Best ways to use a free trade zone for your business profit
The business of import-export with states outside EU can use a good tool to optimize costs. A free trade zone is such a tool. Free trade zones are great tools to optimize international business.
As you know there are many free trade zones in EU. But what are they ?
Free Zones are parts of customs EU’s territory or enclosed premises inside this territory. In a Free Zone :
a) Non-community goods are not on the customs EU territory as long as they are not free to circulate. Or introduced under another customs regime. You can not also use or consume these goods in conditions other than those in customs regulations.
b) Community goods take advantage of rules linked to goods export by placing them in free zones.
Free Trade Zone – the place to develop a business.
What kind of business? Well, almost any type of business. Starting from production to commerce or just transit of goods.
Companies trading with non-EU space will profit more from the free trade zone regime.
Let’s see now the options that you have when you do business in a free trade zone. Production or manufacturing inside the free trade zone.
We will look in this article at Galati Free Trade Zone. This free trade zone is a point of international economic importance. And also, it is right at the Eastern EU border.
You should know that in Galati FTZ you have enough free land to develop any type of production facility.
Space offered by Galati Free Trade Zone is an industrial type and is outside Galati town. But it is close enough of Galati-Braila urban concentration. So you have access to a qualified workforce.
How can you take advantage of Galati FTZ in a production case scenario?
Let’s take now an example. Let’s say you want to produce canned fish. You build a production line and a small warehouse inside Galati Free Zone on a plot of land taken in concession.
Did you know that you can concession open land in Galati Free Zone for good prices for terms of 49 years?
Ok, now we have a canned fish production line in a free trade zone. We need raw material. The fish. Of course, you will search for the best price in the world.
Let’s assume for now you find raw fish outside EU in a country of South America. You buy the frozen fish from a South American supplier, but you must import it in the EU.
By doing this you will have to pay eventual import taxes and VAT to the state where you bring the goods. In this case scenario – Romania.
In this way, your costs start to rise up. Beyond these taxes, you must pay the price of goods and also the price for the transport.
What can you do? Remember that you have a production line inside Galati Free Trade Zone?
And now it is a good time to note that Galati Free Trade Zone has 3 wharfs at Danube River. So your reefer container can travel from South America to Galati by seafarer ships.
Of course, you must consider the costs and possibilities of shipping lines.
If direct naval transport to Galati FTZ is not possible, then you have an alternative. Direct connection to European road E87.
So you can unload the containers in another European port. Then take a road transport from there to the final destination.
The Russian connection.
Now, there is even another option for transport. Let’s assume now that you buy the frozen fish from Russia. Which is an important trade partner of the European Union. Even if there are now some political and economic troubles with them.
Well, if you look at a map you can see that Russia is big.
So big that neither Napoleon or Nazi Germany could not conquer it ( that’s for the sake of history ).
So, looking at a huge mass of land, what is the cheapest form of goods transport? For this case – the railway. Simple, isn’t it ?
Well…not quite. As you may know, the Russian and all former soviet states have a kind of special railway system. The distance between lines is broader than the European railway lines.
That dates back to the 19th century when Russia decided to build a different type of railways. That’s due to military and strategic reasons.
So, in theory, it should be a logistic problem to transport goods by train from Russia to EU. Well, not quite a problem.
Galati FTZ is, maybe, the only free zone in Europe that has inside Russian type railway system. So there is no problem to bring goods on the railroad from Russia to Galati Free Trade Zone.
So we have the raw material inside the free trade zone. Let’s start the production. Wait a minute…!
What about customs taxes and VAT? Oh, well…you don’t have to worry about that as long as you work with a free trade zone. Payment of customs taxes and VAT are in a suspended situation for all goods brought in a free trade zone.
So we have the production line, we have the goods stock. What next?
You can start the fabrication of the final product. After that, you can sell it everywhere in the world from Galati Free Trade Zone.
Let’s say you use in the production process over 50% Romanian origin components.
They can be raw materials, goods, utilities, manpower, etc. Then you can ask from Customs and Commerce Chamber an origin certificate. In this case, your final product becomes made in EU.
Deposit of goods inside free trade zone regime.
In a free trade zone, you can do other activities than production. For example, to make a big stock ( deposit ) of goods inside free trade zone regime. How can this help you? Why should you do it inside a free zone?
Let’s take another example. We assume that your company makes imports of goods from outside EU countries. In this case, we will take as import country Kazakhstan. You have a contract with a supplier from there which sells you an amount of 5000 tons of steel products.
Quantity is big, but the price is good in Kazakhstan. And you already have clients in the European Union that offers you good prices for steel products.
Still, we talk here about big sums of money that you will have to pay for customs taxes and VAT at the import moment.
Of course, you could buy smaller quantities, on spot orders. But in this case, you will have a rise in transport costs. It is easy to see that is cheaper to transport big amounts once than smaller amounts more often.
What is your best option in this situation to reduce transport costs and taxes, and get a bigger profit? Isn’t the bigger profit the ultimate goal of any entrepreneur?
Well, the best solution for this case would be to build a warehouse where to gather large stocks of goods. After that, you can sell small parcels of goods to various clients you have. Yup, but what about customs taxes and VAT for the 5000 tons of goods?
When you import such a quantity of goods, you will have to pay a great amount of money once of a sudden.
Well, you have a solution to avoid blocking your money from the start.
You can build your warehouse in Galati FTZ and use free trade zone regime for your commercial purpose. Doing this, you will have some advantages:
#1 No customs taxes and no VAT.
You will not pay customs taxes & VAT when you introduce the goods from Kazakhstan into Galati FTZ. Moreover, the station of all your goods inside a free zone is not limited in time. So you will have no pressure for deadlines or supplementary costs.
#2 Reduced transport costs.
You can choose the railway to bring your goods from Kazakhstan. Using Russian railway system is an obvious option when you know that Galati FTZ has such a system inside. Moreover, railway transport is cheap and can handle large quantities of goods.
#3 Closeness to European markets and the Black Sea.
Having a large stock of goods close to our clients is an ideal for any trader. Not only that you reduce the transport costs, but also you can resolve fast any order. And a happy client is a returning client.
#4 Open options
Your goods came by railway from Kazakhstan. But your goods can leave Galati FTZ with other transport means. You have access to the Danube and to European roads.
The Danube is the best choice to transport large quantities of goods. Both towards Central Europe and the Black Sea.
So, from Galati – you have open choices to bring your goods almost anywhere in the world.
So here you are, some scenarios for you to see how free trade zones can work in your business advantage. I hope the info above will be of use in your decisions related to business.
If you have other questions, don’t hesitate to bring them down by commenting below.
What do you think?
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