A Detailed Guide on Free-Trade Zone & Benefits
Free-Trade Zone (FTZ), as the name implies, is a trading route exempted from various stricter rules and regulations thus allowing key traders, importers and exporters to benefit in terms of cash flow, global logistics efficiency, reduction of unnecessary and redundant logistics cost while retaining flexibility.
Foreign/Free-Trade Zones allow shipping and logistics companies to bring items in a country without any tax duties, store the goods free of tariff charges or even use the parts in manufacturing and finished product that can be exported devoid of surcharge for both import/export.
Other than that, goods that don’t meet certain regulatory specifications can be imported through FTZ where they’re amended as per the trade policies and repackaged for import. Read on to find out more on free trade zones and the benefits.
Duty Rescheduling & Exclusion
FTZs are considered out-of/free of custom restrictions and likewise laws; meaning that cargo that comes through the route don’t levy tax and import duty unless the shipment exits the zone. This timeframe between import and export lets a company to eliminate or least, reduce a definite amount of expense while reassemble, manufacture and other such procedures take place unless the item(s) ready for re-export.
Upturned/Inverted Tariff Respite
Foreign/Free Trade Zones also authorisetrade and logistics organisations to keep excess production within the country free of any inverted tariffs or effective penalty. This ‘inverted tariff’ refers to penalty effective when importing goods for product manufacturing and finished goods are sold overseas. Often, these parts are taxed at a much higher rate as compared to the actual cost of finished goods, thus making it more cost-effective to proceed with the manufacturing overseas.
Types of Free Zones
There’re four categories of free zones defined below:
- Free Trade Zones (FTZ)are considered as fenced or enclosed duty-free areas reserved for warehousing and distribution purpose to support trade, especially re-exports. These facilities are developed near to a city or country’s point of entry like a shipping port, airport, by road entrance so on. The primary focus is to conduct convenient commerce of either finished or semi-finished goods.
- Export Processing Zones (EPZ) allows manufacturing and likewise activities for incentive whereby particular focus is on export however, several of these zones also support non-exporting activities.
- Free Ports are simply broader than free zones as they’re developed on a larger scale and support a wide range of activities, incentive promoting economic boost and trading. Several free zones can be included in a single free port.
- Special Economic Zones (SEZ) is simply a free port term applied to Chinese context as a promotion tool, supporting foreign direct investment in developed and well-defined areas. The primary purpose is importing raw materials and parts for further processand obtain finished goods, ready for export in foreign markets.
Various Other Benefits
Large manufacturers, individuals, importers and exporters of all size can benefit from free-trade zones but, most are still unaware of the significant cost savings plus many other benefits that come along. Utilising FTZ can significantly cut-down custom duty, tax and tariffs, improves competitiveness in the global market, minimise bureaucratic regulations and much more.
- Duty Exemption on Waste, Scrap & Yield Loss
Since developing companies are actively operating in FTZ, they don’t need paying import duties unless items are in coalition with the laws of the country where these are to be shipped. Duties that are levied thus exclude manufacturing by-products and wastes thus reduce goods tax amount.
- Weekly Savings on Entry
Rather than filing or recording entry every time a shipment enters the country, an importer engaged in trading from FTZs only need to enter/file the customs just once a week which significantly reduces costs and hassle.
- Better Inventory Tracking, Compliance & Quality Control
Companies can closely monitor their inventories via free zones. Bringing in goods into a warehouse operating in an FTZ; you can control, identify and classify goods on site rather than at the port or customs control location.