Singapore free trade zones: A strategic guide for businesses

Singapore has established itself as a premier global logistics hub¹, serving as a critical node for international trade. At the core of this pro-business environment are its Free Trade Zones (FTZs), which are designed to facilitate efficient global commerce. For businesses engaged in import and export, understanding and leveraging these zones can be helpful.

This article serves as a clear guide for businesses looking to use Singapore’s FTZs. Let’s explore what they are and why they matter, and provide a roadmap on how to use them to optimize cash flow, improve logistics, and gain a competitive edge in the Asia-Pacific region.

What are the free trade zones in Singapore?

The primary purpose of Singapore’s Free Trade Zone (FTZ) is to bolster the country's status as an entrepôt and transhipment hub. The key principle is straightforward: Goods and Services Tax (GST) and customs duties are suspended for goods stored, processed, or handled within the FTZ. These taxes are only levied if the goods leave the FTZ in Singapore and enter the local domestic market for sale or consumption.

This system provides a unique advantage for businesses, as it allows them to import, store, and re-export goods without the immediate burden of taxes. There are nine FTZs in Singapore², which are located at:

• Changi Airport
• Airport Logistics Park of Singapore
• Changi Airfreight Centre
• Air Cargo Express
• Keppel
• Pasir Panjang
• Jurong
• Tuas
• Sembawang

Singapore Customs plays a vital role in regulating these zones, ensuring goods are handled compliantly. Businesses must adhere to strict rules for inventory reporting and security to operate within any of Singapore’s FTZs. Now that you have a clearer idea of what FTZs are, let's explore the key benefits they can offer your business.

Key benefits of using Singapore FTZs

The advantages of utilizing an FTZ can go beyond tax suspension. These benefits are crucial for a robust international business strategy and offer a significant competitive edge.

1. Duty and GST deferment

One of the most compelling benefits of a free trade zone (FTZ) is the deferment of duties and GST. This means the 9% GST, and any applicable duties, are not payable while your goods are stored or processed within the FTZ. This may improve your cash flow and reduce the capital tied up in inventory.

For example, if you store 1,000 smartwatches in any of Singapore’s FTZ and then re-export them to Australia, no Singapore GST is due. You would only pay the 9% GST on the units that are later cleared for sale in Singapore.

2. Cost savings for warehousing and transhipment

FTZs provide a cost-effective solution for warehousing and transhipment. By storing goods within the FTZ before they are re-exported, businesses can reduce their overall operational costs, as they need not pay tax.

3. Value-added activities

FTZs are not just for storage. Businesses can perform value-adding activities on their goods, such as relabeling, repacking, sorting, and light assembly. This flexibility allows companies to prepare products for specific regional markets, all while within the tax-suspended zone.

4. Faster customs clearance processes

For goods designated for transhipment, FTZs simplify documentation and clearance, dramatically reducing administrative burdens and accelerating the movement of goods.

5. Centralised hub for regional distribution

The strategic location of Singapore's FTZs makes them the ideal base for consolidating shipments from different countries before distributing them across the Asia-Pacific region. This centralization streamlines logistics and enhances supply chain flexibility. Given these significant benefits, let’s look at which types of businesses are best positioned to take advantage of them.

Types of businesses that benefit from FTZ use

Any business engaged in international trade can benefit from Singapore's FTZs, but some sectors may find them particularly advantageous:

• Importers/exporters with high-volume inventory turnover: Businesses that frequently move large volumes of goods in and out of the region can leverage FTZs to manage inventory and defer taxes, significantly improving cash flow.

• E-commerce businesses managing cross-border orders: Online retailers often use FTZs as a centralized hub to consolidate products from various suppliers before shipping them directly to customers in different APAC markets.

• Logistics providers and freight forwarders: Companies in the logistics industry use FTZs to provide their clients with warehousing, consolidation, and distribution services, helping to streamline the supply chain.

• Companies engaged in regional distribution or transhipment: Businesses that use Singapore as a base to distribute goods across the Asia-Pacific find FTZs to be an invaluable tool for optimizing their operations.

Now that we have covered the types of businesses that can benefit from FTZs, let's dive into the steps of how they actually work.

How FTZs work in practice

Using a free trade zone involves a process that defers taxes until the goods are ready for their final destination.

1. Goods enter the FTZ: Your goods are brought into the FTZ, which is treated as being outside of Singapore's customs territory.
2. Tax suspension: While inside the zone, your goods can be stored, relabeled, repacked, or undergo other approved value-adding activities without incurring GST or duties.
3. Goods exit the FTZ: The process changes when the goods are ready to leave.
4. Re-exportation: If the goods are re-exported, they can be shipped directly from the FTZ without any duties or GST being paid.
5. Local circulation: If the goods are moved into Singapore’s domestic market, GST and any applicable duties become payable at that point.

To ensure compliance, businesses must maintain records of all goods and their movement in and out of the FTZ. Singapore Customs enforces a strict system of inventory reporting and documentation to keep track of everything. It's also important to be aware of the specific rules and regulations governing FTZ operations.

Rules and compliance in Singapore FTZs

Operating within Singapore’s FTZs requires strict adherence to regulations and compliance with the controls set by Singapore Customs. The main goal is to ensure the integrity of the FTZ as a tax-suspended area.

To operate a business within an FTZ, a company must obtain a license from Singapore Customs. This license specifies the approved activities, operational guidelines, and security requirements that must be followed. The regulations emphasize the importance of accurate inventory reporting and a state of audit preparedness.

For instance, any discrepancy between the physical stock and the reported inventory could result in a penalty. With these regulations in mind, it's easy to see how certain challenges can arise.

Common challenges when using FTZs (and how to avoid them)

While the benefits of FTZs are significant, businesses can face challenges that may outweigh negate the advantages. This may include:

• Misclassification of goods: Incorrectly classifying goods or using the wrong Harmonized System (HS) codes can lead to unexpected duties and taxes when the goods are eventually moved out of the FTZ.

• Improper documentation: A lack of clear shipping documents for goods moving into and out of the FTZ can cause delays and administrative burdens.

• Overstaying limits: FTZs have rules regarding how long goods can be stored. Failing to manage inventory and re-export within the allowed time can lead to penalties.

• Lack of real-time inventory control: Without a system for tracking goods, businesses can lose control of their inventory, leading to errors in reporting and potential compliance issues.

These challenges highlight the importance of having a knowledgeable logistics partner to guide you through the complexities.

DHL Express: Your expert logistics partner for FTZ operations

DHL Express’ expertise and physical presence within Singapore's FTZs, particularly at the Changi Airport FTZ, enable them to provide end-to-end logistics solutions for businesses looking to leverage the benefits of these zones. For instance, the customs brokerage team can help manage the customs clearance in Singapore on your behalf, ensuring goods move in and out of the FTZ compliantly and efficiently.

By offering a single point of contact for shipments, DHL Express simplifies the entire process. This includes handling the shipping to Australia or any other international destination from the FTZ, as well as managing the final delivery within Singapore.

For goods moving from the FTZ into the domestic market, DHL Express can manage the payment of duties and taxes, offering a seamless delivery experience to the final recipient. By mastering the FTZ framework and partnering with a logistics expert, businesses can confidently ship overseas from Singapore and beyond.