Foreign Trade Zone

A zone within the physical territory of a country that for tax and customs purposes is legally designated as being outside the country. FTZs are useful for the manufacture of products that may incorporate high value components or where high value inventories must be maintained. Their key benefit is that goods kept in an FTZ are not formally imported and so are not subject to VAT or customs duties. While such taxes are typically reclaimable from most governments when manufactured goods are exported, paying the duties and taxes for the period between import and export is a substantial cash flow burden and also imposes substantial administrative costs. FTZs are usually located near ports, border-crossings, or airports.

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