Bonded Warehouse vs. Foreign Trade Zones (FTZ)
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By: Team Krypt - July 18th, 2016

International Trade via FTZ

As an importer, both Bonded Warehouses and Foreign Trade Zones can be financially beneficial when thinking about storage and warehouse distribution. But how do you know which to use and in which circumstances? Let’s take a closer look.

Bonded Warehouse Definition

A secure building or area (Customs Warehouse) in which dutiable goods can be stored, manipulated, or undertake manufacturing operations without a payment or duty. A Bonded Warehouse enables companies to store goods imported from other countries without having to pay any import duties and VAT until the goods are sold on the local market. Additionally, Bonded Warehouses provide official supervision and security for goods before the payment of duty. The duty then becomes payable upon movement of goods from warehouse for use and consumption.

Bonded warehouses operate on U.S. soil and under U.S. jurisdiction, and so understandably are associated with typical customs, duties, and tariffs costs.


Benefits of Customs Bonded Warehouse (CBW)

  • Customs Bonded Warehouse (CBW) enables companies to free-up capital that would otherwise be tied up in customs fees payable on unsold goods
  • Using a CBW avoids the need for companies to be obliged to pay import duties for goods that are simply transiting through a warehouse, and that will ultimately be shipped abroad again.
  • Bonded Warehouses enable the owner of goods to avoid losses due to inflation from the time the goods enter the country to the time they are sold, and they minimize the risk of paying taxes for products that may not be sold at all.

Foreign Trade Zones (FTZ)

A Foreign Trade Zone (FTZ) is a geographical area, located in (or adjacent to) a United States Port of Entry, authorized by U.S. Customs and Border Protection (CBP) furnished with facilities for storing, manipulating, manufacturing and finishing goods and for reshipping. Merchandise of every description may be held in the Zone without being subject to customs duties or other ad valorem taxes. These special geographic areas are under the supervision of the U.S. Customs and Border Protection under the United States Homeland Security Council.

Foreign-Trade Zones provide an excellent opportunity for saving duty in the following ways:

  • They offer inverted tariff benefits by paying duties on the final assembly rather than on individual components.
  • They replace individual entry filings with one consolidated entry per week.
  • They help you avoid duties for export or scrapped items.
  • They allow duty deferral for items held and subsequently utilized domestically.

One must weigh the pros and cons of operating within these semi-independent Foreign Trade Zones, and in some cases they might find that it’s easier to stick with traditional, bonded warehouses. Let’s compare.

Comparison of Bonded Warehouse and Foreign Trade Zones

  • Inverted tariff benefit is available with FTZs but is not available for Bonded Warehouse
  • Individual entry filing is necessary for import procedure Bonded Warehouse but only weekly entry filing is required with the FTZ customs procedure.
  • Work In Progress (WIP) stock can be tracked in FTZ customs procedure but WIP traceability is not available in bonded warehouse procedure.
  • Big manufacturing facility can be declared as an FTZ zone. When components are released for assembling and manufacturing products in the FTZ zone, duty is not paid. When bonded stock is released from bonded warehouse to assemble or manufacture the product then duty is calculated as per the transition procedure.
  • Shippers can only place foreign goods, imported from other countries, in a bonded warehouse; Bonded Warehouses do not permit manufacturing, assembling, or exhibiting goods in the warehouses and they can only clean, repackage, and sort them – under customs’ supervision. Thus, customs has primary control over goods stored in a bonded warehouse, and so shippers can really only access their own products during regular working hours.

It may seem as though bonded warehouses come with too many restrictions and red tape, but shippers who plan on selling goods domestically won’t benefit much from opting for Foreign Trade Zones. The benefits of FTZs mainly apply to shipments that will ultimately end up back in another foreign nation for sale.

For more information on FTZ with SAP GTS 11.0, check out Krypt’s webinar recording on Foreign-Trade Zones.

Category: SAP GTS

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