Bonded Warehouse vs FTZ vs FTWZ vs MOOWR: Duty Deferment Compared

A founder signs a three-year lease in an FTWZ because a consultant called it "India's version of an FTZ", then learns that the unit may relabel and repack but not assemble the product it planned to make there. A US importer pays duty on every container at the port while 40% of the same parts leave the country again inside finished goods. Both chose a site before choosing a customs regime, and both are now paying for the order of those decisions.

Bonded warehouses, US foreign-trade zones, Indian free trade and warehousing zones and Indian Section 65 manufacturing warehouses all postpone import duty, but they differ on four points that decide the business case: what work is allowed inside, how long goods may stay, which date fixes the duty rate, and how indirect tax treats a sale before clearance. Compare those four first and the site search becomes much shorter.

• What this comparison covers: the legal basis, time limits and permitted operations of each regime, GST and state tax effects, and a worked comparison of one import lot in dollars and rupees.
• What it leaves to other pages: the detailed Section 65 procedure, bond sizing and monthly returns are in our MOOWR Section 65 guide; this page is the decision view across all four regimes.

Four duty deferral regimes and the question each one answers

Each regime answers a different operating question. A bonded warehouse answers "can I store imports unpaid until I sell them?", an FTZ answers "can I make things here and pay duty on the result?", an FTWZ answers "can I hold foreign-owned stock for regional trade?", and Section 65 answers "can I manufacture in bond in India?"

Two of the rows exist only in one market. The FTZ is a US instrument with no Indian equivalent of the same name, and the FTWZ and MOOWR are Indian instruments. The nearest US counterpart to MOOWR is an FTZ with production authority, and the nearest Indian counterpart to an FTZ used for storage and distribution is an FTWZ unit, so the comparison below pairs them that way rather than pretending each has a twin.

US customs bonded warehouses: eleven classes and a five-year clock

A US bonded warehouse is a storage and light-handling regime with a hard time limit. Merchandise may remain no more than five years from the date of importation under 19 U.S.C. 1557, and duty is charged at the rate in force on the day it is withdrawn for consumption, which helps if a rate falls and hurts if it rises.

• Class 2, importer's private warehouse: holds only goods belonging or consigned to the proprietor, which suits a single importer with steady volume.
• Class 3, public warehouse: holds imported merchandise for any importer, which suits smaller brands that rent space from a logistics provider.
• Class 6, manufacturing warehouse: allows manufacture solely for export, so a product that will be sold domestically cannot be made there.
• Class 8, manipulation warehouse: allows goods to be cleaned, sorted, repacked or otherwise changed in condition but not manufactured, under 19 U.S.C. 1562.
• Class 9, duty-free store: sells conditionally duty-free goods for use outside customs territory, a retail format rather than a supply chain tool.

The practical limits are the five-year clock and the ban on domestic manufacturing. Goods withdrawn for export, or destroyed under customs supervision within the bonded period, leave without duty. The existing bonded warehouse duty deferment ledger page covers how into-bond and ex-bond entries are reconciled in the books; this section only decides whether a bonded warehouse is the right regime at all.

US foreign-trade zones: status elections and the inverted tariff

An FTZ is the only regime in this comparison that lets a US company manufacture for the domestic market and choose which tariff classification it pays on. That choice is made per lot, through the status the goods hold when they enter the zone, and it cannot be undone once made.

Foreign goods in privileged foreign status are classified at the rates in effect on the date the application on CBP Form 214 is filed, and the status must be requested before any manipulation or manufacture changes the tariff classification, under 19 CFR 146.41. Nonprivileged foreign status works the other way: under 19 CFR 146.65(a)(2) the goods are classified in their condition when the entry is filed, so a component with a high rate can leave as a finished product with a lower one.

Foreign-trade zone users who keep components in nonprivileged foreign status are classified under 19 CFR 146.65(a)(2) in the condition entered, so in the illustrative case duty on a $600,000 domestic share falls from $39,000 to $15,000, provided 15 CFR 400.14 production authority covers the assembly.

• Production needs approval: 15 CFR 400.14 states that production activity shall not be conducted without prior FTZ Board authorisation, usually sought by notification.
• Weekly entry: 19 CFR 146.63(c) lets a port director allow one estimated entry on CBP Form 3461 for a calendar week of zone-made removals.
• Local tax: 19 U.S.C. 81o(e) exempts imported goods held in a zone for storage, processing or manufacture from state and local ad valorem taxes.
• No dwell limit: CBP states that merchandise may remain in a zone indefinitely, whether or not it is subject to duty.

