What is a Free Trade Zone? A free trade zone (FTZ)is a designated area that eliminates traditional trade barriers, such as tariffs, some kind of taxes and fees and minimizes bureaucratic regulations. The goal of a free trade zone is to enhance global market presence of the Country or location by attracting new business and foreign investments. Tax-free trade zones generate foreign exchange through exports, and create economic value added. Free, foreign, and export processing zones all fall under the umbrella of being free trade zones. Because these terms are confusingly similar, they are often used interchangeably.

2.  A free trade zone (FTZ)is a designated area that eliminates traditional trade
barriers, such as tariffs, some kind of taxes and fees and minimizes
bureaucratic regulations.
 The goal of a free trade zone is to enhance global market presence of the
Country or location by attracting new business and foreign investments.
 Tax-free trade zones generate foreign exchange through exports, and create
economic value added.
 Free, foreign, and export processing zones all fall under the umbrella of being
free trade zones. Because these terms are confusingly similar, they are often
used interchangeably.

3. Tax-free trade zones have four policy objectives:
 to attract foreign direct investment
 to decrease unemployment
 to support economic reform strategies by developing and diversifying exports
 to test new approaches to foreign direct investment and to policies related to
law, land, labor, and the pricing of goods.

4. Regulatory incentives
 In many zones, the authorities act as a one-stop shop, simplifying
administrative procedures. A further regulatory incentive is an exemption
from limits on foreign ownership.
 In many Gulf countries, such as Kuwait, Bahrain and the UAE, land ownership
regulations are relaxed either through renewable long-term leases or
outright waivers.
Fiscal incentives
 Algeria, Egypt, Kuwait and the UAE offer complete exemption from private
and corporate income taxes. Lebanon, Morocco and Yemen offer corporate
tax holidays of variable duration. As for the private income taxes of foreign
employees, Yemen offers full exemption, Jordan a 12-year holiday and
Tunisia a flat income tax rate of 20%.

5.  Duty Exemption- No duties on or quota charges on re-exports.
 Duty Deferral- Customs duties and federal excise tax deferred on imports.
 Inverted Tariff- In situations where zone production results in a finished product that
has a lower duty rate than the rates on foreign inputs (inverted tariff), the finished
products may be entered at the duty rate that applies to its condition as it leaves the
zone (requires prior authorization).
 Logistical Benefits- Companies using FTZ procedures may have access to streamlined
customs procedures (e.g. weekly entry or direct delivery).
 Other Benefits- Foreign goods and domestic goods held for export are exempt from
state/local inventory taxes. FTZ status may also make a site eligible for state/local
benefits which are unrelated to the FTZ Act.

6.  In 1994, the North American Free Trade Agreement (NAFTA) came into effect,
creating one of the world’s largest free trade zones and laying the foundations
for strong economic growth and rising prosperity for Canada, the United States,
and Mexico.
 Since then, NAFTA has demonstrated how free trade increases wealth and
competitiveness, delivering real benefits to families, farmers, workers,
manufacturers, and consumers.

7. Want to learn more about free trade zones, international
organizations related to free trade zones, and general rules
and types of free trade zones? ComplianceOnline webinars
and seminars are a great training resource. Check out the
following links:
 All You Need to Know About Free Trade Zones
 Understanding North American Free Trade Agreement
(NAFTA)
 NAFTA Rules and Certificate of Origin (USA, Canada, and
Mexico)
 Harmonized Tariff Schedule/Schedule B and NAFTA Rules
of Origin and Documentation
 How to Improve Your International Trade Compliance
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