The fundamental benefit offered by the FTZ program is the ability to defer, reduce or even eliminate Customs duties on products admitted to the zone.
Deferral of Duties: Customs duties are paid only when and if merchandise is transferred into U.S. Customs territory. This benefit equates to a cash flow savings that allows companies to keep critical funds accessible for their operating needs while the merchandise remains in the zone. There is no time limit on the length of time that merchandise can remain in the zone.
Reduction of Duties: In a foreign trade zone, with the permission of the Foreign Trade Zones Board, users are allowed to elect a zone status on merchandise admitted to the zone. This zone status determines the duty rate that will be applied to foreign merchandise if it is eventually entered into the U.S. commerce from the FTZ. This process allows user to elect the lower duty rate of that applicable to either the foreign inputs or the finished product manufactured in the zone. If the rate on the foreign inputs admitted to the zone is higher than the rate applied to the finished product, the FTZ user may successfully elect the finished product rate, thereby reducing the amount of Customs duties that would be owed.
Elimination of Duties: No Customs duties are paid on merchandise exported from a FTZ. Therefore, duty is eliminated on foreign merchandise admitted to the zone but eventually exported from the FTZ. Generally, Customs duties are also eliminated for merchandise that is scrapped, wasted, destroyed or consumed in the zone.
Elimination of Drawback: In some instances, Customs duties previously paid on exported merchandise may be refunded through a process called drawback. The drawback law is increasingly complex and expensive to administer. Through the use of a FTZ, the need for drawback may be eliminated allowing these funds to remain in the operating capital of the company.
Labor, Overhead and Profit: In calculating the dutiable value on foreign merchandise removed from a zone, zone users are authorized to exclude zone costs of processing or fabrication, general expenses and profit. Therefore, Customs duties are not owed on labor, overhead and profit attributed to production in an FTZ.
Taxes: Since goods in a zone are considered to be international commerce, tangible personal property imported from outside the U.S. and held in a zone, as well as that produced in the U.S. and held in a zone for exportation, are not subject to State and local ad valorem taxes.