Global Tax Alert | 11 September 2013

Canada announces new measures for Duty Relief Foreign Trade Zone-type programs

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Following a review of Canada’s foreign trade zone (FTZ)-type programs set in motion in the 2013 federal budget, Minister of State (Finance) Kevin Sorenson announced on 29 August 2013 important new measures aimed at improving benefits to Canadian importing and manufacturing businesses and attracting new foreign direct investment. These are a welcome addition to Canada‘s FTZ-type programs.

Canada does not have a site-specific program. There are, however, numerous federal and provincial programs covering infrastructure development, qualified labor facilitation, as well as income tax and customs/goods and services tax (GST) relief. The Duty Relief Programs administered by the Canada Border Services Agency and the Canada Revenue Agency provide benefits comparable to those found in FTZs elsewhere in the world. Importer/manufacturers may benefit from these programs regardless of the geographic location of their site within Canada.

There are three major such programs for duty and import tax relief.

Customs Bonded Warehouse Program

First, and the most used, is the Customs Bonded Warehouse Program. It provides relief from duties and GST and most closely approximates a geographically defined FTZ. Under this program, goods entering the bonded warehouse are treated as not imported. They can be processed and re-exported without duties, or can be imported for consumption based on the original duties payable. The transport of goods within Canada requires a customs declaration, but duties are not payable as long as the goods remain in bond.

Duty Deferral Program

The Duty Deferral or Remission Program provides duty deferral (and sometimes GST relief) for imports warehoused or used in production anywhere in Canada. Duties are then only paid in certain circumstances, depending on end use or, if not re-exported (export relief may not be available for free trade agreements (FTA) exports), when the goods are sold. There are distinct cash flow advantages.

Duty Drawback Program

Customs duty under the Duty Drawback Program (but not GST import tax) paid on importation can be claimed back by the importer or exporter when goods produced using the inputs are exported from Canada. This program is again restricted for exports to FTA countries where the FTA duty is lower.

Implications

While Canada’s programs may have more flexibility, there may also be a lack of recognition of the programs or difficulty in accessing them in one place. They are also administratively burdensome. While not resulting in discrete, site-specific FTZs, the new measures are a real improvement and will facilitate access, reduce administration, and eliminate costs to access Canada’s Duty Relief Programs.

The programs are intended to achieve the following:

  • Eliminate the annual registration fee for the Customs Bonded Warehouse Program
  • Simplify the application process to access Canada’s FTZ programs
  • Introduce service standards for application processing times
  • Accept requests for new “FTZ Point” single windows to enhance delivery of FTZ programs at strategic locations in Canada
  • Launch a five-year, $5-million program to market Canada’s FTZ advantage and attract foreign investment to strategic locations across Canada

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (Canada), Toronto
  • Dalton Albrecht
    +1 416 943 3070
    dalton.albrecht@ca.ey.com
Ernst & Young LLP (Canada), Montréal
  • Sylvain Golsse
    +1 514 879 2643
    sylvain.golsse@ca.ey.com

EYG no. CM3794