7 Ways That Foreign Trade Zones are Great for Your Business

7 ways that foreign trade zones can benefit your business header-4

In 1975, the federal government established FTZ 20 in Norfolk, centered by the Port of Virginia. For more than 40 years, FTZ 20's service area included most of the Virginia counties and cities in the Greater Hampton Roads region.

In 2016, the Port Authority submitted a proposal to reorganize FTZ 20 and expand it to include the North Carolina counties of Camden, Chowan, Currituck, Gates, Hertford, Pasquotank and Perquimans; and the city of Elizabeth City.

That proposal was accepted and made official on November 29, 2016.

What does this mean for businesses in Currituck County?

It means that companies in our county get a business advantage that can help them compete around the world. 

According to the Port of Virginia: “Foreign Trade Zone 20 is the most active zone within the Commonwealth, hosting 17 warehouse/distribution and production locations with 71 firms utilizing the general purpose sites."

In the 2017 FTZ Board Annual Report to Congress, both Virginia and North Carolina ranked among the Top 25 States for FTZ Activity (Merchandise Received). Virginia also ranked in the Top 25 for Exports.

Foreign Trade Zones have become instrumental in driving down the final prices of products to consumers thanks to accessible and affordable taxation policies. They've also helped the buying and selling of goods to transcend international borders and put products into the hands of consumers.

What Is a Foreign Trade Zone Exactly?

In the United States, Foreign Trade Zones were founded in 1934.

The official definition is: "A United States Foreign-Trade Zone is a secure, geographical area authorized by the federal government,  where commercial merchandise, both domestic and foreign, receives the same treatment by US Customs as if it were outside the commerce of the United States."  

The big idea is that imported goods can wait in a space where businesses have an opportunity to register their entities and manufactured products. This effectively lowers the import taxation on products as they enter the United States.

Certain types of merchandise can be imported into a FTZ without going through formal Customs entry procedures or paying import duties. Customs duties and excise taxes are due only at the time of transfer from the FTZ for U.S. consumption. If the merchandise never enters the U.S. commerce, then no duties or taxes are paid on those items.

FTZs create a win-win economic scenario: companies pay less in tariffs and taxes and consumers end up paying a better price for products.

RELATED READ:
The Benefits of Expanding Foreign Trade Zone 20

  Currituck County foreign trade zone 20

 

Here are 7 ways that FTZs can benefit your business...

 

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Streamlined Logistics

Foreign Trade Zones allow for the logistics process to be expedited while goods are waiting to complete the entire customs declaration process. Upon approval from Customs, imports may be directly delivered to the zone. It allows companies to request permission to break and affix Customs seals.

Through proper planning, companies can have a more effective distribution channel that is implemented after their goods pass customs in the Free Trade Zone.

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Merchandising Process Fee Reduction (MPF)

Companies operating in an FTZ can settle their Merchandising Process Fee (MPF) once in a consecutive seven-day period, instead of for every shipment. Typically, 0.3464% is charged on the Total Estimated Value of the shipment. If a company plans well, this will help them to have a savings of the percentage of tax that would be charged to them for shipments that would be arriving daily in a seven-day period. Fewer filings can also reduce fee paid to brokers.

If the shipment is valuable, the potential for savings is quite impressive. Firms that have a regular need to import products will be able to invest that savings into other aspects of their business.

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Duty Exemption

There are no duties due or quotas on items that are re-exported from the FTZ. Keep in mind that you need to consider whether the good will be continuing on to Mexico or Canada, since NAFTA regulations will come into play. 

Certain duty exemptions exist on goods that are destroyed in the Foreign Trade Zone, which is good if your manufacturing process results in a lot of scrap. You don't pay for the stuff that's left on the shop floor, and you won't have to go through the lengthy Customs drawback process to get your refund.

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Duty Deferral

Customs duties and certain federal excise taxes are deferred on imports until they leave the Zone and formally enter the U.S. customs territory. There's no time limit on how long your imports can sit in the FTZ. The clock doesn't start, and you don't get charged, until your material hits the marketplace.

Your can further defer taxes and duties by shipping from one FTZ to another. This can can do wonders for your company's cash flow (and productivity) if you are waiting for several pieces of a larger shipment.

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Duty Reduction or Inverted Tariff

Duty exemptions exist for products manufactured in a FTZ. Let's say that you import foreign material or component parts and use them to build a product inside an FTZ. If the US Tariff rate for the foreign material and/or parts is higher than the rate for the finished product, you pay the lower rate once the finished product leaves the FTZ.

You also don't have to pay duty on overhead, labor or profit connected to your production process in the FTZ.

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Knowledge Professionals

Foreign Trade Zones offer more than tax benefits and cost savings. FTZs have staff on the ground who are knowledgeable and equipped to help companies benefit as much as possible from operating in an FTZ.

Tapping into that kind of professional resource can be invaluable for company just getting started in international trade. It's also beneficial for a company looking to establish a fresh distribution channel in a new part of the United States.

One of the most valuable parts of operating in an FTZ is getting this access, guidance and knowledge from import/export experts and fellow businesses in the global trade community.

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Logistics Companies Are Accessible

Having a loyal logistics company by your side is vital. Logistics companies will have a presence in many Foreign Trade Zones and establishing a relationship with one will help you to get more affordable rates by using particular shipping routes or choosing shipping by boat versus shipping by air.

 

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WANT TO APPLY FOR FTZ 20?

CONTACT The Port of Virginia to start the process or find out if taking advantage of FTZ benefits will help your business.

Laura Godbolt
Economic Development Manager | Foreign Trade Zone Administrator

EMAIL  LGodbolt@portofvirginia.com

PHONE  (757) 683-2135

 

 

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