What Does Duty-Free Mean, and How Can It Save You Money?

What Is Duty-Free?

Duty-free refers to the act of being able to purchase an item in particular circumstances without paying import, sales, value-added, or other taxes. Duty-free stores are an enticing perk of international travel.

These retail businesses sell merchandise that is exempt from duties and taxes with the understanding they will be taken out of the country for use. Many popular duty-free items found in airport shops include liquor, chocolate, and perfume.

How Duty-Free Works

Under ordinary circumstances, host countries expect you to pay an import, sales, value-added (VAT), or local tax on goods you buy. However, when shopping in international airports, sea terminals, onboard cruise ships, and during international airline flights, your purchase is made in no man’s land.

Hence, you are neither in nor out of any particular host country, including the one in which the terminal is located. No man’s land status is a justification for shielding you, as a passenger in transit, from host country taxes. 

Duty-free shopping has a twist in the European Union (EU). Goods you buy while traveling between EU countries are duty-paid or taxable. Products you buy while traveling to, or away from, an EU country are duty-refund, meaning the traveler must apply for a refund of the EU's value-added tax. 

Duty-free shops often sell premium-branded high-markup goods that evoke luxury or vice (cigars and cigarettes can be found in duty-free shops) or sell upscale tourist items from the host country.

Due to requirements to use the product outside of the host country, the duty-free shop will package your purchase and deliver it to you as you board for departure.

Custom Taxes and Duty-Free Merchandise

Merchandise that is duty-free in the host country may be taxed as you return to your home country. Duty-free regulations vary depending on your country of residence, travel destination, and length of stay. Other rules apply to the items purchased, the cost of the article, and the country of its manufacture.

In the U.S., you will be asked to fill out a U.S. Customs form to declare any purchases made abroad. Receipts are crucial, as they prove how much was paid for the product. You will owe duties, or tax, on them if their value exceeds the duty-free exemption for the country from which you are returning. 

Personal exemptions range between $200 and $1,600, and additional regulations include limits on the length of travel abroad and waiting periods between frequent trips.

Some items, like alcohol and cigarettes, are limited by the quantity, depending on the country where it was bought. Your allowance for duty-free alcohol, like Scotch whiskey, from the EU, for example, is one liter. Also, travelers should understand that some products, mainly food, like Serrano ham from Spain or soft cheese from France, sold in other nations are illegal to bring into the United States.

For more, specific information regarding U.S. duty-free rules, please visit the U.S Customs and Border Protection website

The Bottom Line

If you're looking for some items as gifts for friends back home when you return from travel or just items you usually buy that need replenishing, shopping at duty-free in airports can bring some cost savings.