What are Duty Free Shops?

A duty is a type of tax imposed by a state or local agency in association with the purchase, importation or exportation of retail goods. Customs officers may impose duties on people exporting or importing goods, and the term has led to the concept of duty free shops. Many argue that visitors to a country should not have to pay local, state, or country sales taxes on items purchased, especially if their stay is of very short duration. Further it is contended that retailers who import items meant for use by travelers shouldn’t have to pay import taxes on these items. What this means for retailers is that they save money on the purchase of imported goods, which might result in lower prices for the consumer.

The first duty free shop opened at the Shannon Airport, Ireland, in 1946. Since then, many duty free shops have opened inside international airports, where visitors can shop without paying local taxes, or without having to file claims to receive money back from the country they’re visiting, to cover the money they did pay in taxes. Such shops usually offer high end or luxury items, which are sometimes offered at bargain prices. Shoppers may still be limited by customs officials in their own country as to how much they can legally purchase and bring home without paying import taxes. Allowance rate for purchases without paying duties varies from country to country.

In some countries or states, duty free shops are superfluous. If a state doesn’t charge sales tax, there’s no need to designate special stores where people shop duty free. In other countries, few duty free shops are available in airports or at borders because the tax rate remains the same. The European Union (EU) has few duty free shops because the tax rate in countries belonging to the union is constant and applied to all, and travel within most of Europe is not considered as traveling between nations. Taxes on imports between EU nations generally don’t apply either; and are analogous to shipping items between states in the US. A US citizen at the grocery store doesn’t tend to pay duties on produce or foods that is shipped from other states.

What many people consider advantageous about duty free shops is that they may offer lower prices on certain items. For instance, taxes on most alcohol in the US are lower than those in Canada. So technically you can buy alcohol less expensively in the US, and people may cross the border to make alcohol purchases. From a legal standpoint, such folks are only allowed one bottle of alcohol, and may still need to pay import duties on the purchase of more than one bottle when they recross the border into Canada.

The hope for most consumers is that absence of import/export tax will allow them to purchase things less expensively than they would at non duty free shops. This is not always the case. Shop locales at international airports, or near ports for cruise ships are often high rent locations. This means prices, even without duties, may be higher on many items. If you’ve ever shopped at an airport, local or international, you’ll note these higher prices on most items. Still, occasionally you can find a better deal than you would in a locale’s local shopping district.

There are some duty free shops located outside of major airports, or away from border crossings. Some countries allow people to use their passports to acquire items at any shop without paying duties. These customers may still need to pay taxes on items when they have to return home and clear customs if they’ve exceeded the set spending limit for their country. Failure to claim purchases made in another country, especially when they exceed the limit is actually smuggling. So it’s important to be certain you make a full statement of all purchases to customs officials when you return home.