{"id":10846,"date":"2022-08-17T15:39:46","date_gmt":"2022-08-17T22:39:46","guid":{"rendered":"https:\/\/www.qad.com\/blog\/?p=10846"},"modified":"2024-04-08T11:44:57","modified_gmt":"2024-04-08T18:44:57","slug":"the-abcs-of-ftzs","status":"publish","type":"post","link":"https:\/\/www.qad.com\/blog\/2022\/08\/the-abcs-of-ftzs","title":{"rendered":"The ABCs of FTZs"},"content":{"rendered":"

[vc_row][vc_column][vc_single_image image=”10847″ img_size=”full”][vc_column_text]US manufacturers and distributors can realize significant cost savings by leveraging the Foreign-Trade Zone (FTZ) program. In this QAD Report we look at the ABCs of FTZs.<\/span><\/i><\/p>\n

What is a Foreign-Trade Zone?\u00a0<\/span><\/h2>\n

A Foreign-Trade Zone (FTZ) is a designated zone within the US that is considered outside the US for duty and tax purposes. Because of this, companies operating an FTZ can reap massive benefits. These include duty deferrals, eliminations and reductions, as well as savings in Merchandise Processing Fees (MPF).<\/span><\/p>\n

While many FTZs are located near ports of entry, all 50 states have FTZs. Best of all, companies do not have to move their operations to take advantage of an FTZ. Rather, they can apply for their current location to be a new FTZ. Within an FTZ, companies are able to store, sample, salvage, repackage, process, display, repair, destroy, manipulate, assemble, test, clean, relabel, mix, and manufacture goods.<\/span><\/p>\n

Four Reasons to Use an FTZ<\/span><\/h2>\n

1. Duty Deferral<\/span><\/h3>\n

Usually, when a shipment enters the US, the importer must pay duties upon arrival. When utilizing an FTZ, duties are not paid until a product leaves the FTZ and enters the US market.<\/span><\/p>\n

FTZs are not the same as customs bonded warehouses. You can store products duty free for a maximum of five years in a custom bonded warehouse. Conversely, there is no limit on how long a company can hold a product in an FTZ.<\/span><\/p>\n

As companies adjust to supply chain disruptions, many are looking to increase inventory to prepare for future bottlenecks. Outside of an FTZ, this stockpiled product would incur import duties as well as state ad valorem taxes, resulting in heavy tax burdens. Furthermore, by deferring duties until the product enters the market, they\u2019re reducing the payback period on duties, helping stay cash flow positive.<\/span><\/p>\n

2. Duty Reduction<\/span><\/h3>\n

In an FTZ, companies are able to choose to pay duties only on finished products rather than parts. Imagine that a company manufactures vacuums. Outside of an FTZ, they would pay duties on each individual part imported into the US. If they import a motor, the company would pay 4% duties, plastic wheels imported from China would incur a 5.3% tax, and so on.<\/span><\/p>\n

However, in an FTZ, the manufacturer could import the parts duty free, and instead only pay duties on the finished product \u2013 in this case, the vacuum, which is duty free. Multiply these savings across thousands of vacuums, and manufacturing in an FTZ could be the difference between establishing a thriving American manufacturer and falling behind foreign companies.<\/span><\/p>\n

3. Duty Elimination<\/span><\/h3>\n

Not only do shipments usually incur duty taxes when entering the US, but they are also subject to state taxes during domestic transport. However, when companies leverage the power of FTZs, they are able to transfer between FTZs without any tax burdens. With the right strategy, a company could move products and parts from the Atlantic to Pacific entirely through FTZs.<\/span><\/p>\n

Additionally, companies pay no duties when re-exporting goods from an FTZ. This is because an FTZ is \u2014 legally speaking \u2014 outside of the US. When a company exports from an FTZ, they eliminate the usual import duties seeing as, strictly speaking, the product was never within the US in the first place.<\/span><\/p>\n

This allows manufacturers to import foreign parts, manufacture in the US, and export to global markets without falling behind global competitors due to overwhelming tax, duty, and customs fees. By making this possible, FTZs encourage domestic manufacturing and promote US economic growth.<\/span><\/p>\n

4. Merchandise Processing Fee (MPF) Reduction<\/span><\/h3>\n

When foreign shipments enter the US, they are subject to Merchandise Processing Fees (MPF) based on the value of the goods. The MFP is 0.3464% of the cargo\u2019s value. In 2022, the minimum MFP is $27.75, and capped at $538.40.<\/span><\/p>\n

Companies not using an FTZ pay the MPFs for every shipment. However, companies using an FTZ pay a weekly MPF.<\/span><\/p>\n

This means that if a company imported 10 shipments per week at $538.40 per shipment outside of an FTZ, they would spend $279,968.00 annually. Inside an FTZ, the same volume and value of shipments billed weekly would only cost $27,996.80 annually.<\/span><\/p>\n

How QAD FTZ Can Help<\/span><\/h2>\n

With such extraordinary savings available through FTZs, why don\u2019t more companies take advantage of them? Setting up an FTZ can be complicated. The process involves applying to the local FTZ grantee, undergoing an inspection by US Customs and Border Protection (CBP), obtaining approval from the FTZ board, as well as paying initial and annual fees. In addition, companies must have Inventory Control and Recordkeeping software before the FTZ can go into operation.<\/span><\/p>\n

Simply put, most manufacturers don\u2019t have the time or expertise to set up an FTZ. Luckily, manufacturers don\u2019t have to do this on their own.<\/span><\/p>\n

That\u2019s where <\/span>QAD FTZ<\/span><\/a> comes in. Our FTZ experts have successfully completed more than 1,000 FTZ.<\/span><\/p>\n

We can help start the process by first conducting a cost-benefit analysis and feasibility studies. If it\u2019s the right solution, our team will then prepare and submit an application and coordinate with CBP. By helping our partners through each step of the process, QAD FTZ offers a host of benefits, including:<\/span><\/p>\n