In 1947, when Brendan O’Regan started the world’s first duty-free shop at Shannon Airport, Ireland, he did not have the slightest idea that about fifty years later, duty-free shops would become a common feature in all international airports of the world. Many passengers would almost think they are in a shopping mall rather than a transit hub when they arrive at the post-security departure areas of most international airports. After enduring the rigorous inspection from airport security officials, the reality of duty-free shopping for goodies, cosmetics, fragrances, and top-shelf liquor brings a measure of relief and thrill for many travelers. Oftentimes, curious travelers ask “why are airports duty-free”?
Airports are made duty-free to attract travelers to make more purchases as a means of generating revenue, maintaining foreign reserves, and encouraging goods export. Since the goods are being exported from the country of departure, you’re technically exempted from the taxes a local resident would have to pay.
So, Duty-free shops at airports are made free to generate more revenue out of international travelers and tourists, by offering goods that are exempt from the payment of taxes or import duties because they are going to be exported by travelers going outside the country.
We shall consider various frequently asked questions to really understand “duty-free”; why it is free, and the purpose it serves. Enjoy!
Table of Contents
What Does Duty-Free Mean?
Duty-free goods simply mean products exempt from duty, that is, import duties, excise duties, customs taxes, or value-added tax (VAT), and so on. These duty-free prices are available to international passengers traveling outside the European Union.
Since 1999, passengers traveling within the EU have been exempted from duty-free purchases. This means travelers within the EU would pay appropriate taxes on the goods or services they purchase as a way to increase tax revenue.
Why Are Shops at Airports Duty-Free?
Duty-free airport shops or stores are departmental outlets where the sales of goods are exempt from various domestic taxes and duties on the condition that the goods be sold to international travelers who will export them out of the country. They are a means to maintain the host country’s foreign exchange reserve by retaining the stronger foreign currency. This explains why the price quoted in duty-free shops are not in the home currency.
For instance, a duty-free shop at the Indian airport will tag its products in US Dollars (USD). Hence, there is a strong appeal for a traveler leaving India for the United States to buy these relatively cheaper, duty-free goods but in US Dollars. So this way, India retains the USD, which otherwise would have been spent in the US by the traveler.
Similarly, if a passenger arrives in India from the US, there will be a need to change USD to Indian rupee (INR) via an exchange agent. Instead of this, the traveler can spend the USD at the duty-free shops. Both ways, the Indian airport has been able to retain the stronger foreign currency (USD) thereby strengthening India’s foreign exchange reserves.
How Does Duty-Free Work?
Duty-free shopping at airports allows international travelers to save essentially on items like liquor, tobacco, fragrances, and cosmetics. However, at the point of payment, the cashier at the duty-free shop would ask to see a boarding pass from the passenger to verify that such a person is leaving the country because duty-free is only for international travelers.
Typically, prices at duty-free shops are lower than prices outside of the duty area (since all taxes and customs duties have been removed) but not all the time. Therefore shoppers should ensure they are entitled to a reduction and get the best deal before making any purchase.
What Does Duty-Free Exemption Mean?
The duty-free exemption is also known as the personal exemption. It is the total value of merchandise that may be brought back to the country without having to pay duty. When the exemption rate is exceeded, then duty must be paid on the extra items.
Does Duty-Free Mean Cheaper?
The prices of goods in duty-free shops at airports depend mainly on the currency exchange rates and the location of the duty-free shops. For example, the purchase of duty-free goods in countries with a weaker currency is better than making purchases from countries with a higher exchange rate compared to the traveler’s home country.
Duty-free shops are supposed to offer lower prices on their goods since they have been exempted from paying the duty levied on the products. However on the contrary, a lot of people are losing faith in the value of duty-free shopping because the prices they offer sometimes are costlier than online stores and shopping malls.
Hence, duty-free does not necessarily mean cheaper all the time. It has been discovered that duty-free shops do make up for the pricing regulation by heavily marking up prices on some of their goods to obtain a profit margin that will cover for rent, utilities, staff salaries, and so on.
