Are FTZs Your Ticket to Duty Deferral, Exemption and Tariff Relief?

Foreign Trade Zones were designed to make American businesses competitive. Could they be a way for your company to save big?

Has your business considered creating its own Foreign Trade Zone (FTZ)? Plenty of other American companies have and are reaping the benefits. Our previous post on the subject went into some depth to help readers decide if an FTZ was right for them. This time, we’re delving specifically into how FTZs impact duty deferral, duty exemption and tariff relief.

FTZs and duty deferral

FTZ duty deferral — the payment of duties and taxes for goods declared over a specified period after the goods enter U.S. Customs territory — is subject to regulations imposed by the North American Free Trade Agreement (NAFTA, which remains in effect until the United States-Mexico-Canada Agreement is ratified). Importation of goods from one of NAFTA’s three member states (the USA, Canada and Mexico) which are then exported to another NAFTA member will be treated as withdrawn for domestic consumption.

From there, customs duties will be applied. However, U.S. businesses with an FTZ can see those duties reduced or even refunded entirely. All a business needs to do is present Customs and Border Patrol with satisfactory evidence within 60 days that they have paid the customs duties for the NAFTA partner country.

FTZs and duty exemption

Savings occur naturally before export. Duty deferral means that no customs duties or federal excise taxes need be paid while imported goods are stored in an American FTZ. That’s cash which is effectively saved and could be used for other things while the goods are still in storage.

The longer they’re stored, the longer a business won’t pay any duties on those items, and there’s no time limit on how long that may be. In a scenario where goods are imported but never enter domestic U.S. consumption because they had to be shipped back, those goods are also exempt from Customs duties.

Duty exemption can also be a tax break for importers of fragile goods or any merchandise which is damaged or destroyed within an FTZ. If 50 boxes arrive and half end up broken, only half will be subject to duties once they’re on sale on American soil. The exemption also applies to any business producing a large amount of scrap or other by-products during the manufacturing process within an FTZ.

FTZs and tariff relief

Tariff relief is also referred to as an inverted tariff or duty reduction. This potential perk allows businesses who manufacture a product within an FTZ to make a cost-effective choice when moving finished goods onto U.S. soil for sale. Firstly, they can choose to pay the tariff on the component parts as they arrived into the FTZ. Alternatively, they can pay the tariff as it applies to the finished item entering the American market.

Either one may be cheaper depending on the materials in question, so tariff relief empowers businesses to make the decision which will save them the most money. Businesses can save even more on goods assembled within an FTZ because there’s no duty due for any overhead, labor costs or profits that result from production within the zone.

An important note: Businesses need prior authorization from the FTZ body governing their zone if they intend to choose the tariff for completion state entry onto U.S. soil. FTZs are also the only way for U.S. businesses to benefit from inverted tariff savings.

Even more potential savings with FTZs

Here’s a recap of the other benefits these zones can offer:

• Improved security: All FTZs must comply with strict security arrangements in order to qualify for zone status. This has the knock-on effect of safeguarding operations, products and even personnel against criminal activity.
• Weekly entry savings: Once, U.S. businesses had to fill out a Customs entry form for every single shipment that came into the country. FTZs cut that down to once a week for multiple shipments. This greatly reduces customs brokerage fees and entry filing fees, so the more merchandise you bring in, the more you can save.
• More cost-efficient domestic transport: Goods can move around domestically, tax-free, provided they go from one FTZ directly into another.

  There’s plenty more to learn about Foreign Trade Zones, so make sure your business keeps an eye on the latest FTZ news. 71lbs can offer your business even further savings on shipping, ranging from contract negotiations and refund returns to shipping discounts and premium analytics. Get in touch with us at the link below to find out more.

  At 71lbs, we clarify the shipping process for our clients, making it easier and faster for them to access refunds and optimize their expenses. Our human-operated platform gathers all your shipping information into one easy-to-use customs analytics dashboard. Drop by the contact page to get in touch!