Dec 19, 2016
From the KPMG TaxWatch
Amie Ahanchian, managing director in KPMG LLP’s Trade and Customs practice discusses the use of Foreign Trade Zones and their benefits for importing into the United States.
Amie Ahanchian: The foreign trade zone program was established over 75 years ago, but it continues to be a great opportunity for companies that are importing into the United States and exporting from the United States.
At KPMG we see a lot of interest from our companies in a diverse spectrum of industries, including retailers and industrial manufacturers that continue to be very much interested in the foreign trade zone program.
At KPMG we are very passionate about the foreign trade zone program. In fact, last year we conducted a benchmarking study of companies that use foreign trade zones. And what we learned is that those companies generate benefits of anywhere from a few hundred thousand dollars a year to a few million dollars a year from the FTZ program.
Those benefits can be categorized into a few key areas. The first one is weekly entry filing. So whether a company is a distribution FTZ or a manufacturing FTZ, they have the opportunity to transition from filing with customs one entry for every shipment of imported product that comes into the US to just filing one entry for all products withdrawn from the FTZ into US Customs territory per week.
That translates into less merchandise processing fees paid to customs and also reduced customs brokerage fees. So that's the first benefit, weekly entry filing.
The second benefit is elimination of customs duties on products imported into the US FTZ and subsequently exported. So for many companies that use a foreign trade zone as an export platform to other markets, they have the opportunity to completely eliminate customs duties on those products, realizing savings and also reducing the need for a formal duty drawback program.
The third benefit relates to companies that are using the FTZ to manufacture or assemble products within the US. For those companies, they may be importing parts, components or raw materials that are dutiable, transforming those into another finished product within the FTZ and they have the opportunity to pay customs duties on the finished product that's withdrawn from the foreign trade zone, thereby reducing or eliminating customs duties on what came into the zone.
And last but not least is a cash flow benefit, and that relates to imported product that's held within a foreign trade zone, whether it's for one day or indefinitely. The importer would not pay customs duties until the product is withdrawn into US Customs territory, thereby realizing a cash flow savings on the product while it was held in inventory within the FTZ.
A foreign trade zone typically requires about six months to be set up. And during that six month time, there are two main steps that should be taken. The first step is to apply to the foreign trade zone's board to designate the existing manufacturing facility or distribution facility as a foreign trade zone, and the second step is working with customs in the local port of entry on meeting the regulatory requirements for operating the foreign trade zone, which also includes setting up an inventory control and record-keeping system.
For more information on Trade and Customs services, contact Amie Ahanchian at email@example.com.
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