Benefits of FTZs
A U.S. Foreign-Trade Zone (FTZ or Zone) is a designated area, which for Customs purposes, is considered outside the U.S. A FTZ is a secure and enclosed area, operated as a public venture located in or adjacent to a port of entry.
Any legal foreign and domestic material or merchandise may be moved into a FTZ. While in the FTZ, merchandise may be stored, manufactured, repackaged, exhibited or combined with domestic goods to qualify for a lower duty.
Duties can, therefore, be deferred until the merchandise leaves the FTZ and enters U.S. territory for domestic consumption. If merchandise is exported to a foreign destination from a zone, no Customs' Duty is levied.
DUTY AND EXCISE TAX DEFERRAL
Companies that utilize imported goods/materials in their processes plus wholesale and retail businesses can defer the payment of duty and federal excise taxes on large shipments that are stored in the zone. Duty and excise taxes are paid when the goods are withdrawn and only on the quantities withdrawn.
Inverted Tariffs/Duty Reduction
Businesses can achieve lower Customs duties operating in an FTZ or sub-zone by combining several components (either foreign or domestic) into a finished product with a lower duty rate. The lower rate is paid only on the percentage of the final value the imported goods represented. This is the so-called "inverted tariff benefit.
Duty-Free Manipulation of Imported Goods
Goods imported into the zone may be tested, inspected, re-packaged, re-labeled, aged, cured and exhibited; all without payment of duty. Again, duty and federal excise taxes are paid only when the goods are withdrawn from the zone, and only on the quantities withdrawn.
Goods in excess of any U.S. imposed quota may be held in the zone until the next quota period opens. Goods subject to quota may be manufactured into a product that is not subject to quota for importation.
In states that assess taxes on business inventories, all imported merchandise, and even domestic merchandise when held for export, can be stored in a Foreign-Trade Zone without having to pay business inventory taxes.
DUTY AND EXCISE TAX AVOIDANCE
Companies that import components to be used in products for re-export can avoid the payment of duty and federal excise taxes altogether by conducting their operations within an FTZ and re-exporting from the zone. This activity may add or maintain jobs where the zone is located.
Merchandise that is imported into the U.S. for admission into a Foreign-Trade Zone and later re-exported from the Zone is never assessed any Customs duties.
Imported merchandise, which is admitted into a Zone and then shipped to another U.S. Foreign-Trade Zone, can be shipped duty-free to the receiving Zone with the receiving Zone's concurrence. As duty-free transfers, Zone-to-Zone shipments allow both the shipping Zone and the receiving Zone to reduce their duty exposure. Duties are eliminated completely on imported components that are transshipped through several Zones and eventually re-exported.
Duty Avoidance on Waste, Spoilage and Off-fall
When manufacturing and inspection activities result in waste, spoilage or of fall of the imported materials, no duty is required on the percentage lost if the non-marketable materials are destroyed in the zone.
Reject, Scrap, and "Consumed" Merchandise
Imported merchandise which is admitted into a Zone and then rejected, scrapped, or consumed in the Zone, is not assessed any Customs duties whatsoever. Duties are reduced significantly for all merchandise that is scrapped through a manufacturing operation in a Foreign-Trade Zone, and then sold from the Zone as commercial scrap.
Merchandise Processing Fee
Customs assesses a "Merchandise Processing Fee" (MPF) per entry which is calculated as 0.21% of the full declared value of the merchandise, up to a maximum of $485USD per entry. Foreign-Trade Zones users are required to submit one entry per week for all shipments leaving the Zone, thus ensuring a maximum MPF of $485 is paid per week, reducing MPF costs to importers who currently file several entries each week.
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