In this globalized world, businesses have expanded their horizons and have dipped into the foreign lands of success and prosperity while doing business abroad. Every day, awareness grows about the larger profit margins that doing business across international borders can provide. However, some are reluctant to test the waters due to the misconceptions of the difficulties they believe they will face when dealing with foreign governments and trade bodies – especially for those who have an interest in doing business in Latin American countries like Chile, Peru, Mexico, Colombia, and others.
Take comfort in the fact that you are not alone in the doubts and uncertainties you feel in participating in international trade in Latin America- specifically, when it comes to trading and manufacturing goods abroad, or how to legally offer a service without suffering steep operational costs imposed by foreign government regulation. That is why we have taken it upon ourselves to investigate these probing questions and to offer you the answers that will resolve the uncertainties you feel about forming a company in the Latin American region. In this issue, you will discover 3 things you did not know about the benefits of Latin American Free trade agreements (focusing on free trade zones or foreign trade zones) and why you should consider taking advantage of them.
LATAM Free Trade Zones
We all love the word free even though we tend to be skeptical of the term because life teaches us “There’s no such thing as a free lunch”. The word might seem misleading, so to help you better understand how FTZs work, we got together with the executive director of the Association of Free Trade Zones in the Americas (AZFA), Maria Camila Moreno, and asked her some questions to help clarify what FTZs are, and more importantly what their benefits are for you. Outlined below, are the 3 things we gathered from our interview that you might not have known about Free Trade Zones in Latin America.
1. FTZs Simplify Government Restrictions, They Do Not Eliminate Them
Q: What is a Free Trade Zone?
A: In short, a Free Trade Zone is a limited geographical location where a company has fiscal and custom international trade incentives. There are many incentives of operating in an FTZ depending on the country, but there are 3 that apply generally to all of Latin America. They are as follow:
- Reduced or lower income taxes
- 0% Value Added Tax (VAT)
- 0% on Tariffs
Q: Will I still have to pay duties to the country I export my products to?
A: Yes, you will. FTZs do not eliminate your obligation to pay duties on the products you export. What they do offer is a strategic place where you can store and manufacture your products and make changes to your inventory with the incentives mentioned before.
2. Incentives Exist for Both Goods AND Services in ALL Industries.
Q: Can I only use Free Trade Zones for goods? What if I have a company that provides a service?
A: Although there is the misconception that FTZs only exist for companies dealing with goods, there are a number of already operative service companies in Free Trade Zones in Latin America including call centers, and even hospitals. So yes, if you are a service company you can benefit from the lower income tax FTZs provides and you can also benefit from not having to pay taxes on any of the equipment you may need for your service.
Q: Is there a particular industry or country where working in a Free Trade Zone is advantageous?
A: FTZs have seen the likes of all different kinds of industries and sectors under their jurisdiction. You can find industrial and manufacturer companies in textiles, automobiles, tobacco, agriculture, medical equipment, and service companies in sectors that offer subcontracting, hospital services, call center services, and more. The possibilities with FTZs are endless and opportunities exist all over LATAM in countries including, but not limited to, Colombia, Panama, and Mexico.
3. More Advantages of Free Trade Zones
Q: Why should I operate my business in a Free Trade Zone?
A: Aside from the economic incentives that these FTZs offer, there are also other benefits that make this opportunity even more appealing. The reasons for this include:
- The safety you will feel from operating in an FTZ because of the various levels of security one needs to get through to access the area.
- FTZs fast-tracks your product into the market because of the concentrated and specialized attention your business will get. Every zone has administrators who are equipped to deal with whatever obstacles and challenges that your business might face and are ready to overcome them so that you can get to the market faster.
- FTZs are communities comprised of various affiliates and partners that help manage and see through the process of successfully setting up your service or industry.
So now that you have learned more about Free Trade Zones, the last and most important question you want to be answered as prepare to set up your business is in Latin America is….
Q: How do I set up my company in a Free Trade Zone in Latin America and how do I know which Free Trade Zone is right for me?
A: The answer has been simplified for you because the Association of Free Trade Zones of the Americas, which is a non-profit, private association, has all the resources and information about the best and most secure trade zones in Latin America.
Biz Latin Hub is a market leader in helping both individuals and companies to do business in Latin America. We can help you with the company formation process and international trade regulations in these advantageous regions. For more information on this please contact Andrew Wright here.