If you have flown internationally and had time to linger at the airport, no doubt you have wandered into a duty-free shop. Even at Denver International there is a small kiosk (Liberty Tax and Duty Free) presented to outbound passengers traveling internationally (from Denver nonstop international routes include the United Kingdom, Germany, Canada, Mexico, Iceland and recently added, Japan).
However the age old question, are you truly saving any money when purchasing from a duty-free outlet? Full disclosure, I shop at duty-free when I travel as I always have spare local currency and who does not enjoy a Toblerone Bar as a gift. I am also in the habit of stopping at Duty Free upon arrival in the Caribbean for a local bottle of rum before heading to a resort or vacation rental.
History: The history of duty-free or tax-free shopping in airports is actually recent. The first duty-free shop opened in 1948 at the Shannon Airport in Ireland and continues to serve customers to this day. During the late 1940’s into the 1950’s, flying to and from Europe included a refueling stop in Shannon as well as Reykjavik and other western European airports. Since travelers were technically between countries, there was no sales tax. The most popular items back then as today are tobacco products, spirits and fragrances.
Value: As the designation of duty-free implies, the products offered for purchase are sold without tax or duty added. Is the elimination of taxes and duty truly a bargain? It depends on your origin and destination and what you plan to purchase.
Purchases: The most popular duty-free outlets offer the traditional staples i.e. alcohol, tobacco and fragrances. There can be significant cost-savings available depending on your purchase and where you live. In many areas of the world tobacco products are taxed. For example in New York City the tax placed on tobacco products can increase the cost of a pack of cigarettes to $10+. Thus at duty-free outlets, a carton of 20 packs depending on the brand can run from $25 to $45, or $1.00 – $2.50 per pack thus quite a savings.
Alcohol is also popular and while not as highly taxed as tobacco products, some states and local jurisdictions tax alcohol. Again, the elimination of duty can provide cost savings in addition to many stores offering an expansive selection. Of note, it is best to know prices in your home market or local rates and compare to the pricing at duty-free Personally I find the duty-free stores also offer convenience at the airport as you do not have to navigate beyond passport control to find and purchase your favorite spirits while on vacation or as I have done, for a business gift.
Fragrances: In general the savings on fragrances is minimal if you reside in the United States. In general fragrances are taxed at the local sales tax rate, thus the savings are nominal at best and many local stores will offer sales or other incentives that make the duty-free option negligible. On the flip-side, if embarking on a long flight, that dash of cologne or perfume from the sample tray may be appreciated by your seat mates.
Yet inventory is expanding to meet the demands of savvy consumers. At major international airports do not be surprised to see the old-standbys i.e. tobacco, liquor and fragrances now sharing space with luxury designer offerings from Ferragamo ties and Gucci shoes to Chanel cosmetics and Cartier watches. Personally in the United States, when traveling to Europe or Asia I am fond of flying from New York’s Kennedy Airport as the duty-free shopping includes outposts of luxury retailers not found in Colorado.
Beyond the airport the options can be endless. In the Caribbean many islands are “duty-free” ports. For those markets that use or are pegged to the US Dollar, there can be savings when compared to back home. Yet be careful concerning currency. I was recently in St. Martin in the Caribbean and even though the stores I visited were duty-free, the local currency, the Euro on the French-side of the island wiped out all potential savings when factoring in the exchange rate AND the credit card fees associated with the exchange process.
Duty-Free Goes Mainstream Luxury and beyond Passport Control: Historically duty-free outlets were relegated to airports, cruise ship ports and select territories, not so much anymore. While duty-free continues to be popular at airports, there are now options beyond passport control. As duty-free expands into cities the red dot logo denoting DFS, The Duty Free Shopping Group is an attraction as their stores offer a true luxury shopping experience on par with the finest boutique operators. However, are there true monetary savings? This is where origin and destination come in to the equation.
