FTZs promote competitiveness in a global economy

Virginia Business
May 2007

Foreign trade zones offer American manufacturers a sweet deal. Businesses operating in foreign trade zones (FTZs) can act as though their products haven’t entered the U.S. market yet — allowing them to find the largest tax savings.

The Hampton Roads region has one of the largest geographic FTZs in the country. Designed to boost a U.S. firm’s competitiveness in the global marketplace, FTZs are zoned areas close to U.S. ports where commercial merchandise is not subject to excise taxes or import duties until it enters the U.S. marketplace. There are about 250 FTZ general-use zones and 450 special-purpose subzones in the U.S.

FTZ benefits provide a number of ways for companies to reduce manufacturing costs. For example, businesses can import parts and materials duty free and then pay a lower tax rate on a finished product when it enters the U.S. market. Businesses don’t have to pay taxes on goods that are damaged or re-exported and any manufacturing waste and scrap is not taxed.

FTZ # 20 in Hampton Roads offers 18 sites, with three subzones in the region and the Virginia Port Authority’s Inland Port in Front Royal. The site includes more than 10,000 acres, but not all businesses included in the zone have signed up to be included. Any business that wants to take advantage of FTZ benefits must receive approval from the Foreign Trade Zones Board of Commerce and U.S. Customs and Border Protection.