November 18, 2021
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.
There are a few big winners when it comes to using a Foreign Trade Zone:
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.
The Foreign Trade Zone 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:
In addition to import duty benefits, goods stored in an FTZ site may be subject to reduced inventory taxes in certain circumstances.
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).
To start reaping the benefits of the FTZ program, a company may either lease storage space for goods in a public FTZ warehouse or make an existing warehouse or factory into an FTZ authorized site.
Public FTZ Warehouses: Enjoy the benefits of FTZ with less paperwork, allow businesses to enjoy the benefits of FTZ without the administrative burden of being an FTZ operator. They are owned and operated by a private company that subleases space to other companies. The public warehouse company fulfills the role of the authorized FTZ operator by completing all FTZ paperwork and complying with FTZ regulations.
Crane Worldwide's Trade Advisory team are on hand to support your business with access to expert advice on Foreign Trade Zone and their application.