The price of that flexibility is administration. A zone needs a grantee, an operator, activation by CBP and an inventory control and recordkeeping system that can tell CBP the status, quantity and value of every lot. Our page on FTZ and bonded inventory accounting shows how those records are matched to entries and duty ledgers.

India's customs warehouses and the one-year clock under section 61

India's general warehousing regime defers duty for storage, but it charges interest after 90 days and expects goods to clear within a year unless the Commissioner extends the period. It suits stock that will be sold within a quarter or re-exported, not slow-moving inventory.

The Customs Act licenses three kinds of warehouse: public warehouses under section 57, private warehouses under section 58 for dutiable goods imported by or on behalf of the licensee, and special warehouses under section 58A, which the proper officer locks and which hold classes of goods notified by the Board. The importer executes a bond for thrice the duty assessed under section 59.

Goods in an Indian public or private customs warehouse under Customs Act section 61(1)(c) may stay one year from the warehousing order, extendable by the Commissioner, and section 61(2) adds interest on duty once dwell passes 90 days, so the bond register must track both clocks per bill of entry.

Inside the warehouse the owner may inspect the goods, deal with their containers to prevent loss or damage, sort them and show them for sale under section 64; anything more is a section 65 operation. Duty is assessed at the rate in force on the date the ex-bond bill of entry is presented, under section 15(1)(b), and goods may be exported from the warehouse without import duty under section 69.

FTWZ units: SEZ trading hubs that cannot process goods

A Free Trade and Warehousing Zone is a Special Economic Zone "wherein mainly trading and warehousing and other activities related thereto are carried on", in the words of section 2(n) of the SEZ Act. It is a strong option for regional distribution and foreign-owned stock, and a weak one for anything that involves processing.

• Permitted work: rule 18(5) of the SEZ Rules lets FTWZ units hold goods on account of a foreign supplier and trade with or without labelling, packing or repacking, without processing.
• Two exceptions: the same rule allows refrigeration for storage and assembly of completely or semi knocked down kits.
• Resale and re-export: units may re-sell, re-invoice or re-export goods they imported.
• Customs exemption: section 26(1)(a) exempts goods imported into the zone for authorised operations from customs duty.
• Domestic removal: section 30 charges customs duties on goods removed to the Domestic Tariff Area as if imported, at the rate on the date of removal.

Zone size and approval also shape the decision. Rule 5(2)(c) sets 40 hectares and one lakh square metres of built-up area for a standalone FTWZ, with lower limits inside other SEZs, and a unit needs a Letter of Approval that tests positive net foreign exchange earnings. A brand therefore rents from an FTWZ developer rather than creating one. Our FTWZ relabelling and re-export accounting page covers the unit's books.

MOOWR and US manufacturing options set side by side

For a company that must manufacture before selling, the real choice narrows to MOOWR in India and an FTZ with production authority in the US. Both defer duty on imported inputs until goods are cleared for the home market and both drop duty on exported content, but they calculate the duty differently.

Under section 65 the Commissioner permits manufacture in a section 58 warehouse, and duty on clearance for home consumption falls on the imported content of the goods cleared. Section 61(1)(a) and (b) keep capital goods and inputs warehoused until clearance or consumption, and the 90-day interest charge in section 61(2) applies only to clause (c) goods. In a US zone, nonprivileged foreign status lets the finished product's classification set the rate.

• Duty base in India: imported inputs at their own rates, counted on the share cleared to the domestic market; no inverted tariff election exists.
• Duty base in a US zone: the election between privileged and nonprivileged foreign status lets a company pay at the component rate or the finished rate, lot by lot.
• Approval route: Indian licence and permission from the Principal Commissioner or Commissioner; US notification to the FTZ Board plus CBP activation.
• Export-only alternative: a US Class 6 bonded warehouse covers manufacture for export only, so it fails as soon as one domestic sale is planned.

GST, IGST and state tax when goods are sold inside the bond

Indirect tax is where the Indian regimes differ most from the US ones. India now treats sales of goods inside a customs warehouse, SEZ warehouse or FTWZ before clearance as neither a supply of goods nor of services, while the US has no federal VAT and the FTZ's tax edge lies in state and local property tax.

