What Is Duty Free and How Can It Save You Money?

Parfume and cosmetics shop in airport Dubai
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Duty Free is where I go to spend my leftover foreign currency before flying home. Inevitably, I always wrap up my trip with 14€ or 500 rupees, which I don't want to leave in my wallet to collect dust. The alternative is to exchange it for American dollars, but the conversion never seems to work in my favor, so I'd rather grab one last souvenir before my vacation budget comes crashing to a halt and I have to return to reality.

Personally, I like to spend the last of my foreign currency on a country-specific beauty product — whether that's French micellar water, Fijian coconut oil, or a sample of perfume you can't get outside India. If you're going to get a souvenir, you might as well get something you can't find back home, right?

If you're the type of traveler who loves to browse duty free at the airport, you've probably wondered if buying duty free is actually saving you money. Is it worth it to pick up a few extra duty-free souvenirs or would you have been better off shopping before you set foot in the airport? And what about purchasing alcohol, are the deals really as good as you've heard they are?

Let's explore what the concept of duty free actually is, and then figure out whether it's really helping us as consumers.

What is duty free?

Before we even get into duty free, let's focus on duty. "Duty" is the tax you pay for bringing a product across international borders. Conceivably, if you buy $200 worth of wine in France and you're bringing it back to the U.S., you might have to pay tax on it twice. You'll pay tax on the wine in France and then pay U.S. tax for bringing it into America. However, for U.S. residents, there's often an $800 exemption, meaning you can spend $800 outside the country (on French wine, say) and not have to pay "duty" in the U.S. even though you're bringing the wine across international borders.

If you buy something "duty free," it means you're not paying taxes on it in the country where you purchased the item. So if you buy French wine at Charles de Gaulle airport in Paris, you are not paying taxes on it in France. But it could still be subject to taxes when you cross the border back into the U.S.

How does duty free work?

When you go through security in an international terminal, you're entering a kind of legal and geopolitical limbo. Although you haven't even boarded your plane yet, you have officially left your country of origin. At the same time, you have not entered your destination country, which means there is no governing body present to tax your in-airport purchases. This is also why you can make duty-free purchases on a cruise ship, at a sea port, and occasionally at a border crossing. The rule does not apply to airport employees, which is why the cashier will ask to see your boarding pass when you pay.

Does duty free actually save you money?

All taxes aside, what about the actual duty free prices? Well, that's where it gets interesting. Sometimes the savings is in the tax-free element and not the actual purchase price. Furthermore, duty-free prices vary widely, depending on the country and airport.

The best way to compare your prices before your trip is to check the websites of every duty-free shop in the airports you'll be flying to. Smaller airports might not have their shops listed online, but it's worth trying. You can also start your search on the Shop Duty Free or Duty Free Americas websites to see if your airport's store is listed, but know these will just list the stores operated by each chain and are not comprehensive lists.

If you know what each store has beforehand, you can plan your shopping wisely. For example, if you'll be flying internationally from New York City to Berlin, you'll see that at JFK, a bottle of Moet & Chandon Rose Imperial is $71 USD and in Berlin, the price is €49.90 EUR. Considering the $1-to-€1 conversion rate at the time of writing, this is a savings of approximately $21 USD. You may also see different products in one store that are not available in the other, like these mini bottles of the same Champagne that you can buy in Berlin but not in New York City. Keep an eye out for products that might be marked down if you really want to score the best deal.

What are the best duty-free deals?

Typically, liquor and tobacco products are the best deals simply because they are subject to the highest taxes. Keep in mind that this doesn't necessarily mean the price of the alcohol is lower at the duty-free shop than it is at your local supermarket (or the supermarket in the Bahamas, or wherever you're traveling). But you may save money if you're buying large quantities of alcohol or tobacco and not paying the country-specific taxes. To put the savings in perspective, the liquor tax in the state of California is 6%. So if I run to the liquor store and buy $100 worth of wine, I'm paying $6 in tax. If I bought that same $100 of wine at the duty-free shop at LAX before my flight, I could save that $6.

There are also occasionally better deals depending on the countries you're traveling to and from. As we now know, when you enter the U.S. from most countries, you enjoy a tax exemption of $800 on souvenirs you purchased. So you can splurge on wine at the French duty-free shop and not pay tax on it in France or in the U.S. (as long as you've spent less than $800).

However, if you're coming back to the U.S. from the U.S. Virgin Islands, you can bring $1,600 worth of island goods back without paying taxes on it. You may can purchase up to five liters of alcoholic beverages duty-free, according to U.S. Customs and Border Protection, "as long as at least four liters were purchased in the insular possession, and at least one of them is a product of that insular possession." Insular possessions of the U.S. include the U.S. Virgin Islands, Guam, American Samoa, Wake Island, Midway Islands, and Johnston Atoll.

In other words, there are some nuances that allow you to save more depending on where you're traveling to and from and what you're buying. For the most part, your best bet is simply to do a price comparison before you buy. While, in theory, duty-free shopping might be "saving you money" in practice, it really does vary from airport to airport and country to country.

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