In a recent survey conducted among 2000 people in the United Kingdom, only 6 percent believed duty-free shops offer the best price, 52% believed other online and street shops offer the best prices. Therefore, it is advised to personally carry out price research online and offline before the travel date to know if the bargain at the duty-free airport shops is worth it or not. The use of websites like Duty Free Addict can also provide useful assistance for researching prices.
How Much Duty-Free Is Allowed?
In the US, the US Customs and Border Protection sets limits on the amount of duty-free allowed on goods. Travelers bringing in more than their “personal exemptions” would have to pay duty on it.
The duty-free guide of the country’s airport a traveler is heading to would be of help to know the various allowances offered on each duty-free item.
In most cases, duty-free exemptions cover purchases up to:
- 200 cigarettes, 100 cigarillos, 50 cigars, 250g tobacco.
- 1 liter of spirits (with over 22% alcohol content) or 2liters(less than 22% alcohol content), and 2 liters of wine.
What Are the Duty-Free Rules for Connecting Flights?
For passenger flights connecting through the EU, on the first leg of the journey, if a traveler’s duty-free items have been packaged into a tamper evidence bag and there is proof of purchase, it can be taken through the airport to the next flight.
On the other hand, for flights connecting within the United States or Canada, the passenger has to ensure the bottles of liquor, perfume, and so on do not exceed the specified 100ml. Then the duty-free items must be placed in the hand luggage.
What Happens When Duty-Free Rules Are Ignored?
The violation of the duty-free rules as spelled out by the airport authority may result in the payment of extra tax, or duty, to the country upon arrival.
It could also mean that the traveler may be subjected to an avoidable delay in the screening area, while officers screen the bags and verify the duty-free purchases made.
It may also mean that the purchases made are seized altogether if the traveler has purchased an item that is forbidden by the country.
What Items Are Not Cost Effective on Duty-Free?
Souvenirs and luxury goods like handbags, sunglasses, watches tend to be more expensive at the airport than in the city. It is advisable to skip these at duty-free unless you have some extra dollars to throw around.
In all, researching what the typical price is outside of the airport will make for more savvy savings.
Where Are Duty-Free Shops Located at the Airport?
The duty-free shop in almost all airports is located outside the security check area. After the stressful ordeal of getting through airport security, the next facility travelers can visit feels more like a relaxing haven: the duty-free shopping arena.
Where Are the Best Airports in the World for Duty-Free Shopping?
Just like prices in malls differ from one to another, duty-free prices also vary from airport to airport. A certain study ranked the major international airports with the best duty-free prices for popular purchases as follows:
- Tobacco: Singapore, Hong Kong, Bangkok
- Cosmetics:London (Heathrow), Dubai, Vienna
- Liquor: Kiev, Madrid, Grand Cayman
- Fragrance: Madrid, London (Heathrow), Porto
The international airports with the cheapest duty-free shopping in descending order are:
- The Kuala Lumpur International Airport
- The Singapore Changi Airport, and
- The Owen Roberts International Airport in the Cayman Islands
The international airports in Santorini Greece, Sydney, and Zurich have the highest duty-free prices in descending order. Surprisingly, prices of goods were also found to vary among duty-free outlets in different terminals of the same airport.
Some of the popular duty-free chains in no particular order are:
- Dufry, Duty-Free Americas, DFS, The Nuance Group, DFASS, World Duty-Free Group
- Gebr Heinemann, Lotte Duty-Free, The Shilla Duty-Free, Ever Rich Group, Flemingo International, King Power International (Thailand), Aer Rianta International, DFS Group
- Sunrise Duty-Free, Ever Rich Group, China Duty-Free Group, Dubai Duty-Free, Saudi Duty-Free, King Power Group (Hong Kong), Japan Airport Terminal Company and so on.
The key to duty-free shopping is knowing the prices of goods in the real world by checking what these goods cost on Amazon, Walmart, BestBuy, or at street shops. The goods with cheaper prices from the duty-free shops can then be purchased.
Conclusion
Though stores at the international zones of international airports offer duty-free goods, diligent research must still be carried out by international travelers who intend to make purchases at these stores prior to the travel date to avoid disappointment.
For every one of us, there is an excitement we feel when we get the best purchase deals. Make that move and enjoy the best prices duty-free airport shops have to offer!
Recommended Course!
