What is a Customs Bonded Warehouse?

A customs bonded warehouse is a secured area or facility in which goods imported into the US are stored. Here, the cargo may undergo manufacturing operations for up to five years from the date of importation without paying customs duty.

When goods are brought to the customs bonded warehouse, the proprietor of the warehouse incurs a liability for the goods. This liability is covered under a warehouse bond. The liability ceases to exist when the goods are vacated from the warehouse for the following reasons:-

  • For supplies to a vessel or an aircraft
  • For its destruction as per rules and under the supervision of the US Customs & Border Protection (CBP)
  • For export
  • For consumption within the country

Importance of a customs bonded warehouse in trade

A customs bonded warehouse plays a vital role in the import process by allowing businesses to conduct their work smoothly. These storage facilities also manage the inventory and cash flow on behalf of the importer. Besides merely storing cargo, the warehouse facilitates the import of goods without suffering the consequences of custom delays or when delivery of goods takes longer than usual due to ongoing negotiations.

Custom bonded warehouses are important for importers because:-

  • It ensures the security of their containers and goods
  • It provides them duty-free storage
  • Safe storage of goods

How is a customs bonded warehouse useful for the importer?

A customs bonded warehouse is useful to importers in several ways. It is the ideal solution for importers who want to bring goods to the US but are looking for ways to defer their revenue and customs payments.

Value Added Tax and duties are levied on products that are ready to be shipped for delivery, the payment of which is done only at the time of selling. In addition to helping the importer manage cash flow, customs bonded warehouses offer long-term and affordable storage solutions with the added assurance of security of the goods.

Advantages of using a customs bonded warehouse

There are four major benefits of using the services of a customs bonded warehouse. They are listed below:-

  1. Provides long-term storage

A customs bonded warehouse offers long-term storage facilities wherein an importer can store the goods for up to five years without paying customs duties.

  1. A means to defer duties

When an importer imports goods into the US, he/she can store them at a customs bonded warehouse. By doing so, the importer gets an opportunity to defer customs duties until the goods are vacated from the warehouse. In this way, the importer can save money on storage and also get the time required to complete the import-related documentation and legal work.

  1. Hassle-free storage of restricted goods

Importing restricted goods into the US involves complex procedures including additional paper/legal work. There is also a strict timeframe for holding restricted goods in a warehouse before the paperwork is completed and approved. However, customs bonded warehouses are exempted from this probation period. Importers can store restricted goods in the same way they store conventional goods in these facilities and complete the paperwork procedures. Therefore, a customs bonded warehouse is the perfect place for storing such goods.

  1. Makes international shipping easy

A customs bonded warehouse is a convenient storage facility for those businesses that ship internationally. After the goods are imported into the US, they can be stored in the warehouse until further notice and that too without paying any duties or fees. Then, the importer can ship the cargo to his/her preferred international destination when favorable market conditions arise.

How does a customs bonded warehouse work?

A customs bonded warehouse is a secured facility for storing goods imported into the US as per the authorization given by the customs officials. Payment of duties on such goods is deferred until the cargo is vacated from the warehouse for further movement or sale. The importer and the warehouse proprietor are legally bound by a bond to incur all financial and legal liabilities from the moment the goods enter the warehouse.

In this way, the importer gets time to arrange the funds needed to pay customs duties while the goods remain secure and safe within the facility. The importer can even transfer the title of goods placed in the warehouse to another person (buyer), who can then pay the customs duties and gain custody and ownership of the goods.

The biggest benefit for importers using customs bonded warehouse facilities is that they can store the goods that are not yet cleared by the customs and avoid paying costly container demurrage or advance customs duties.

Difference between customs bonded warehouses and non-bonded warehouses

  • Customs bonded warehouses

A customs bonded warehouse is a secured place to store goods. The importer enjoys the convenience of having to pay customs duties only when the goods are shifted from the storage facility. The idea is to encourage entrepreneurs to enter into the international trade business.

Several customs bonded warehouses are owned by the government, but some are privately owned as well. Private owners have to obtain prior approval from the customs office to become a certified import storage facility.

In a customs bonded warehouse, the imported goods must be inspected and approved by the customs before the goods can be delivered to a specific destination. A customs bonded warehouse offers the convenience of long-term storage. Importers can store goods for up to five years without having to pay duties.

  • Non-bonded warehouses

A non-bonded warehouse is a storage space for duty-paid goods. They don’t operate on a deferred payment model and are supervised by the port authorities rather than the customs authorities.

These warehouses are used by importers to sell the goods in domestic markets instead of re-exporting them. In a non-bonded warehouse, the importer must pay the taxes immediately and get the goods inspected, regardless of their final destination. In non-bonded warehouses, long-term usage of the storage facility entails additional costs which is not a favorable option for importers with limited capital.

The importers must adhere to a stringent timeframe for holding any restricted goodswhereas customs bonded warehouses are exempted from this restriction.

In short, bonded warehouses are importer-friendly. They can store their goods at ease and enjoy hassle-free transportation of the goods. The cargo is in a highly secured facility with round-the-clock surveillance. All taxes and duties can be delayed until the goods are on their way out of the facility. You are not rushed to complete the complex paperwork and there is even no need for an inspection. None of the above-mentioned benefits are offered by a non-bonded warehouse.

Difference between customs bonded warehouses and Free Trade Zone (FTZ)

  • Customs bonded warehouses Customs bonded warehouses offer a highly secure storage environment for goods before the payment of duty as here, the duty has to be paid only when the goods are shifted from the warehouse for its distribution. Goods stored in customs bonded warehouses have to go through the conventional customs processes.

  • FTZ warehouses FTZ warehouses are located in special areas within the US, classified as outside of US Customs territory. Goods stored in an FTZ warehouse can be shifted without going through the formal customs entry procedures, and without the payment of import duties.Your choice of bonded warehouses and FTZ warehouses depends on the level of control you want over the customs process and your products.

Customs bonded warehouse rules and regulations

The authority for establishing bonded warehouses is outlined under title 19, section 1555 of the United States Code (USC). The rules and regulations related to the setting up and the operations of bonded warehouses are stated under customs duties (title 19), customs warehouses (part 19) of the Code of Federal Regulations. Some of the rules and regulations that are binding on the importers and all the users of the custom bonded warehouse facilities are listed below:-

  • All goods are subject to duty except perishables and explosive substances other than firecrackers.

  • All goods except duty-free goods may be stored in the retail sales facility of a warehouse.

  • The goods can be sold to individuals departing from the US.

  • There must be accountability for all the goods that enter the warehouse. An inventory list must be created and the records should be audited regularly.

  • Bonded goods and domestic goods must be kept separately. They must not mingle with un-bonded goods.

  • Goods from one warehouse facility may be transferred to another based on the provisions provided for the same in the Customs Regulations.

  • Under Title 19, USC, section 1562, goods stored in a customs bonded warehouse other than Class 6 or 7, maybe stored, cleaned, sorted, repackaged, and some changes may be made in its condition. However, they cannot be manufactured.

  • Goods manufactured in a Class 6 warehouse (except cigars made from imported tobacco) must be exported in strict adherence to Customs Regulations.

  • Waste or a byproduct from a Class 6 warehouse may be withdrawn for consumption. This can be done only upon payment of applicable duties.

  • All imported goods may be stored in a customs bonded warehouse for a period of up to five years.

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