If you’re looking for a way to legally delay the payment of customs duties for your imported goods, you may be exploring options like customs bonded warehouses and foreign trade zones (FTZ). But what’s the difference between the two? The foreign trade zone vs. customs bonded warehouse discussion is an important topic to thoroughly explore as you determine the best course of action for your business.
In this article, we provide a side-by-side comparison of these two solutions to help you navigate your options.
A customs bonded warehouse is a facility that is authorized by customs authorities to hold imported merchandise before it officially enters the U.S. market. The arrangement allows businesses to defer customs duties and taxes until the goods are withdrawn for domestic consumption. The warehouse proprietor maintains liability for the goods through payment of a warehouse bond.
A foreign trade zone, which is commonly known internationally as a “free trade zone,” is a designated area in the United States where imported goods can be stored, handled, processed, or manufactured under special customs rules before entering the U.S. market.
Many importers use foreign trade zones or customs bonded warehouses as a way to strengthen their tariff strategy. While both FTZs and bonded storage can be used to defer customs duties, taxes, and fees, there are many differences in how they operate—from where these storage areas are typically located to the activities that can occur on their premises to storage time limits and more.
| Foreign trade zone (FTZ) | Customs bonded warehouse | |
| Purpose | Storing, handling, processing, manufacturing, and distributing goods under favorable customs treatment | Storing imported goods while deferring customs duties and taxes |
| Supervision | Must be approved by the Foreign-Trade Zones Board and U.S. Customs and Border Protection (CBP); CBP rules don’t apply during storage, but CBP oversees the transfer of goods in and out of the zone for duty collection | Must be approved and supervised by CBP |
| Location | On U.S. soil, but considered outside of U.S. commerce and CBP territory; usually located in or near a CBP port of entry (normally within 60 miles of a port’s outer limits) | On U.S. soil, but considered outside of U.S. commerce; does not have to be in or near a port of entry; more common to be located inland |
| Duty repayment | Duties paid once goods leave the zone for the domestic market and enter CBP territory; importer chooses to pay the rate of either the original foreign materials or the finished product; no duties owed if goods re-exported | Duties paid once goods are released to the domestic market or once the time limit expires, whichever comes first; no duties owed if goods re-exported |
| Storage period | No time limit | Generally up to five years |
| Allowed activities | Storage and more extensive operations that alter the goods such as assembly, manufacturing, and processing | Storage and manipulation that does not significantly alter the product (not considered manufacturing), such as cleaning, sorting, or repacking |
| Separation requirements | Domestic and foreign goods can be stored together in an FTZ | Only foreign goods can be stored in a customs bonded warehouse |
| Access | Must meet certain security and access requirements, but allows for more flexible movement of goods due to more extensive operations on-site | Strict access only by customs authorities and approved personnel with goods generally staying in storage until they’re ready for customs clearance |
| Compliance requirements | More extensive inventory-control and recordkeeping requirements due to more manufacturing-level operations performed on-site | Straightforward compliance requirements due to more limited activities on-site |
Both customs bonded warehouses and foreign trade zones have their benefits and their drawbacks, and the solution that is best for you depends on the needs and limitations of your business.
Some important factors to consider when choosing between bonded storage and an FTZ include:
If you’re simply looking for a place to store your goods for a set period of time (possibly with some light manipulation) so you can delay, reduce, or fully avoid the payment of customs duties, a customs bonded warehouse may be the right choice for you. However, if you want the freedom to store goods for as long as needed with more extensive manufacturing operations on-site, a foreign trade zone may be the best option.
Another factor to consider is your preferred level of regulatory oversight. While customs bonded warehouses are under “lock and key” supervision with tighter controls over who enters the premises and how goods are moved in and out of the facilities, FTZs tend to come with more complex compliance requirements for businesses (more tracking and paperwork) due to the types of activities that are being performed on-site.
If you’re looking for a customs bonded warehouse in Savannah or Atlanta, Georgia, Porter Logistics can assist you. Our bonded storage facilities adhere to CBP guidelines, with documented processes and secure controls to help ensure customs compliance. Also, because we’re a third-party logistics (3PL) warehousing provider, our bonded warehousing connects seamlessly with transloading, distribution, and export services.
Our team can help you explore your options for maximizing your company’s cashflow through deferred customs duties and taxes. Learn more about our customs bonded warehousing. You can also explore our tips for choosing the best customs bonded warehouse location.
