We've all heard about Free Zones one way or the other, but what exactly are they? What's the difference between a Free Zone and an Export-Processing Zone? Why do Free Zones exist in the first place? When it's the first time you have to deal closely with FTZs, it can be hard to understand the ins and outs.
This article will clarify these questions and provide helpful tips on how you can take advantage of Free Zones for your business.
What Is a Free Trade Zone?
A Free Trade Zone (FTZ) is an area within a country designated as a zone where goods can be imported and exported without the need to pay tariffs or undergo other trade restrictions.
Goods brought into a Free Trade Zone are not subject to import duty or other taxes and can be stored, used, or re-exported without being subject to customs regulations.
Free Trade Zones can be found in many countries worldwide, varying in size and scope. Some FTZs are pretty large, covering entire cities or regions, while others are much smaller.
Free Trade Zones can be a helpful tool for businesses looking to minimize their trade costs and take advantage of duty-free import and export opportunities.
They can also be used to encourage foreign investment, as many FTZs offer special incentives and benefits to businesses that locate there.
For example, the JAFZA offers businesses that locate there a 100% foreign ownership structure, as well as several other benefits such as no corporate tax for the first 15 years and no personal income tax.
Free Trade Zone vs. Export-Processing Zone
It's important to note that Free Trade Zones are not the same as Exporting Processing Zones (EPZ).
An EPZ is a special type of FTZ typically located in developing countries. An EPZ aims to promote economic development by providing foreign investors with tax and other incentives to set up businesses that export goods.
EPZs are often used to attract foreign investment and create jobs in areas that might otherwise be economically disadvantaged.
One of the most famous EPZs is the Shenzhen Special Economic Zone in China, which was created in 1980 to attract foreign investment and spur economic development in the area.
The Shenzhen SEZ was a huge success and led to the development of many other EPZs in China and other countries worldwide.
Why Do Free Trade Zones Exist?
A free trade area can exist for a variety of reasons.
One of the primary purposes of an FTZ is to promote trade and economic development. This is typically accomplished by providing businesses with incentives to locate in the FTZ and by making it easier for goods to move in and out of the zone.
Another reason Free Trade Zones exist is to provide a way for countries to comply with international trade agreements.
For example, the World Trade Organization's (WTO) General Agreement on Tariffs and Trade (GATT) requires member countries to provide duty-free treatment for goods imported and exported from FTZs.
To comply with this agreement, many countries have established FTZs.
What Kind of Merchandise Can Be Put in a Trade Zone?
Most FTZs are designed to be flexible and can accommodate a wide range of businesses.
However, some restrictions exist on what types of merchandise can be stored in an FTZ.
For example, many FTZs will not allow hazardous materials or weapons to be stored in the zone.
The types of merchandise allowed to be stored in an FTZ will vary depending on the specific regulations of the country where the FTZ is located.