Paragraph 8(a) of Schedule III to the CGST Act covers the supply of warehoused goods to any person before clearance for home consumption. The Finance Act, 2025 inserted paragraph 8(aa), proposed as clause 128 of the Finance Bill, for goods warehoused in an SEZ or FTWZ and supplied before clearance for export or to the Domestic Tariff Area, deemed to apply from 1 July 2017, and barred refunds of tax already collected on such transactions.

Title transfers of goods warehoused in an Indian FTWZ before clearance for export or to the Domestic Tariff Area are neither supplies of goods nor services under paragraph 8(aa) of CGST Act Schedule III, applied from 1 July 2017, while SEZ Act section 30 charges customs duty on the 60% removed to the domestic market.

• IGST at clearance: the buyer who files the ex-bond or removal bill of entry pays import IGST at that point and claims credit in the normal way.
• Supplies into an SEZ: section 16(1)(b) of the IGST Act treats supplies to an SEZ developer or unit for authorised operations as zero-rated.
• US federal level: there is no federal sales tax or VAT credit to manage; customs duty, merchandise processing fees and excise are the federal costs.
• US state level: 19 U.S.C. 81o(e) removes state and local ad valorem tax on qualifying zone inventory, which matters in states that tax business inventory.

One import lot through each regime: a dollar and rupee comparison

The worked case uses one lot of components that is assembled, with 40% of output exported and 60% sold domestically after 120 days. The tariff and tax rates are illustrative, chosen to show the mechanics, and real rates come from the US tariff schedule and the Indian Customs Tariff for the actual codes.

The pattern is consistent: deferral alone is worth little, a few hundred dollars or a few lakh rupees per lot, while the export share and the rate difference are worth far more. If exports would otherwise qualify for duty drawback, part of the export saving is only a timing gain, and the case rests on cash flow and the inverted tariff.

Annual net benefit of a deferral regime (per site)
B = Σ_lots ( V_exp × r_c  +  V_dom × (r_c − r_f) × s  +  D_dom × i × d / 365 )  +  T_local  −  C_run

V_exp   = value of imported content later exported
V_dom   = value of imported content cleared to the home market
r_c     = duty rate on the components
r_f     = duty rate on the finished product (US FTZ nonprivileged status only)
s       = 1 if the inverted tariff election is available, else 0
D_dom   = duty actually paid on domestic clearance
i       = annual cost of capital
d       = average days between arrival and clearance
T_local = state or local inventory tax avoided (US zones only)
C_run   = bond and licence costs, operator fees, compliance staff and systems

US illustrative, 6 lots a year:
6 × (400,000 × 0.065 + 600,000 × 0.04 × 1 + 15,000 × 0.08 × 120/365)
 = 6 × (26,000 + 24,000 + 395) = $302,370 before C_run
India illustrative MOOWR, 6 lots a year (BCD saving on exports + financing):
6 × (₹32.00 lakh + ₹4.23 lakh) = ₹217.38 lakh before C_run

Picking a regime from dwell time, export share and processing needs

Choose the regime by answering three questions in order: does the product need processing before sale, what share leaves the country, and how long does stock sit before it is sold? Processing rules out the storage regimes, a high export share favours any bonded option, and long dwell favours the zones without a clock.

Lease and operator contract clauses to settle before moving stock

Most regime failures surface in the lease, not at customs. Write the regime's limits into the contract with the developer, zone operator or 3PL, so the site owner shares responsibility for the controls that keep the licence alive.

• Permitted operations clause: list the exact operations the site's licence or approval allows, and make the operator warrant that its licence covers them.
• Records and audit access: require lot-level records by bill of entry or zone admission, available to the importer within one working day.
• Clock ownership: name who monitors the one-year, 90-day or five-year clocks and who pays interest or penalties caused by a missed alert.
• Licence loss: set exit rights and a stock transfer plan if the licence, activation or approval is suspended.
• Exit to a duty-paid site: agree how stock is cleared, at whose cost, if the business moves out of the regime.

For broader context on customs and warehousing models, start from the Logistics and Supply Chain hub. If you are comparing two or more of these regimes for a new site and need the stock records, clock alerts and entry interfaces scoped before signing a lease, you can share your import profile through our RFP form, and we will map the controls each regime requires.