An FTZ is a US location that the Customs and Border Patrol (CBP) considers outside of the US territory. It is a zone authorized as exempt from many Customs rules and regulations. The FTZ provider works with a Customs broker to file entries in and out of the FTZ, as well as a monthly report on inventory levels. They also provide fulfillment services, arrange transportation for the inventory release, maintain cGMP facilities, and have QA on site.
For our growing biopharma clients, leveraging FTZ services for US importing can provide many significant advantages.
Customs duties and federal excise tax are deferred on imports until they enter the US Customs territory. Inventory remains untaxed until transported onto US soil thus obtaining ad valorem tax relief. Moreover, FTZs eliminate non-compliance penalties as companies can keep manufacturing on US soil without the effective penalty of inverted tariffs. (Inverted tariffs are the penalty incurred when importing parts for manufacturing products in the US when the products will be exported overseas.)
In terms of tangible benefits, FTZs reduce tracking and reconciliation time an average of 40-60 hours/year because the administrative paperwork is electronic. They also provide inventory control and eliminate 3PL management fees as they are subject to Customs supervision and security procedures. FTZ facilities can store any size or quantity of goods for an indefinite amount of time. Plus, they provide additional monetary savings as the zone user only needs to file one Customs entry per week rather than filing an entry per shipment.
In addition, the unlimited period of duty deferral unlocks working capital, which can then fund other business activities.
One of our clients was relying on informal entries to support their clinical programs and pipeline. The effort was labor intensive, involving burdensome compliance and reconciliation. Ultimately, they were penalized for breaching the terms under which their materials were imported. We recommended they move to an FTZ, helping this client defer about $500K in duties and avoid approximately $800K in penalty exposure going forward.
Another client who decided to use an FTZ’s services was an emerging company preparing for their first commercial launch. They had a very lean team, just a few dedicated supply chain and logistics employees and minimal recordkeeping. In addition, per Section 301 of the Trade Act, the imported material’s duty was subject to an increase from 6.5% to 25%. While they had inventory to support ongoing trials, it became clear that commercialization would need additional resources. As a result, we implemented the FTZ and leveraged it as duty-deferred safety stock.
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