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How to Use a Canadian Foreign Trade Zone (FTZ) for Your Import-Export Business

Welcome to a World of Possibilities for Your Import-Export Business

If you’re looking to optimize your operations, reduce costs, and streamline your supply chain, leveraging a Canadian Foreign Trade Zone (FTZ) and its associated programs can be the key to the success of your business. In this guide, we’ll provide you with a comprehensive overview of a Canadian FTZ and its programs, who can benefit from them, how to participate, and the myriad advantages offered while addressing potential challenges.

How to Use a Canadian Foreign Trade Zone (FTZ) for Your Import-Export Business

What is a Canadian FTZ?

There is often a lack of detail as to what defines a Canadian Foreign Trade Zone (FTZ). It is typically understood that it is a designated area or zone where the purchase or import of raw materials, components or finished products is officially eligible for exemption from tariffs and taxes. Such materials and goods can generally be stored, processed or assembled in the FTZ for re-export (in which case taxes and duties generally would not apply) or for sale on the domestic market.

While most of this is true, it is important to note that a Canadian FTZ is not just a designated area or zone – it can extend to all of Canada’s domestic territory. For example, your business could utilize any type of storage facility, not necessarily a warehouse, that could be part of your office building or even a hotel conference room, depending on your immediate requirements. This storage facility would be licensed as a bonded warehouse by the Minister of Public Safety and Emergency Preparedness under subsection 91(1) of the Customs Tariff. We will cover more on the customs bonded warehouse program under programs offered by a Canadian FTZ.

Who Can Use a Canadian FTZ?

Resident and Non-Resident Importers

Both domestically-based businesses (resident importers) and internationally-based businesses (non-resident importers aka NRIs), that engage in import and export activities within Canada can utilize a Canadian FTZ as defined earlier. Whether you’re an established business aiming to optimize your operations or a new entrant looking for a competitive advantage, an FTZ offers a diverse range of opportunities.

What Are the Benefits of Using a Canadian FTZ?

There are a number of trade incentive programs that are offered within a Canadian FTZ which can benefit businesses by removing geographical barriers, reducing operating costs, preventing unnecessary transactions, and improving international competitiveness. We will proceed to outline the programs which are most commonly taken advantage of and their specific benefits, but also challenges.

Pro Tip:

Most of these types of facilities/bonded warehouses are strategically located near major transportation hubs, including ports, airports, and highways, to facilitate international trade.

What Are the Programs Offered by a Canadian FTZ?

There are 5 programs that importers can utilize in their FTZ to maximize savings; 3 fall under the Duty Deferral Program, and 2 fall under the GST Relief Program.

Duty Deferral Program

The Duty Deferral Program is Canada’s main FTZ program. The program covers three components which can be used individually or in combination, depending on your unique business needs.

Important Note:

Proof of a Duty Drawback is required to be admitted into the Duty Deferral Program.

Through the Duties Relief Program, importers are relieved of paying duties on imported goods that are stored, processed or used in the manufacture of other products, as long as these goods or products are subsequently exported. The Duties Relief Program offers benefits, such as:

  • A business has up to four years from the date of importation to export its goods before it has to pay duties.
  • Goods may be sold or transferred to other authorized duties relief participants having to pay duties – however, in such a case, the business receiving the goods assumes liability for any duties.
  • Canadian-made parts can be substituted for imported parts to produce finished goods in order to better adapt to changing market conditions.
  • Posting Security with Customs aka bonds or licensing fees is not required

Importers/businesses based in the United States can also benefit from the duties relief program on imports into Canada, where import duties paid would be refunded if those goods are exported back to the United States.

It is important to note that GST/HST is not relieved under this program; however, it may be reduced by the amount of duty remitted.

This is a program whereby importers enjoy a whole or partial refund, reduction, or exemption of customs duties paid when importing goods into Canada and then subsequently exporting them e.g. into the U.S.

Goods are only applicable if they are in the same condition at the time of their export as when they were imported, or if they are used to manufacture other goods that are then exported. Application must be submitted within four years of the date of import.

It is important to note that GST/HST is not relieved under this program; however, it may be reduced by the amount of duty remitted.

A customs-bonded warehouse is a storage facility that your company operates under the authority of Canada Customs. However, it does not have to be a conventional warehouse — it could be part of your office building or even a hotel conference room, depending on your immediate requirements. This gives you enormous flexibility in how you store, handle and move your goods, which can translate into a valuable competitive edge. The following are some of the benefits of using a customs-bonded warehouse:

  • You do not pay duties and taxes until the goods enter the Canadian marketplace.
  • If you export the goods from Canada, you do not pay duties and taxes.
  • You can import goods in bulk, store them in your warehouse and remove them as you need them. This reduces your up-front costs because you pay duties and taxes only on the goods that enter the Canadian market.
  • You can store the goods in your warehouse for up to four years, during which time you can handle them in a variety of ways, providing that you do not substantially alter the goods.

To read more about Customs Bonded Warehouses check out our ‘An Importer’s Guide to Customs Bonded Warehouses.’

 

GST/HST Relief Programs

Goods and Services Tax (GST) is a 5% value-added tax levied by the federal government for most goods and services sold or provided in Canada, including imported goods. GST applies to most transactions in Canada, including those that occur across provincial and territorial borders. Harmonized Sales Tax (HST) is combined provincial sales tax and the GST amount equating to a total tax on goods of 13% in Ontario and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.

The GST/HST Relief Programs exempt importers from paying GST/HST at the time of import if they meet certain requirements of eligibility. The relief of GST/HST is administered by the Canada Revenue Agency (CRA) and is available through two programs:

This program relieves businesses of the obligation to pay taxes on imports of non-domestic goods, provided that these goods are imported for processing, distribution or storage and are subsequently exported. Unlike the EDCP program below, there is no minimum level of export sales that you must meet in order to maintain your eligibility. It also sets no limits on the value you can add to non-domestic goods, which means you can use those goods to manufacture or produce other products for foreign customers. More details on the EOP program can be found here.

The program is intended to benefit export-oriented businesses that import goods and/or acquire goods in Canada, process them to add limited value and then export 90% of these imported goods. The program is of particular value to businesses involved in the processing of goods, such as distributing, disassembling or reassembling. More details on the EDCP can be found here.

Pro Tip:

Both programs offer the advantage of consolidating goods from multiple sources into their FTZ, saving on GST/HST cost, in addition to duty (with a combined duty deferral program), before shipping to international markets e.g. the USA. This consolidation and program(s) utilization helps optimize shipping routes, reduce transportation/duty and tax costs, and improve supply chain efficiency.

Import-Export into Canada’s FTZ with Confidence

Explore the vast benefits of incorporating a Canadian Foreign Trade Zone (FTZ) into your business operations to optimize efficiency, reduce costs, and streamline your supply chain. We hope our comprehensive guide provided insights into FTZ programs, their advantages, and how your business can participate.

To delve deeper, schedule a personalized meeting with our FTZ experts, who are dedicated to tailoring these FTZ solutions to your unique needs. We look forward to discussing how the Canadian FTZ can contribute to your business success.

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