Why Do Airports Have Duty-Free and Should I Shop There?

?Duty-free? means ?tax-free??or so people think. Nobody likes to pay taxes. When you visit a duty-free store at an airport, you do not pay country taxes on the products you buy. Depending on what country you are in, and what products you buy, the taxes on certain items, notably cigarettes and alcohol, can be hefty. So when you see those duty-free stores in the airport, it can be tempting to stock up on some of your favorite items.

But what exactly is the purpose of duty-free shops? Why do they exist? Is it cheaper to shop duty-free? These are just some of the questions I researched to examine the ins and outs of duty-free shopping, how it exists, why it exists, and what the best deals are. So if you are looking for answers, or are just curious, read onward!

Why does duty-free shopping exist?

Duty-free shopping, now synonymous with airlines, actually had its start on cruise liners. As ships were sailing through international waters, no one country could claim taxes on items sold. Today, when you think of duty-free shopping, airports typically come to mind, but there is still duty-free shopping on cruise liners today.

In the early days of commercial trans-Atlantic aviation, Irish businessman Brendan O’Regan realized the duty-free concept used on cruise liners could be applied to aviation.

After all, What are airlines but the ships of the air??

He opened the world?s first airport duty-free shop in 1952 at the Shannon Airport in Ireland. At the time, Shannon Airport was the closest airport to the United States and was a major re-fuelling location. So O?Regan reasoned, why not sell some of Ireland?s local products, notably Irish Whiskey to the wealthy trans-Atlantic travelers who were waiting for their plane to refuel? 

So the trend of duty-free airline shops began. Amsterdam opened the world?s second duty-free shop in 1957 and by the 1960s, duty-free had made its way to the United States.

How does duty-free work?

Duty-free shopping means that travelers are allowed to buy products without paying taxes on them in the duty-free store?s country of origin. The products you buy at duty-free shops are not taxed by the country of origin primarily because where they are sold is considered to be international airspace. Or, in the case of cruise liners, international waters. Hence, you typically find these types of shops at airports, cruise ship terminals, and border crossings where total ownership of the land by any one country can not be claimed.   

It sounds simple enough. You buy stuff from duty-free shops without paying any of the local VAT, import taxes, fees, or duties placed on goods by government entities. However, there are basic rules that run the duty-free industry.

Duty-free sales is a highly regulated retail industry where operations are governed by national customs authorities. The products offered vary depending on your jurisdiction and the rules are different based on allowance restrictions, duty calculations, and various other factors that are unique to each jurisdiction and product.

The regulations primarily depend on the local laws of the duty-free store?s location.

Some airport jurisdictions even allow travellers to purchase duty-free goods upon arriving at their destination airport. In certain situations, you can buy duty-free products outside travel hubs through special shops that require you to present proof of travel to qualify for the discounts. So if you plan to travel, it is worthwhile to research the rules regarding duty-free sales in the country you plan to visit. 

So do airports own the duty-free shops?

The answer, technically no. Airports may own the retail space of the physical store locations. However, much like any commercial real estate market, these spaces are rented to individual businesses and companies.

Most duty-free shops are retail chains. 

Some recognizable duty-free store brands are DFS Group, Dufry, Comturist, and Dubai Duty-Free, though there are many more, some of which are specific only to one or two countries. There is even an International Association of Airport Duty-Free Stores that assists duty-free businesses and advocates for their interests. 

Is duty-free truly tax-free?

Now here is where it can get confusing. ?Duty-free? and ?tax-free? are not the same thing. Tax-free typically only refers to a consumption tax on a product. However, this does not necessarily mean that buying something duty-free will make the product completely tax-free. 

Duty-free products are tax-free at the point of purchase but you may have to pay taxes on them when you return to your home country. 

While you may not pay tax for the product in the country of origin, many countries have customs regulations that require you to declare goods that you bought outside of the country. Different countries require different declaration amounts.

In the USA, for example, you are supposed to declare all purchases that you made outside the USA which you did not initially bring with you when you started your journey. Whether you pay USA taxes on these products or not depends on the type of product and the amount you spend on the products. As of 2019, upon returning to the United States, you only began to pay taxes on purchases after spending eight hundred US dollars on certain products. If you go over the pre-determined financial amount, you would then have to pay taxes on it.

These amounts vary per country so again, it is advised to research your home country?s customs regulations before you make your purchases. 

What are the best things to buy duty-free?

Well, it all depends on where you are traveling to and from. 

Typically, the products that have the highest likelihood of being cheaper in duty-free shops are alcohol, tobacco, and specialty local products that are taxed with a higher import/export rate outside of the country.

Tobacco in particular is usually universally taxed higher than other products. Therefore, there?s a high likelihood that you are saving money if you buy it in a duty-free shop.

As for alcohol, you should do your research to figure out if you are arriving in a country with a high alcohol tax that makes alcoholic products more expensive. If this is the case, you can save money by buying your alcohol at the airport before heading to your hotel room. This way, you can enjoy a drink in your hotel room at a lower cost. 

If you are returning for a trip, it may be worthwhile to pick up a local spirit from the duty-free shop as drinks that are specialties of the specific country may cost more in your home country due to import fees.

The same rule of thumb goes for locally produced products and goods. If you can not commonly find them in your home country, then chances are you would have to pay extra import fees when they are shipped abroad. So buy them at the duty-free shop to save before returning home.

Overall, it pays to do your research on product pricing as some items are best avoided at specific duty-free shop locations. 

What products should be avoided at duty-free shops?

Products such as common souvenirs like bottle openers, t-shirts, and knickknacks should be avoided. A keychain may have the name of the country you are visiting printed on it, but it is still just a keychain and these can be found at any tourist shop in any country. These souvenirs are not unique to duty-free, rarely incur a high tax outside of the airport, and can be found in many general convenience stores. 

Common products tend to have a price mark-up in airports. Therefore, buy these souvenirs and products elsewhere. 

Another general rule, if you can typically find it at a grocery store, you probably are not going to save much money by buying it at a duty-free retailer. This is again because airports typically mark up the price of everyday products. 

So in other words, clothes, perfume, cosmetics, and sunglasses will probably already be marked up, to begin with, and will not produce much savings. That is not to say that you will never save money. It will be hit or miss depending on the product and the location. Finding a good deal on common products will require research into standard pricing to ascertain if you are saving money at a duty-free shop. 

So, if you have some extra currency right as you are heading home and the exchange rate is not in your favor, then sure, go ahead and buy something common. Otherwise, it is probably not worth the trouble. 

Is shopping duty-free worth my while?

It seems simple, if you are not paying taxes, then you spend less. However, this is not always the case as duty-free shopping is more complicated than it looks. 

Whether you save money or not depends on the currency you are using, the country you are flying to and from, and the product you are buying.

A general rule of thumb is to buy from duty-free shops in countries that have a weaker currency than your home county. This results in higher savings than buying from countries whose currency holds a higher exchange rate than your own because you get more for your money.

Furthermore focusing on alcohol, tobacco, and local specialty products in countries with higher taxation are more likely to produce savings than buying commonly found products.

The key to savings is research.

Research the county, the currency, the product you are buying, and your home country?s customs? taxation rules to ensure that you save on your duty-free purchases. Duty-free shopping can be worth your time when you buy the right product at the right place and time.

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