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Foreign Trade Zone Benefits

A Foreign-Trade Zone provides users with the opportunity to lower costs and boost profits. How much a company gains by having operations in a FTZ varies but the following are some of the key benefits:

Improved Cash Flow

By delaying, reducing or eliminating duties, money can be available for other needs.

Logistical Flexibility

Goods may be transferred from U.S. ports of arrival to a FTZ or between FTZs duty free. If the products are re-exported, no duty is paid. Products made overseas for overseas markets may be brought into a FTZ for storage or consolidation with other products, allowing distribution of complete shipments to customers.

Duty Reduction

In many cases, duties are higher for parts than for finished products. Therefore in a FTZ, a company can import parts duty-free, assemble a product, and then only be required to pay the duty on the final product.

Lower Taxes

Normally, goods in a FTZ avoid federal excise taxes. In addition, both foreign and domestic goods in a General Purpose FTZ are exempt from Ohio inventory taxes. In a Subzone, foreign-status goods (goods declared for export or imported but not yet declared) are also exempt from Ohio inventory taxes.

Weekly Entry

The Trade and Development Act of 2000 contains a provision permitting FTZ "Weekly Entry" procedures which can help zone users save time and money. The provision allows users to file entries and pay fees on goods moving though the zone once a week, rather than once a day or multiple times each week as had previously been the case.

Duty Exemption on Re-Exports

If merchandise is re-exported after being place in a FTZ or shipped to another FTZ and then re-exported, then no duty is ever paid.

Relief From Inverted Tariffs

Generally, if foreign merchandise is brought into a Foreign Trade Zone or Subzone and manufactured into a product that carries a lower duty rate, than the lower rate applies.

For Example - A Foreign Trade Zone user imports a motor (which carries a 5.3% duty rate) and uses it in the manufacture of a vacuum cleaner (1.4% duty rate). When the vacuum cleaner leave the FTZ and enters the commerce of the U.S., the duty owed on the motor drops from the 5.3% motor rate to the 1.4% vacuum cleaner rate.

Duty Elimination on Waste and Scrap

No duty is charged on most waste and scrap from production in Foreign Trade Zones.

No Duty on Rejected or Defective Parts

Merchandise found to be defective or faulty, may be returned to the country of origin for repair or simply destroyed. Whichever choice is taken, no duty is paid. Many companies suffer from the "double duty crunch." That is, they pay duty on imported merchandise, find it to be faulty and return it to the country of origin for repair, and then pay duty again when the merchandise reenters the United States. If you are a Foreign Trade Zone user or Subzone, the "double duty crunch" is never a problem, because your merchandise never enters the commerce of the United States.

Duty Deferral

No duty is ever charged on merchandise while it is in a Foreign Trade Zone, and there is no limit on the length of time merchandise may be kept in a Foreign Trade Zone. By deferring the duty, capital is freed for more important needs.

No Duty on Domestic Content or Value Added

The "value added" to a product in a FTZ (including manufacture using domestic parts, cost of labor, overhead, and profit) is not included in its dutiable value when the final product leaves the Zone. Final duties are assessed on foreign content only.

Relief From Local Ad Valorem Taxes

Foreign merchandise stored in Foreign Trade Zones, or merchandise held in a zone for export, is not subject to any state or local ad valorem taxes.

No Duty on Sales to the U.S. Military or NASA: No duty is charged on merchandise sold from a Foreign Trade Zone to the U.S. Military or NASA, returned to the country or origin for repair or simply destroyed. Whichever choice is taken, not duty is paid.