"By using an FTZ, companies may also delay paying import duties or avoid them altogether. FTZs can be found in Europe, Latin America, Asia and Africa, and are areas in which a country or a group of countries have agreed to reduce or eliminate trade barriers. In North America, they are called Foreign Trade Zones."
Four benefits of FTZs
Exemption from import duties
Merchandise can be imported into and stored at an FTZ without going through formal customs entry procedures, making them exempt from import duties. Meanwhile, goods held exclusively for export can be exempt from taxes, which only become applicable if they leave the FTZ for consumption in the host country. If the merchandise never actually enters the country’s market, it remains exempt from duties and taxes.
Parts and accessorisation
Importers can use a logistics hub with processing capabilities at the FTZ to fit parts or accessorise their products, while at the same time minimising import duties. This allows manufacturers to hold a lower stock of final products, greater flexibility, and provides a shorter time to market If the parts are produced within the host country, their cost is not added to the value of the imported unit when it enters the customs territory, resulting in a lower duty on the cargo. If parts are foreign-produced, companies have the option to apply for reduced duty, according to the inverted tariff principle*.
Using an FTZ allows manufacturers to save time and simplify the customs process. At the FTZ, companies can leverage a variety of streamlined customs procedures, which can speed up the import process and make it less cumbersome.
Free Trade Zones allow customers to store merchandise for an unlimited amount of time without paying import tax upfront. Customers benefit by paying the tax at a time of their choosing, which helps them to improve cash flow and lower inventory costs. If you serve a geographically spread market with unpredictable demand, using a hub port with bonded storage can increase market responsiveness and redue risks in the supply chain.
*An inverted tariff relationship exists when the duty rate for an imported component or raw material is higher than that for an import of the finished product into which the component or raw material would be incorporated.