There is an old adage; we all try to avoid death and taxes. While death is inevitable, the avoidance of taxes is a possibility with duty-free. Here in Colorado our local sales taxes range from 7%+ in the Denver metro area to double-digits in a few mountain resorts, yet taxes generally do not exceed 9%. If one were to purchase a Chanel handbag at a duty-free shop versus Neiman-Marcus in the Cherry Creek Shopping Center you may save 7.2% (on a $2,000 purchase, the savings would be $144). A savings; yet far from significant especially when considering a $2,000 handbag.
Yet many countries impose a Value-Added Tax also known as VAT. In many European countries the tax can be high. For example in the United Kingdom the VAT is 20%. In one particular Scandinavian country home of a large furniture outlet on I-25 the VAT is 25%. The same Chanel handbag with a tax of $144 in Denver would equate to a $400 tax savings if you were in the UK and a $500 tax savings if you reside in the Scandinavian region.
My readers who are experienced travelers will remind me when we travel as Americans many of our purchases overseas receive either an exemption or refund concerning the VAT. That is correct; however if your domicile is a high VAT country, the duty-free option becomes most attractive beyond tobacco, spirits and fragrances, more in a moment.
Europe has been known for high VAT, even Asia, once known for bargain prices and low taxes are witnessing a rise in taxation on consumer purchases. On a recent trip to Hong Kong I was somewhat shocked to witness the buying frenzy demonstrated by Mainland Chinese residents on Golden Week holiday in Hong Kong. As the manager of an upscale retailer explained to me; in Hong Kong the Goods and Services Tax is zero percent while in Mainland China, the tax is 17%. Thus for many visitors from Mainland China, the larger selection of luxury goods coupled with a 17% tax savings is a boon for the retailers on Nathan Road, Central and throughout the Hong Kong Special Administrative Region.
Previously I mentioned The Duty Free Shopping Group also known as DFS. Their red-dot logo is well known by frequent international travelers with locations in 14 countries. Even though their offerings are duty-free, their outlets (both airport and beyond passport control) have truly merged duty-free and luxury shopping. While their logo continues to be front and center in many airports, their urban locations are offering expanded growth opportunities for their business model and customers. The beyond airport locations are designed as true luxury boutique operations including co-branded outlets for watches, fragrances, cosmetics and luxury apparel. The line between the branded boutique retailer and duty-free has truly blurred at these outposts.
Logistics and bringing it home: Before placing your credit card on the counter in a duty-free store or port you must consider the logistics including transportation and customs. Concerning transportation, some duty-free vendors allow pay and carry while others especially in airports may have your purchases delivered to you plane-side. Thus you may have to consolidate your purchases as carry-on’s under the seat or in the overhead bin.
Customs Declaration: Prior to landing in the United States from a foreign origin, you will have to fill out a customs declaration form. This is the form where you may have to declare your purchases to customs. While items may be duty-free at time of purchase there are still regulations concerning declarations upon re-entry to the United States. More information can be found at: Duty Free Exemptions and Gifts
In general one must declare the following:
· Items you purchased and are carrying with you upon return to the United States.
· Items you received as gifts, such as wedding or birthday presents.
· Items you inherited.
· Items you bought in duty-free shops, on the ship or on the plane.
· Repairs or alterations to any items you took abroad and then brought back, even if the repairs/alterations were performed free of charge.
· Items you brought home for someone else.
· Items you intend to sell or use in your business.
With some exceptions most U.S. citizens are permitted to bring up to $800 worth of merchandise back to the United States without having to pay duty. Also of note, only one liter of alcohol and 200 cigarettes or 100 cigars may be included in this exemption. Family members who live in the same household and travel together may combine personal exemptions. Children and infants have the same exemptions as adults except for alcohol and tobacco products. If you bring back more than your exemption, you will have to pay duty or tax on those items.
Thus, as with any purchase consider the potential tax savings and know the prices at home. As a now defunct discount clothing retailer in based in New York City used to advise “An educated consumer is our best customer”, which continues to be sage advice.
Personally as a frequent traveler and shopper I continue to pursue the duty-free opportunities in airports, cruise ship ports and tax-free districts, however to date my purchases continue to be at maximum $50 and my friends know the Toblerone bar will be forthcoming.