About FTZ

What is an FTZ?

An Free Trade Zone (FTZ) is an area within the PRC, in or near a China Customs port of entry, where foreign and domestic merchandise is considered to be outside the country, or at least, outside of China Customs territory. Certain types of merchandise can be imported into a Zone without going through formal Customs entry procedures or paying import duties. Customs duties and excise taxes are due only at the time of transfer from the FTZ forChinaconsumption. If the merchandise never enters theChinacommerce, then no duties or taxes are paid on those items.

The Reee Trade Zone (FTZ) program was created by theChinagovernment to facilitate international trade and increase the global competitiveness of China-based companies. The program, which has existed since 1990, continues to thrive and change to better meet the needs of Chinese companies in the global economy.


Activities in a Free-Trade Zone

Merchandise entering a Zone may be:

Assembled          Manufactured     Repackaged
Tested                Stored                 Destroyed
Sampled             Salvaged             Mixed
Relabeled           Processed           Manipulated

Transported        Restored             Exchanged

*The user must receive special approval from the FTZ Board for manufacturing.

Operating within an FTZ carries numerous benefits:

Deferral, reduction and possible elimination of duties

Tighter inventory control that may virtually eliminate year-end inventory loss adjustments

Potential direct delivery benefit reduces long hold times at crowded ports of entry

Trading Activities:

The FTZ based enterprises may handle the trading businesses including international trade, entrepot trade, trading agent, Consulting and advisory activities under the supervision of FTZ administrations.



Building local prosperity through global business    In an expanding global economy, there is increased competition among nations for jobs, industry and capital. The FTZ program was designed to promote Chinese competitiveness by encouraging companies to maintain and expand their operations in the PRC.

The FTZ program encourages China-based operations by removing certain disincentives associated with manufacturing inChina. The duty on a product manufactured abroad and imported intoChinais paid at the rate of the finished product rather than that of the individual parts, materials or components of the product. A China-based company finds itself at a disadvantage vis-à-vis its foreign competitor when it must pay the higher rate on parts, materials or components imported for use in the manufacturing process. The FTZ program corrects this imbalance by treating a product made in aChinafree-trade zone, for purposes of tariff assessment, as if it were produced abroad.

Benefits for Businesses
   The FTZ program helps Chinese companies improve their competitive position versus their counterparts abroad. The FTZ program allows China-based companies to defer, reduce or even eliminate Customs duties on products admitted to the zone.

Deferral of Duties   Customs duties are paid only when and if merchandise is transferred into China Customs and Border Protection territory. This benefit equates to a cash flow savings that allows companies to keep critical funds accessible for their operating needs while the merchandise remains in the zone. There is no time limit on the length of time that merchandise can remain in a zone.

Reduction of Duties   In a FTZ, with the permission of the Free-Trade Zones Board, users are allowed to elect a zone status on merchandise admitted to the zone. This zone status determines the duty rate that will be applied to foreign merchandise if it is eventually entered intoChinacommerce from the FTZ. This process allows users to elect the lower duty rate of that applicable to either the foreign inputs or the finished product manufactured in the zone. If the rate on the foreign inputs admitted to the zone is higher that the rate applied to the finished product, the FTZ user may choose the finished product rate, thereby reducing the amount of duty owed.

Elimination of Duties    No duties are paid on merchandise exported from a FTZ. Therefore, duty is eliminated on foreign merchandise admitted to the zone but eventually exported from the FTZ. Generally, duties are also eliminated for merchandise that is scrapped, wasted, destroyed or consumed in a zone.


additional Benefits

Elimination of Drawback   In some instances, duties previously paid on exported merchandise may be refunded through a process called drawback. The drawback law has become increasingly complex and expensive to administer. Through the use of a FTZ, the need for drawback may be eliminated allowing these funds to remain in the operating capital of the company.

Labor, Overhead and Profit   In calculating the dutiable value on foreign merchandise removed from a zone, zone users are authorized to exclude zone costs of processing or fabrication, general expenses and profit. Therefore, duties are not owed on labor, overhead and profit attributed to production in a FTZ.

Taxes   By national statute, tangible personal property imported from outside China and held in a zone, as well as that produced in the U.S. and held in a zone for exportation, are not subject to national value-added taxes.

Quotas  Chinaquota restrictions do not apply to merchandise admitted to zones, although quotas will apply if and when the merchandise is subsequently entered intoChinacommerce. Merchandise subject to quota, with the permission of the Free-Trade Zones Board, may be substantially transformed in a FTZ to a non-quota article that may then be entered into China Customs and Border Protection territory, free of quota restrictions. Quota merchandise may be stored in a FTZ so that when the quota opens, the merchandise may be immediately shipped into China Customs and Border Protection territory.

Zone-to-Zone Transfer   An increasing number of firms are making use of the ability to transfer merchandise from one zone to another. Because the merchandise is transported in-bond, duty may be deferred until the product is removed from the final zone for entry into the China Customs and Border Protection territory.

Other   Additional benefits, sometimes referred to as intangible benefits, have begun to play a greater role in a company's evaluation of the FTZ program. Many companies in FTZs find that their inventory control systems run more efficiently, increasing their competitiveness. FTZ users also find that in meeting their FTZ reporting responsibilities toChinagovernment, they are eligible to take advantage of special Customs procedures such as direct delivery and weekly entry. These procedures expedite the movement of cargo, thereby supporting just-in-time inventory methodologies.


Shenzhen Administrative Bureau of Free Trade Zones and Subordinate Investment Service Departments

Add:  No.1 Guihua Rd.,Futian Free Trade Zone, Shenzhen (518038)
Tel:  +86(0755) 83598888
Fax:  +86(0755)83590053