Free Trade Zones: What All You Need to Know?

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Free Trade Zones What All You Need to Know?
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What is a Free Trade Zone?

• A free trade zone (FTZ)is a designated area that
  eliminates traditional trade barriers, such as
  tariffs, some kind of taxes and fees and
  minimizes bureaucratic regulations.
• The goal of a free trade zone is to enhance
  global market presence of the Country or location
  by attracting new business and foreign
  investments.
• Tax-free trade zones generate foreign exchange
  through exports, and create economic value
  added.
• Free, foreign, and export processing zones all
  fall under the umbrella of being free trade
  zones. Because these terms are confusingly
  similar, they are often used interchangeably.

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Objectives of FTZs

• Tax-free trade zones have four policy objectives
• to attract foreign direct investment
• to decrease unemployment
• to support economic reform strategies by
  developing and diversifying exports
• to test new approaches to foreign direct
  investment and to policies related to law, land,
  labor, and the pricing of goods.

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Incentives

• Regulatory incentives
• In many zones, the authorities act as a one-stop
  shop, simplifying administrative procedures. A
  further regulatory incentive is an exemption from
  limits on foreign ownership.
• In many Gulf countries, such as Kuwait, Bahrain
  and the UAE, land ownership regulations are
  relaxed either through renewable long-term leases
  or outright waivers.
• Fiscal incentives
• Algeria, Egypt, Kuwait and the UAE offer complete
  exemption from private and corporate income
  taxes. Lebanon, Morocco and Yemen offer corporate
  tax holidays of variable duration. As for the
  private income taxes of foreign employees, Yemen
  offers full exemption, Jordan a 12-year holiday
  and Tunisia a flat income tax rate of 20.

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What are the Benefits to a Zone User?

• Duty Exemption- No duties on or quota charges on
  re-exports.
• Duty Deferral- Customs duties and federal excise
  tax deferred on imports.
• Inverted Tariff- In situations where zone
  production results in a finished product that has
  a lower duty rate than the rates on foreign
  inputs (inverted tariff), the finished products
  may be entered at the duty rate that applies to
  its condition as it leaves the zone (requires
  prior authorization).
• Logistical Benefits- Companies using FTZ
  procedures may have access to streamlined customs
  procedures (e.g. weekly entry or direct
  delivery).
• Other Benefits- Foreign goods and domestic goods
  held for export are exempt from state/local
  inventory taxes. FTZ status may also make a site
  eligible for state/local benefits which are
  unrelated to the FTZ Act.

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NAFTA

• In 1994, the North American Free Trade Agreement
  (NAFTA) came into effect, creating one of the
  worlds largest free trade zones and laying the
  foundations for strong economic growth and rising
  prosperity for Canada, the United States, and
  Mexico.
• Since then, NAFTA has demonstrated how free trade
  increases wealth and competitiveness, delivering
  real benefits to families, farmers, workers,
  manufacturers, and consumers.

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• Want to learn more about free trade zones,
  international organizations related to free trade
  zones, and general rules and types of free trade
  zones? ComplianceOnline webinars and seminars are
  a great training resource. Check out the
  following links
• All You Need to Know About Free Trade Zones
• Understanding North American Free Trade Agreement
  (NAFTA)
• NAFTA Rules and Certificate of Origin (USA,
  Canada, and Mexico)
• Harmonized Tariff Schedule/Schedule B and NAFTA
  Rules of Origin and Documentation
• How to Improve Your International Trade
  Compliance Score