A free trade zone is one where the Government of the nation has allowed trade in terms of goods and services within a physically demarcated area (zone) where customs duty and certifications are not applicable as long as the goods are kept in the free trade zone or exported from the free trade zone
As soon as the goods are moved from the free trade zone into the country either for own use or for resale, customs duty and certifications apply.
Typically free trade zones are more for B2B (business to business) trade.
However, in countries like China there are free trade zones that enable businesses to hold products and inventory without paying customs duty and to legally export them to individual consumers who may buy them one by one. So in effect a B2C transaction from a free trade zone which is enabled by the government
A free trade zone does not have to necessarily be located next to a sea port or any other transportation hub. It could be deep inland away from any major port. However, a typical free trade zone would have a boundary wall with an entry and exit gate which is controlled by the customs department of the country or the province
When goods are imported into a free trade zone, the importer is typically one who operates from the free trade zone and is the registered importer of record. However to be noted that the title of goods actually does not transfer to the importer of records as the goods are still in the free trade zone in the name of the exporter.
The importer of record of free trade zone warehouse does have warehousing charges and other service charges. Moreover once you remove the goods from the free trade zone you need to cross customs and complete customs formalities at the exit point. This includes creating a bill of entry (BOE)
In countries like China, the free trade zone which operates for B2C transactions is for Chinese nationals who have registered with their KYC (know your customer) details and are therefore considered as individual importers. Goods moving to such individuals usually will have the customs duty beyond the duty free limit. Additionally there would normally be a per transaction charge levied by the customs department for processing such transactions.
Countries like India and UAE do not have any B2C free trade fulfilment centers as yet (March 2020). The existing B2B Free Trade Zones are largely used by logistics companies or cross border brands who would like to hold the inventory in the country and then ship it out from there to other countries. Some free trade zones are for value added processing like diamond processing.
The cost of free trade zones typically could be slightly higher than a normal warehouse and the cost of customs clearance may also be slightly higher especially given that one shipment may have to be exported out after it is broken up into multiple sub shipments.
Companies that can benefit from free trade zones are those who are involved in cross border trade or in large projects that are require them to ship products or components to the country before they are utilized over a period of time for projects. For e.g.: a metro line construction or a power plant construction
To know more about how your company can benefit from the use of free trade zones in India, China, Singapore and UAE please write to contact@tigerpug.com or Whatsapp +65 8388 6673 or Wechat Tigerpug
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