A free trade zone (FTZ) warehouse is a facility in an area the U.S. government classifies as being outside of U.S. customs territory, despite a location within the borders of the United States. FTZs are usually located near Customs and Border Protection ports of entry. FTZ warehouses were created in the 1930s to help U.S. companies improve trade and increase their competitiveness at the global level.
In contrast to bonded warehouses, which are typically Customs-controlled facilities, FTZ warehouses operate under a different set of rules. Further, tax guidelines are different for FTZ warehouses.
How Are FTZ Warehouses Used?
A FTZ warehouse allows you to import almost any type of legal merchandise without paying expensive import duties or dealing with other types of formal Customs entry procedures. The only paperwork that needs to be filed is a Customs entry form for any merchandise you want to remove from the warehouse later.
With a FTZ warehouse, posting a bond on good is not required. You also can choose to have the tariff in effect either when the goods enter the warehouse or when they’re shipped out.
Benefits of a FTZ Warehouse
Because a FTZ warehouse allows you to import goods without duties or most fees and inventory taxes, the obvious benefit is cost savings. Savings are further increased because a FTZ also provides:
Relief from inverted tariffs
Duty exemptions on re-exports
Duty elimination on waste, scrap and yield loss
Customs duty exemptions on FTZ-to-FTZ transfers
Better quality control, compliance and inventory tracking
Indefinite storage of goods
A FTZ warehouse also permits assembly and testing, destruction, salvaging, processing, cleaning, mixing, relabeling, repackaging and more. You can even manufacture in a FTZ warehouse with special permission from the FTZ board.
Taxes and Customs Regulations for FTZ Warehouses
Any legal merchandise, domestic or foreign, can be stored in a FTZ warehouse. Merchandise imported from another country is not taxed upon entry, but in some special cases a Federal Excise Tax might be charged for domestic goods when they’re admitted. If imported merchandise gets shipped for export without leaving the FTZ, then no tax or duty is charged on the goods.
Customs entry regulations only apply to goods when they are removed from a FTZ for consumption in the United States. No duty is required on goods that are destroyed, damaged or classified as non-usable for any reason. All merchandise, domestic or foreign, can be stored for an unlimited amount of time.