Duty-Free Shopping and the Bonded Warehouse

Duty-free shopping is something I have indulged in around the world, including in Holland, Egypt, Russia, and more than a dozen other countries. It's not that I am a shop-a-holic, in fact I am far from such a person. The reason I like it is because of the savings I incur by making these purchases, such as I had done with the Burberry socks I happen to be wearing right now.

It turns out that a Duty-Free Store (DFS) is a bonded warehouse, which means that I have had some familiarity with a bonded warehouse long before I was aware of its technical term. A DFS is used for selling conditionally duty-free merchandise for use outside of the Customs territory, that is sold or owned by a proprietor, and delivered to an airport for exportation by individuals departing from the Customs territory or foreign destinations. The same holds true when departing a country by boat as well, which I experienced when I left Estonia for Finland.

Conceptually a bonded warehouse is similar to that of a Foreign Trade Zone, albeit, on a different scale and with certain differences, such as a time limitation of 5 years, unlike that of goods placed in an FTZ, which may remain there indefinitely.

A Customs bonded warehouse is a building or other secured area in which imported dutiable merchandise may be stored, manipulated, or undergo manufacturing operations without payment of duty for up to 5 years from the date of importation.

I had not been aware of the multitude of different classes of bonded warehouses until recently. It turns out that there are 11 different classes which include:

1. A premises owned by the Government for the placement of imports subject to examination or seizure, or those pending final release from Customs custody;

2. An importer's private warehouse whose exclusive use is for the storage of goods belonging, or consigned to, the proprietor;

3. A public bonded warehouse whose exclusive use is for the storage of imported merchandise;

4. Bonded tanks for the storage of imported bulk liquids, bonded sheds or yards for keeping bulky or heavy goods, or corrals/stables that provide limited enclosure of imported animals;

5. Warehouses for the smelting and refining of metal-bearing materials for domestic consumption or exportation;

6. Warehouses for the repacking, sorting, or otherwise changing the condition (but not manufacturing) of imported goods, done at the expense of the proprietor under Customs supervision;

7. Bonded bins, elevators or sections of a building for purposes of storing grain;

8. Warehouses for the manufacture of articles made up of imported materials (in whole or in part) subject to internal revenue tax, and those for the manufacture of cigars, whether for exportation or domestic consumption, made in whole of tobacco imported from one country.

9. Duty Free Stores;

10. Bonded warehouses for merchandise sold conditionally duty-free on board an aircraft (like those cute toy commercial airline models), otherwise known as international travel merchandise; and,

11. Those bonded warehouses established for the storage of merchandise not claimed or entered for 15 days after the arrival in the U.S., which are otherwise known as “General Order” goods.

Since duty is not collected on merchandise in bonded warehouses until withdrawn for consumption, an importer may have better control over its money until the duty is paid upon its withdrawal. In addition, if no domestic buyer can be found, the merchandise can be exported without any obligation by the importer to pay duties.

In order to establish a bonded warehouse, a written application must be made to the local Customs port that describes the premises, the class of warehouse to be established, and its location. An application must be accompanied by a blueprint of the space to be bonded, along with a certificate verifying that it is a suitable warehouse for fire insurance purposes, signed by the President or a Secretary of a board of fire underwriters.

Authority for establishing a Customs bonded warehouse is set forth in 19 USC §1555 with the corresponding regulations in 19 CFR Part 19.

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