What Is a Free Trade Zone? Special Economic Zones Explained
A free trade zone (FTZ) is a designated area considered outside a country's customs territory, offering tax exemptions on customs duties, VAT, and corporate tax for manufacturing, trading, and warehousing activities.
What Is a Free Trade Zone?
A free trade zone (FTZ), also known as a special economic zone (SEZ) or free zone, is a designated area within a country that is considered outside its customs territory. Goods entering the zone are exempt from customs duties and VAT. Manufacturing, trading, and warehousing activities within the zone enjoy various tax incentives designed to attract foreign investment and boost exports.
According to OECD research, there are over 5,400 special economic zones in 147 countries worldwide. Turkey operates 18 active free zones.
Free Zone Benefits
- Customs duty exemption: No duties on goods entering the zone
- VAT exemption: No VAT on intra-zone transactions
- Corporate tax incentives: Manufacturing income may be tax-exempt
- Currency freedom: Payments in any currency, no exchange restrictions
- Infrastructure: Ready-built facilities, utilities, and logistics
Free Zone vs Bonded Warehouse
| Criteria | Free Trade Zone | Bonded Warehouse |
|---|---|---|
| Activities | Manufacturing, trading, warehousing, assembly | Storage and basic processing only |
| Tax benefits | Income tax + customs + VAT | Customs duty deferral only |
| Duration | Permanent operations | Per-shipment storage |
| Setup | Government decree | Customs license |
Frequently Asked Questions
Can free zone goods be sold domestically?
Yes, but they become subject to import duties and VAT when entering the domestic market. Goods leaving the free zone for domestic sale are treated as imports.
Is manufacturing required?
No. Trading and warehousing are also permitted. However, some tax incentives (income tax exemption) may only apply to manufacturing.
Are free zones relevant for freight forwarding?
Yes, free zones serve as distribution hubs and bonded storage for transit trade. They are strategic for e-commerce fulfillment and re-export operations.
Does Kolay Parsiyel ship to/from free zones?
Yes, Kolay Parsiyel handles shipments to and from free zone facilities as part of its Turkey-Europe logistics services.
References
- OECD Special Economic Zones Report
- World Bank FTZ Analysis
- UNCTAD Investment Report
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