Logistics providers have to know the difference between FTZ and a bonded warehouse, and understand the benefits of each. No two clients are going to want the same thing, for the same needs, so it’s important to know the benefits of each one, so that each clients’ needs can be fulfilled accordingly.
FTZ vs. Bonded Warehouse: A Brief Overview
Both an FTZ and a bonded warehouse are beneficial in any kind of international trade situation. However, there are quite a few differences between the two, so before we get into the benefits of each, let’s take a minute to give a brief overview of each one.
First, let’s start with an FTZ. FTZ stands for foreign trade zone or free trade zone, and it refers specifically to an area outside of US customs territory (but still within and under the governance of the United States). Any merchandise that’s brought through this area is not subject to formal customs procedures, or to any form of import tax (better known as duty).
The FTZ is a program that has been around since the 1930s, and was created by the United States government. In addition, neither foreign merchandise nor domestic merchandise set for export is subject to tax.
On the other hand, a bonded warehouse is very different. A bonded warehouse is just a building wherein goods can be stored (and, in some cases, manufactured) without any payment of taxes (or duty). These warehouses have been around since the 1800’s, and they’re subject to the rules and regulations set forth by Title 19, United States Code, and section 1555. Furthermore, unlike a FTZ, a bonded warehouse’s goods are subject to taxation on January 1st of every year.
The Benefits of FTZ
There are many benefits of an FTZ which include, but are certainly not limited to, the following:
- Trade benefits for businesses: any business who gets their products admitted into the FTZ will find themselves at a competitive edge to those who aren’t admitted in the FTZ.
- Tax benefits: businesses will only have to pay taxes on the merchandise if the merchandise is transferred into a territory under the governance of the US Customs and Border Control. In addition, there will be some cases where the taxes that the business will have to pay on the merchandise is significantly reduced.
- No quota requirements: in an FTZ, there are no quotas to meet, or to exceed. This is especially beneficial for smaller businesses whose output may not be great enough to meet any quotas set forth.
- Better for the United States economy: finally, but certainly no less importantly, FTZs were specifically designed to stimulate the US economy by encouraging both American manufacture and free trade with other countries.
The Benefits of a Bonded Warehouse
Of course, not every business will be in the market for an FTZ. There are some that will require the services of a bonded warehouse, which has its own set of benefits, including:
- No import tax payment required: importers and company owners don’t have to pay taxes on products stored in a bonded warehouse. (Exporters, however, are subject to duty.)
- Generous storage time: while there are some countries that don’t have a storage time limit for your goods, the average American bonded warehouse allows you to store your goods for no more than five years…which is still quite sufficient for many non-perishable goods.
- Safe Haven for Restricted Goods: finally, but certainly no less importantly, if you’re in a business where you have access to — or use — so-called “restricted goods,” a bonded warehouse is a great place to store, and keep, these goods without fear of repercussion or penalty.