What Is Duty-free and Does It Actually Save You Money?

Duty-free is where I spend my leftover foreign currency before flying home. I seem to always wrap up my trip with 14€ or 500 rupees, which I don’t want to leave in my wallet indefinitely. 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.

Travelers who love to browse duty-free shops at the airport have probably wondered if purchasing there can actually save money. Or is it better to shop before setting foot in the airport? And what about purchasing alcohol; are the deals really that good?

So, what is duty-free? Let’s explore the concept and figure out whether it’s cost-effective shopping.

What is duty-free?

Before getting into duty-free, let’s focus on duty. Duty is the tax paid for bringing a product across international borders. Tax is paid when anything is bought in one country; but when entering another country with those purchased items, it might be necessary to pay tax again.

Buying something “duty-free,” means taxes are not paid in the country where the item was purchased. After passing through security in an international terminal, travelers enter a legal and geopolitical limbo. Although passengers haven’t boarded the plane yet, they have officially left the country of origin. At the same time, travelers have not entered their destination country, which means there isn’t a governing body to tax in-airport purchases.

This also applies to duty-free purchases on a cruise ship, at a seaport, and occasionally at a border crossing. The rule does not apply to airport employees, which is why the cashier will ask to see a boarding pass before paying.

How does duty-free work?

For example, if a traveler buys wine in France, outside of the airport, and brings it back to the United States, taxes might be paid twice. Tax will be paid on the wine in France and then paid again in the U.S.

So if someone is buying French wine at Charles de Gaulle airport in Paris, no taxes are paid on it in France. But it could still be subject to taxes when crossing the border back into the U.S.

U.S. residents receive a $200, $800, or $1,600 tax exemption based on the countries that were visited. This means travelers can spend up to the designated amount in those countries and not have to pay “duty” in the U.S., even though goods are crossing international borders.

Those who spend more than the designated exemption amount on controlled goods, like tobacco products or alcohol, must declare those items. This is when the excess amount might be taxed upon entering the U.S.

Do duty-free products save money?

Taxes aside, what about duty-free prices? To shoppers’ frustration, not all duty-free prices are a deal. Sometimes the savings are in the tax-free element and not the actual purchase price. Furthermore, duty-free prices vary widely, depending on the country and airport — or even among terminals.

The best way to compare prices is to check the websites of every duty-free shop in the airports before ever setting foot on a flight. Smaller airports might not have their shops listed online, but it’s worth trying. Searching websites like Shop Duty-Free or Duty-Free Americas allows travelers to see if an airport’s stores are listed. These websites will just list the stores operated by each chain and are not comprehensive lists, though.

Knowing each store’s inventory beforehand allows shoppers to plan wisely. It’s also possible to see different products in one store that are not available in another. Products that might be marked down are the best bet to score a 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. This doesn’t necessarily mean the price of the alcohol is lower at the duty-free shop than it is at the local supermarket. However, buying large quantities of alcohol or tobacco and not paying country-specific taxes can lead to big savings.

Taxes can also be avoided for passengers returning to the U.S. from U.S. territories. Travelers 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.

Ultimately, doing a price comparison before travel is the best way to save more on duty-free purchases. Passengers should understand that duty-free shopping will not automatically save money and know that it can vary significantly among stores and locations.