Introduction
Pursuant to section 4 (6) of the Special Economic Zones Act, No. 15 of 2016, Special Economic Zones cover a broad range of zones including Free Trade Zones (FTZ). Free Trade Zones refer to designated areas located either near a seaport or airline which operates outside the rules and regulations of customs applicable in a particular country. This means that businesses that decide to set up shop in a Free Trade Zone can import raw materials and other goods into the country without immediately having to pay custom duty, taxes or fees. Custom duty, taxes and fees only become payable once the goods exit the Free Trade Zone and enter into the country’s market.
What are some of the advantages of operating in a Free Trade Zone?
1. Duty deferral
Due to the nature of Free Trade Zones, the rules and regulations pertaining to tariffs, labor and the environment might be deferred, reduced or exempted. What this means is that goods coming into these zones do not incur custom duty until they exit the zone. By default, this would result in significant cost savings for businesses which would include small and medium sized enterprises (SMEs).
2. Strategic location and Infrastructure
Free Trade Zones tend to be developed in places that are geographically advantageous for trade, they include areas that are organized or located around airports and sea ports. Such areas are often strategically located for ease of accessibility from various stakeholders which include pedestrians, importers, exporters, government officials e.t.c. Operating a business within an FTZ guarantees easy access to various consumers which translates to a boost in business sales and profits.
3. Adequate infrastructure
Due to their strategic location, Free Trade Zones contain proficient infrastructure designed to ensure that there are working systems within the area. These include well-built roads, sufficient electricity and water which all necessary for the efficient running of a business. In addition to that, FTZs contain bonded warehouses that allow businesses to store any product that is assembled, shipped, exported and imported within the Zone. This precludes businesses from having to pay import duty for goods that are stored in FTZs which enables them to save costs on the same.
4. Damaged or non-conforming items
Free Trade Zones can be utilized to inspect, repair, repack or remove damaged and defective products before remitting the same to the public sector. This means that items that are damaged and defective can be destroyed within the zone and therefore not be made subject to import duties and taxes.
5. Re-exportation
When finished goods or component parts are imported into the country for eventual exportation, a free trade zone allows for the duties on those imports to be eliminated. Using a free trade zone as an export distribution center can provide big benefits to support selling goods into international markets.
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