What Is Bonded Zone

What Is Bonded Zone – The Complete Guide

In this guide, you will find all information you’re looking for about bonded zone.

Whether you want to learn about bonded zones in China, benefits or limitations of bonded zones, you will find all information right here.

So, keep reading to learn more.

Meaning Of Bonded Zone

Shipping containers in bonded zone

Shipping container in bonded zone

Bonded zone refers to a domestic area with certain boundaries and which has special terms of trade or policies.

For instance, any goods imported into the country can enter the area and be exempted from paying duties and being kept bonded.

Foreign cargo arriving in the zone under bonded status can be stored, processed, developed, redid, mixed, categorized, and re-exported.

Of course, this is without customs procedures or payment of duties.

Essentially, any form of trade and manufacturing being conducted within the bonded zone is exempted from sales taxes and value-added taxes.

So, how is this possible?

Bonded warehouses and Free Trade Zones have made it easier for companies to penetrate through different markets.

Free Trade Zones have been introduced in different cities globally and it is in these zones where bonded warehouses are situated.

Custom Bonded Warehouse Vs Free Trade Warehouse

First introduced in the 1800s, Custom bonded warehouses are used to store imported goods.

That is, goods, which are exempted from payment of duty up to 5 years from the day of importation.

The main purpose of bonded warehouses was to facilitate the competitiveness of small to medium-sized export producers.

Of course, by exempting them from payment of taxes and duties.

Bonded warehouses are often licensed by the commissioner of Customs.

Goods stored here will only be liable for duty payment once they are moved from the warehouse for distribution.

Some of the benefits of a customs bonded warehouse are not limited to;

  • Onsite storage of cargo
  • Goods stored in custom bonded warehouses can easily be moved between other bonded warehouses.
  • Deferred payment of duty and taxes
  • Gives importers greater control over their finances. This is because there is no collection of duties until the cargo is withdrawn for consumption.
  • Timely delivery for manufacture and general trade
  • Minimal cash tied up in taxes and duties.
  • Safety of goods is guaranteed
  • Bonded warehouses facilitate international trade transactions
  • Proximity to ports- Most bonded warehouses are located near major ports or airports thus reducing costs.

As compared to customs bonded warehouses, free trade warehouses goods can not only be destroyed or manufactured but also all non-restrained cargo can be admitted.

Not forgetting that a free trade warehouse lacks restrictions on the amount of time cargo can be stored from the day of importation.

Some of the benefits of storing goods in FTZ warehouse include;

  • Goods evade passing through official customs procedures when first stored in the warehouse.
  • In turn, payment of duty can either be delayed or reduced, or eliminated.
  • Rules and regulations in FTZ warehouses are less strict as compared to bonded warehouses.
  • Goods can be manufactured, destroyed, or manipulated. Bonded warehouse limits such activities to only selected classes of bonded warehouses.

Bonded Zones In China

 Bonded zones in China

Bonded zones

Bonded zones have been in existence in China since 1990 and up to now, there are six customs supervision areas.

This also includes the free Trade Areas, Bonded ports, export processing zones, comprehensive bonded zones, and bonded logistics parks.

Currently, China has at least 11 FTZ each focusing on a specific industry with corresponding incentives to allure foreign investment.

Below are some of the cities with free trade zones in China;

  • Shanghai
  • Shaanxi
  • Guangdong
  • Zhejiang
  • Tianjin
  • Hubei
  • Hainan
  • Fujian
  • Sichuan
  • Liaoning
  • Chongqing

The bigger free trade zone areas are located in big cities such as Shanghai, Shenzhen, Chongqing, Guangzhou, and Tianjin.

Reasons Why Bonded Warehouse Is Right For Your Business

Bonded warehouses have proven to benefit not only importers but also businesses.

If you’re not sure if bonded warehousing is right for your business, below are some reasons why you should consider it;

  • Zero import duty when exporting goods – Storing your cargo in a bonded warehouse will save you both time and money when exporting goods.

If by chance you are importing to export to non-EU countries this would definitely be something to consider.

What this would mean is that your business will evade paying duty twice thus providing savings of around 25-30%.

  • Improved cash flow – Deferring payment of duty until your cargo has been purchased will positively affect the cash flow of your business.

How?

You may ask…

Well, once you decide to store your goods in a bonded warehouse, import duty will mostly be applicable once the goods enter the market.

This saves you from spending money on payment of taxes upfront even though there is no guarantee of sales of your goods to recoup the costs.

  • Port-centric Logistics – Most bonded warehouses are normally situated in close proximity to ports and airports.

This allows you to store your cargo at the port of entry until they are ready to be distributed.

What this results in are reduced costs which are brought about by the reduced lead times and minimized probability for damage.

Others include savings on transportation costs as well as carbon emissions.

Disadvantages Of Bonded Warehouse

In as much as bonded warehouses are quite beneficial in several ways, there are some drawbacks to them.

When thinking of using bonded warehouses, you’ll also want to consider such factors;

  • You will incur costs hiring a bonded warehouse as opposed to using a private warehouse.
  • In some cases, the importer might fail to pay customs duties.

In such instances, customs authorities are forced to put the bonded goods on auction in order to recover the duties.

  • If the importer happened to have paid the duty at once, he or she will pay a higher duty when moving goods from a bonded warehouse.

World Free Trade Zones

Currently, there are over 5400 FTZs globally, 1000 of them having been established in the past five years.

Below are some of the most important world’s free trade zones

  • European Union Single Market
  • Association of Southeast Asian Nations Free Trade Area
  • North America Free Trade Agreement
  • African Continental Free Trade Area
  • China Special Economic Zones

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