How Can I Use an FTZ?

U.S. Customs duties are paid only if and when imported merchandise is shipped into the U.S. Customs territory and is subject to duty. Merchandise transferred to another zone, exported, or destroyed may avoid U.S. Customs duties. Inventory is held and/or processed in the FTZ without duty payment.

No U.S. Customs duties are paid on merchandise exported from an FTZ. Normally while the drawback law allows the recovery of U.S. Customs duties previously paid after the merchandise is exported, rarely are all exports subject to drawback. Further, drawback is a complex and expensive process costing up to 1/3 of the duties to be recovered. In an FTZ, the duties are simply never paid.

In an FTZ, uniquely, the FTZ user may elect to pay the duty rate applicable to either component materials or the finished product manufactured from the component material, depending upon which is lower. In some cases, the rate may be zero or “duty free.” The reduction or elimination of U.S. Customs duties is significant.

U.S. Customs duties are not owed on labor, overhead and profit attributed to production operations in an FTZ. If the same production operation were done overseas, the value of the labor, overhead and profit would be subject to U.S. Customs duty. The reduced Customs duties per unit for U.S. produced articles can be the basis for choosing U.S. production.

Delays relating to U.S. Customs clearances are eliminated. Special direct delivery procedures at FTZ receipt / e-Z14 filing expedite the receipt of merchandise in company facilities, reducing inventory cycle time and yearly receipts to support the same level of business.

Weekly entry procedures significantly reduce paperwork and expense. Duties are owed only when and if merchandise is transferred from the zone to the U.S. Customs territory. No duties are owed on exports, zone to zone transfer, certain scrap/waste, etc. Merchandise processing fees are paid only one entry per week.

By Federal statute, tangible personal property imported from outside the U.S. and held in a zone, and tangible personal property produced in the U.S. and held in a zone for exportation, are not subject to State and local ad valorem taxes. 

Country-of-origin labels are not required on merchandise admitted to the FTZ. Merchandise shipped into U.S. Customs territory must have appropriate origin labeling which will vary depending on the circumstances.

Certain articles have U.S. Customs duties reduced yearly. Non-privileged foreign status merchandise utilizes the rate of duty in effect as of the shipment date from the zone.

To service many products, spare parts must be on hand in the United States for prompt shipment. However, it is impossible for most firms to know the requirements for spare parts, especially with new products. Spare parts may be held in the FTZ without U.S. Customs duty payment, generating cash flow savings. Obsolete parts may be destroyed without duty payment.

The FTZ may be used for quality control inspections to ensure that only merchandise that meets specifications is imported and duty paid. All other materials may be repaired, returned to the foreign vendor, or destroyed.

Operations in an FTZ require careful accounting of receipt, processing, manufacturing, and shipment of merchandise. Firms have found that the increased accountability reduces inventory error, receiving and shipping concerns, and waste and scrap.

Merchandise may be held for exhibition in the zone without U.S. Customs duty payment. At a later date the merchandise may be imported or exported.

The insurable value of merchandise held in an FTZ need not include the U.S. Customs duty payable on the merchandise. Cargo insurance rates should be reduced because imported merchandise is shipped directly to an FTZ.

Merchandise may be removed from an FTZ into the U.S. Customs territory for certain incidental activities (inspection, analysis, testing, calibration, measurement, sampling, photography, cleaning, repacking, or similar process) and returned to the FTZ without U.S. Customs duty payment.

Merchandise may be admitted into an FTZ without being subject to a wide array of Federal laws that would otherwise prohibit the importation. Upon shipment into the U.S. Customs territory, the merchandise must meet all applicable requirements.

Title to merchandise may be transferred in an FTZ as long as there is not a “retail” sale.

Specific physical identification of merchandise is unnecessary in an FTZ. The UIN system allows FIFO record identity inventory accounting.

As U.S. laws and especially U.S. Customs laws change, location in an FTZ allows a firm greater flexibility in addressing these changing circumstances.