A customs bonded warehouse is a facility that holds imported, duty-payable goods in storage for processing before they are delivered to their final destination.
These facilities, which can be government or privately-owned, are a useful option for organizations looking to store inventory overseas.
The distinguishing feature of a customs bonded warehouse is that the payment of duty tax can be deferred for up to five years from the importation date. During this time, up until the customs duty is paid, the goods must remain within the facility, but products can be manipulated and undergo manufacturing operations during this time.
The customs bonded warehouse proprietor is liable for the goods under a customs bond until they are exported, withdrawn for supplies to an aircraft or vessel, or removed for consumption within the U.S. after the duty has been paid. In the event that none of these criteria are met, the imported goods will be confiscated and handled as per the country’s laws. Typically this means that the shipment is disposed of.
Why are Customs Bonded Warehouses Especially Important Right Now?
One of the primary benefits of using a customs bonded warehouse is that imported goods are immune to disruptive geopolitical changes, effectively acting as protected custody.
Take COVID-19 as an example. For many organizations, the global pandemic has created supply chain bottlenecks, decreased global demand for certain items, and resulted in a build-up of inventory.
To maintain trade contracts with suppliers, many distributors and manufacturers are turning to customs bonded warehouses to save money in the short term.
Dutiable luxury goods such as perfume are in lower demand, which means the warehouses of distributors and retailers are filling up with an excess of product. Placing some or all of the excess stock in a customs bonded warehouse will temporarily relieve organizations of the products’ customs duty, which could be the difference between a company going broke or being able to continue trading post-coronavirus.
Importers also have the option of exporting their goods without paying duty if they are unable to sell them domestically.
Export Processing Zones (EPZ)
Another way to benefit from tax concessions and eliminate duty on imported goods is to open processing plants and manufacturing in an EPZ. In these zones, the import of materials and goods is duty-free, and they are usually located in close proximity to good shipping ports, roads, rail, and air transportation hubs.
Different Classes of Bonded Warehouses
Customs bonded warehouses fit into one of 11 different classes:
- Government-owned or leased premises. These are used to store goods that need to be examined by the Customs and Border Protection (CBP), have been seized by CBP, or are awaiting release from the custody of CBP.
- Privately owned importation warehouse. Goods contained within this type of facility must belong to or be consigned to the warehouse owner.
- Public bonded warehouses are used solely to store imported goods.
- Bonded yards or sheds are used to store bulky or heavy items, including tanks for large liquid imports, and stables, pens, etc. for imported animals.
- Bonded grain bins for grain storage.
- Exportation bonded warehouses are used for goods that are manufactured solely for exportation. This also covers the manufacture for exportation or domestic sale of cigars.
- Smelting and refining bonded warehouses for refining metals for export or domestic sale.
- Bonded warehouses for the sorting, repackaging, or cleaning of imported merchandise (with no manufacturing). This is supervised by the CBP at the owner’s expense.
- Bonded warehouses known as “duty-free stores,” for selling merchandise to be used or consumed overseas.
- Bonded warehouses that store items specifically designated for sale during international travel as duty-free merchandise onboard aircraft.
- Bonded warehouses to store General Order (GO) merchandise. GO merchandise refers to any goods that are not claimed within 15 days of arrival on US shores.
5 Benefits of Using a Bonded Warehouse
1. Deferred Duties
As mentioned, the main benefit of a customs bonded warehouse is that duty is not payable on the stored goods until they are removed for consumption or sale. This means that an importer or distributor can retain extra funds until the goods are withdrawn.
2. Convenient International Shipping
Organizations can hold their goods within the facility until demand increases. Once this happens, the duty will be paid and some (or all) of the goods can be delivered domestically.
If a domestic buyer is not found for the imported goods, or demand weakens, the importer can export the merchandise at no extra cost.
3. Storage of Restricted items
Regulated or restricted goods can be stored at a bonded warehouse, but need to be registered, and sometimes supervised, by CBP officials. In most cases, restricted goods can only be held within a warehouse for a very limited time period. Customs bonded warehouses are exempt from these time restrictions, which means organizations have five years to process the necessary paperwork.
Using a customs bonded warehouse makes the process of importing goods significantly less stressful for manufacturers. Facilities are safe and secure with 24/7 surveillance and organizations won’t need to worry about inspections, spikes or dips in product demand, or deadlines for completing complex and time-consuming paperwork.