A graphic titled "Doing Business in Latin America" from Biz Latin Hub. It features a map of Latin America in blue and gray tones, with a dark mountainous background.

3 Things You Didn’t Know About LATAM Free Trade Zones

What are LATAM Free Trade Zones?

A map of Latin America is shown with many blue map markers scattered throughout various countries, highlighting key LATAM Free Trade Zones in Mexico, Guatemala, Cuba, Colombia, Venezuela, Ecuador, Peru, Bolivia, Chile, Paraguay, Argentina, Uruguay, Brazil and Guyana.
Picture of LATAM Free Trade Zones sourced from the Association of Free Trades Zones in the Americas (AZFA).

A Free Trade Zone (FTZ) is a limited geographical location where a company has fiscal, customs, and international trade incentives. There are a variety of incentives for operating in an FTZ depending on the country, but there are 3 reasons that generally apply to all of Latin America, including:

  • Reduced or lower income taxes
  • 0% Value Added Tax (VAT)
  • 0% on Tariffs

FTZs seek to simplify government restrictions without stripping away governmental authority.

However, it still means it might be necessary to pay duties to the country of any of your exported goods. 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 previously mentioned incentives.

Increasingly, FTZs are becoming the home of service providers as well as goods manufacturers and importer/exporters. Countries such as Colombia are explicitly targeting these types of companies in certain FTZs, even allowing remote work for part of the labor force.

Although the traditional focus of free trade zones was on removing restrictions such as tariffs on physical goods, their shift towards broader base tax incentives such as elimination of VAT/sales tax or reduced corporation/income tax work just as well for service providers. On top of that, some LATAM Free Trade Zones have more flexible rules for employment, especially with foreign hires.

What Incentives Exist for both Goods and Services Providers?

LATAM free trade zones: Bar chart titled "Nearshoring in Latin America: potential increases in exports," illustrating potential export increases in billions of USD for Argentina (6.39), Brazil (7.84), Chile (1.82), Colombia (2.57), Costa Rica (1.54), Dominican Republic (1.58), and Peru (2.21).
Looking to increase business through nearshoring in LATAM free trade zones.

LATAM free trade zones are commonly understood to only benefit businesses that are selling goods. This misconception completely overlooks the numerous services providers operating from FTZs in Latin America including call centers, and even hospitals.

Therefore, if you are a service company you too can also benefit from the lower income tax FTZs provide alongside the benefit of not having to pay taxes on any of the equipment you may need to provide your services.

You will find industrial and manufacturing companies in textiles, automobiles, tobacco, agriculture, medical equipment, alongside service companies in sectors that offer subcontracting, hospital services, call center services. A major challenge for any business looking to utilize FTZs is deciding on which country provides the most advantages in their favor.

FTZs accommodate a varying range of industries and sectors, with specific FTZs being more optimized under their jurisdiction depending on business activities. It is important to perform due diligence and perform your own research, or contact a regional expert to strategize a successful market entry.

Aside from the economic incentives that FTZs offer, there are also other benefits that make this economic feature appealing to foreign investors.

  • 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-track 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 industry-specific 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.
An infographic titled "Perceptions of Doing Business in Latin America" by Biz Latin Hub highlights that 57.3% of businesses are considering expansion to the region, 45.3% have a largely positive economic outlook, and hiring plans have increased from 32% in 2020 to 46.6% in 2021.
Understanding how competitors view business in Latin America and the use of LATAM free trade zones.

FAQs About LATAM Free Trade Zones

Will I still have to pay duties to the country I export my products to?

Yes, you will. FTZs do not eliminate your obligation to pay duties on the products you export. However, by establishing yourself in a particular country you may find yourself benefitting from trade agreements and deals.

Countries such as Chile and Peru in particular have a large number of free trade deals, meaning they export with reduced or zero tariffs to a lot of countries.

What is a Free Trade Zone?

A Free Trade Zone is a limited geographical location where a company has trade incentives. These differ in specifics according to location, jurisdiction and industry focus.

However, they share many things in common – tax incentives (usually an exemption or reduction on corporate tax), fully supported infrastructure and in some cases lower or no export duties. These often come with certain conditions, but these are rarely restrictive.

Can I only use Free Trade Zones for goods? What if I have a company that provides a service?

Free trade zones are a great option for both goods and services, providing ample planning and strategy is carried out beforehand. An increasing number of LATAM Free Trade Zones are now targeting service companies particularly, and even allowing a certain number of remote workers. For example, Colombia’s system currently allows 50% of the workforce to work remotely.

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?

The AZFA, which is a non-profit, has all the resources and information about the best and most secure trade zones in Latin America. In practical terms, a company such as Biz Latin Hub can help you with company formation and ongoing back-office support anywhere in the region.

Is there a particular industry or country where working in a Free Trade Zone is advantageous?

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.

Biz Latin Hub can support you and your business in LATAM Free Trade Zones

At Biz Latin Hub, we have vast experience helping investors from all over the world handle their businesses in a variety of LATAM free trade zones. 

We have a multilingual team for legal, accounting, recruitment, and company formation services, ready and waiting to support your business efforts in the Caribbean and Latin America. Rest assured that your legal transactions are in professional hands and will be handled with confidentiality and efficiency.

Reach out to our team to learn more about how we can assist you in doing business in Latin America.

Learn more about our team and expert authors and how they are enabling commercial growth across Latin America.

A visual listing the services provided by Biz Latin Hub. The services include Company Formation, Legal Services, Accounting & Taxation, PEO & Recruitment, Bank Account Opening, Tax Advisory, and Visa Processing. Contact information is shown at the bottom right.
Key services offered by Biz Latin Hub can help with LATAM free trade zones
The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.
International Trade Experts
International Trade Experts

International Trade Experts are the Biz Latin Hub's leading experts on international commerce and ExIm regulations. You can get in touch with them via our "contact us page".

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