owed.

Duty Reduction or Inverted Tariff

When finishing a production though FTZ manufacturing authorization and that production has a lower US Harmonized Tariff rate than the rates on foreign inputs, it may be enter U.S. Customs territory at the duty rate that applies to its final condition. FTZ Users do not owe duty on labor, overhead, or profit due to zone production operations.

Merchandise Processing Fee (MPF) Reduction

MPF is only paid on goods entering the U.S. Customs territory. Zone users are able to file a single entry for all goods shipped from a zone in a consecutive seven-day period instead of one entry file for each shipment (excluding merchandise subject to live entry). MPF fees are charged at 0.3464% of the Total Estimated Value (TEV) of the shipment, with a minimum fee of $25 and a maximum fee of $485 per entry. Fewer entry filings can also reduce Brokerage fees.

Streamlined Logistics

Upon approval from Customs, imports may be directly delivered to the zone. Users may also request permission to break and affix Customs seals. A single entry may be filed for seven consecutive days’ worth of entries and exports.

Quota Avoidance

In most instances, imports subject to quota may be retained within a Foreign-Trade Zone once a quota has been reached allowing zone users access to potentially discounted inputs and the ability to admit merchandise as soon as a new quota year starts. Additionally, except for certain textiles, inputs subject to quota may be manipulated or manufactured while in the zone into a product not subject to a quota.

Other Foreign Trade Zone (FTZ) Benefits

  • Better inventory control and security lead to better compliance with CBP requirements
  • Customs supervision may result in lower security and insurance costs
  • Duty payable on FTZ merchandise does not need to be included in the calculation of insurable value, again lowering insurance costs
  • Reduce transportation costs may also result from streamlined logistics

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