About Foreign Trade Zones

October 12, 2019

How can a Foreign Trade Zone help your logistics operation?

What is a FTZ?

A Foreign Trade Zone (FTZ) is a land area within the U.S. that is legally considered outside of national customs territory. These Foreign trade zones are governed by a federal program that streamlines, reduces and sometimes eliminates import tariffs for United States importers and exporters. The Foreign trade zone program was enacted in 1934 to “expedite and encourage foreign commerce.” Today there are 294 FTZs in the United States.

Who benefits the most from a Foreign Trade Zone FTZ?

There are a few big winners when it comes to using a Foreign Trade Zone:

  • Large exporters moving $5 million or more annually of any product.
  • Manufacturers using more than $10 million annually in imported parts.
  • Major retailers with 100,000 square feet or more of imported retail inventory.

The Federal FTZ program was created to support U.S. manufacturing and to keep jobs on American soil.

The primary benefits come in the form of import duty and tariff cost savings. Some of the biggest companies in the world utilize the Foreign trade zone program.

Import Duty Benefits from Foreign Trade Zones

The FTZ program offers a variety of benefits that streamline, reduce or eliminate import duties for U.S. importers. Once a company has gained FTZ authorization, import duty benefits begin depending on specific actions:

  • Goods Enter The Zone  - Imported goods move into the FTZ site duty-free.
  • Goods Are Inside The Zone - Storage, processing and manufacturing are permitted inside an FTZ site. Assembly can utilize both imported and domestic components 
  • Goods Exit The Zone - The benefits of this action depend on the good’s destination.

Tax Benefits 

In addition to import duty benefits, goods stored in an FTZ site may be subject to reduced inventory taxes in certain circumstances.

Inventory Tax

In most states, the so-called Business Personal Property Tax, or inventory tax, is charged by local tax entities, such as the county, local municipality and local school district. The exact inventory tax discount at an FTZ site varies. Each taxing entity provides separate discounts that vary between 0 to 100 percent of the normal rate. These rates are typically based on deals done upon original site formation. Most FTZ sites benefit from at least one inventory tax discount. A few sites over a 100 percent inventory tax discount. Only a handful of these “grandfathered” sites are still available for development in Harris County.

Local Tax Entities’ Roles in FTZ Site Development

When a Foreign Trade Zone site is established, the local taxing entities must approve the site before its FTZ board activation.
Some taxing entities have standard FTZ tax deals offered uniformly to all new FTZ sites, for example, 60 percent of the normal rate (a 40 percent discount) or 100 percent of the normal rate (no discount).

  • Some taxing entities prefer to negotiate each FTZ tax deal individually.
  • Some taxing entities have never been asked to approve an FTZ before, so the taxing entity has to be educated about the FTZ process and develop a policy towards FTZ before the first deal is approved.
  • The site approval processing time varies by taxing entities. Due to the variable length of the approval process by the taxing entities, it is not always possible to exactly predict the length of time the FTZ approval process will take. In FTZ 84, applicants should allow six to 12 months for authorization.

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