Introduction
Pursuant to Section 4 (6) of the Special Economic Zones Act, No. 15 of 2016, Special Economic Zones (SEZs) encompass a broad range of designated areas, including Free Trade Zones (FTZs). Free Trade Zones are specific locations, often situated near a seaport or an airport, which operate outside the standard customs rules and regulations applicable in the host country. This framework permits businesses establishing operations within an FTZ to import raw materials and other goods without the immediate payment of customs duty, taxes, or fees. These fiscal obligations only become payable when the goods exit the Free Trade Zone and are introduced into the local market.
Advantages of Operating within a Free Trade Zone
Operating a business within a Free Trade Zone offers several compelling advantages for enterprises seeking to optimize their trade and logistics processes.
1. Duty Deferral and Cost Efficiency
The unique nature of Free Trade Zones allows for the deferral, reduction, or exemption of certain tariffs, labor, and environmental regulations. Specifically, goods entering these zones do not incur customs duty until they physically exit the zone. This duty deferral mechanism can result in significant cost savings for businesses of all sizes, directly enhancing their capital flow and overall profitability.
2. Strategic Location and Accessibility
Free Trade Zones are typically developed in areas that offer geographical advantages for trade, such as locations organized around major airports and seaports. This strategic positioning ensures ease of accessibility for various stakeholders, including importers, exporters, logistics personnel, and government officials. Operating a business in an FTZ guarantees superior access to trade routes and various consumers, which often translates into a boost in business sales and profits.
3. Adequate Infrastructure and Support Systems
Due to their advantageous location, Free Trade Zones are equipped with proficient infrastructure designed to ensure efficient operations. This infrastructure includes well-built roads, reliable electricity, and sufficient water supply, all critical components for the seamless running of a business. Furthermore, FTZs contain bonded warehouses, allowing businesses to store products that are assembled, shipped, exported, or imported within the zone. Storing goods within an FTZ precludes businesses from having to pay import duty on these specific goods, leading to further cost savings.
4. Handling Damaged or Non-Conforming Items
Free Trade Zones provide a functional space to inspect, repair, repackage, or remove damaged and defective products before they are released into the general market. Items identified as damaged or defective can be destroyed within the zone itself. Consequently, these goods are not made subject to import duties and taxes, preventing a business from incurring tax expenses on unsalable inventory.
5. Facilitating Re-exportation
For businesses that import finished goods or component parts with the intent of eventual exportation, the Free Trade Zone model allows for the elimination of duties on those initial imports. Utilizing a Free Trade Zone as an export distribution center provides substantial benefits for companies looking to support and expand their sales into international markets by streamlining the trade process.
