On December 10, 2024, the U.S. State Department published a Final Rule, announcing an increase in registration fees with the Directorate of Defense Trade Controls (DDTC), as required by the International Traffic in Arms Regulations (ITAR).[1] With the January 9, 2025, effective date looming, PilieroMazza discusses below ITAR’s increased registration fees, registration requirements, and potential discounts that government contractors should know now to prepare.
Overview of ITAR
In a nutshell, ITAR is a federal regulatory scheme governing the export, temporary import, manufacture, and brokerage of “defense articles” and “defense services” on the U.S. Munitions List (USML), among other activities. Defense articles are physical items that either perform an identifiable function (e.g., firearms, ammunition) or contain “technical data”—a broad category of information including information related to various stages in the life cycle of a defense article, from design to production to repair. Defense services include virtually any assistance with defense articles, the transfer of technical data as defined above, or military training and advice. But only those defense articles and defense services on the USML fall under ITAR’s control.
Maintained by the State Department in coordination with the Defense Department, the USML is organized into 21 broad categories of defense articles (e.g., Category I—Firearms and Related Articles, Category II—Guns and Armament), with each category further arranged by end-items, features of end-items such as systems, parts, and accessories, and related defense services and technical data.[2]
In addition, ITAR governs multiple activities involving defense articles or defense services. One regulated activity is exporting, which refers to almost any type of transfer, whether physical, electronic, or otherwise. Exporting includes not only transferring from the U.S. to a foreign country but also transferring within the U.S. from a “U.S. person” (i.e., a U.S. citizen, a lawful permanent resident or other legally protected person, or an entity incorporated to do business in the U.S.) to a “foreign person” (not a U.S. person). Called a “deemed export,” this latter U.S.-to-foreign-person transfer is considered an export to all of the foreign person’s past and present countries of citizenship or permanent residency. Other ITAR-controlled activities include manufacturing, brokering, and “temporary importing,” i.e., bringing into the U.S. a defense article that will be returned to a foreign country or transporting a defense article via the U.S. from one foreign country to another. “Permanent imports” fall under separate regulations.
Individuals and entities involved in activities subject to ITAR have varying requirements depending on the activity. But two general requirements almost always apply: (1) registering with the DDTC and (2) obtaining DDTC approval to perform the regulated activity. Required annually, registering for the first time or renewing registration is done through the Defense Export Control and Compliance System (DECCS) online portal, as is payment of the applicable annual fee. Once registered, anyone wishing to engage in ITAR-covered activity—except manufacturing in the U.S., which only requires registration—must obtain prior DDTC approval through DECCS unless an exemption applies. DDTC’s approval could take different forms, including a license or approval of an agreement such as a manufacturing license agreement (to manufacture defense articles abroad) or a technical assistance agreement (to furnish defense services or disclose technical data to foreign persons).
Increased Registration Fees and Potential New Discounts
As stated above, payment of an annual fee is required when registering in DECCS, and the exact fee depends on which one of three tiers a registrant falls into. Effective January 9, 2025, all three potential fees will increase, and criteria for two of the three tiers will change, as follows:
- Tier 1 will continue to include (1) first-time registrants, (2) renewing registrants who have not received a DDTC approval during the 12-month period ending 90 days before their current registration expires, (3) all brokers renewing registration regardless of prior DDTC approvals, and (4) certain registrants exempt from federal income tax. However, the annual fee will increase from $2,250 to $3,000.
- Tier 2 previously included renewing registrants who received 10 or fewer DDTC approvals during the 12-month period ending 90 days before the current registration expires, and their annual fee was $2,750. Now, Tier 2 will be limited to renewing registrants who received 5 or fewer DDTC approvals during the same period, and their annual fee will increase to $4,000.
- Tier 3 previously included renewing registrants who received 10 or more DDTC approvals during the 12-month period ending 90 days before the current registration expires, but it will now be limited to renewing registrants who received more than 5 approvals during the same period. In addition, the annual fee used to be based on the following calculation: $2,750 + $250 for each approval over the 10 approvals. Now, the calculation will be $4,000 plus $1,100 for each approval over the 5 approvals.
In addition to the increased registration fees, the State Department’s Final Rule also announced new potential discount opportunities for Tier 1 and Tier 3 registrants.
Acknowledging the potential hardship of the increased fees to small businesses, Tier 1 registrants may apply through DECCS for a $500 discount for a total annual registration fee of $2,500. To qualify, Tier 1 registrants must show that $3,000 was 1% or more of their total revenue in the last calendar year, and renewing registrants must submit their application at least 30 calendar days prior to expiration of their current registration term. This new Tier 1 discount is currently scheduled to last for one year, during which DDTC will evaluate whether to extend it.
Tier 3 registrants previously had a potential discount whereby, if their calculated fee exceeded 3% of the total value of all approvals, the fee would be revised to the greater of 3% of the total value of all applications or $2,750. The Final Rule maintains this discount, except that the revised fee will be the greater of 3% of the total value of all applications or $4,000.
Key Takeaways
Starting on January 9, 2025, all annual ITAR registration fees will increase. While a potential discount may be available, individuals and companies subject to ITAR’s registration requirements will see an increase in cost and should account for the increased fees and tier changes in their budgeting.
Attorneys in PilieroMazza’s Government Contracts Group are well-versed in the complexities of ITAR compliance. Please contact Cy Alba, Aaron Kor, or another member of the Firm’s Government Contracts Group for any ITAR or other export control concerns.
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[1] 22 CFR Parts 120-130
[2] 22 C.F.R. § 121.1 (the USML)
