Is Duty Free worth it?

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Once upon a time duty free shopping was gleefully anticipated and travellers “saved up” luxury item shopping so they could splurge and save at duty free counters on alcohol, perfume and watches.

But today's changed legal and retail environment means the absence of duty or tax does not guarantee a bargain. So is duty free shopping still worth it? Natasha von Geldern from travelbite.co.uk takes a look.

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Is duty free shopping still worth it?
The absence of duty and/or taxes on goods does not necessarily mean you are getting a bargain. Essentially, it depends on your destination and the exchange rate.

Airport retailers have tried to compensate for the loss of the ability to offer duty free goods by going “tax-free” - essentially offering high-street-priced items but without the VAT.

Overseas duty free shopping can still offer good value but it depends on your destination. So, often locally produced alcohol will be a good deal, particularly if the exchange rate is favourable. I always buy a bottle of limoncello in Italy.

Alcohol and perfume are still generally better value at the airport duty free than in a high street store. But watch out when buying alcohol as spirits tend to be sold in bigger bottles (sometimes with a higher alcohol level too) in duty free shops, making it difficult to compare prices.

The retail market has altered irrevocably with the advent of online sales. It's difficult to beat the online retailers, who have significantly lower overhead costs due to not having to maintain a physical store. 

When it comes to gadgets, airport shopping is rarely good value. Renting retail space at an airport is very expensive and that cost is passed on to travellers. These days customers can take their fast internet mobile phone, stand in front of the desired item in the duty free store and compare prices immediately!

Overall, it's best to shop around before you travel, do your research and you could get a better deal. The exchange rate is the biggest factor affecting most price comparisons and will vary according to the exchange rate of the day.

The best duty free shopping destinations
A few EU member state territories are officially outside the EU tax union and can still offer duty free sales to all travellers. So shopping in Finland's A land islands, the town of Livigno in the Italian alpine province of Sondrio, and the Canary Islands is still real duty free shopping. Other options include the Channel Islands of Jersey and Guernsey, Gibraltar and Andorra .

Outside Europe, some countries have become particularly renowned as duty free destinations. Certain Caribbean islands such as Saint Martin and the US Virgin Islands are good examples.

The best duty free shopping destinations around the world are universally acknowledged to be Dubai , Doha (in Qatar), Bangkok, Hong Kong and Singapore, where the tax regimes allow specific exemptions from customs duties.

Duty free limits
The duty/tax free shopping limits changed again this summer in July 2009. Individual travellers entering the EU or returning home within the EU can bring back the following goods duty free: 

Up to 200 cigarettes (or 250g tobacco, or 50 cigars, or 100 cigarillos)

One litre of strong alcohol (more than 22 per cent) or 2 litres of liquor (less than 22 per cent)

Four litres of wine

Up to 16 litres of beer 

There are no limits on purchases of coffee and perfume but other goods, including clothing and electronic goods can only be imported up to a maximum value of €430/£400 (where you enter the country by plane or boat) or €300/£280 (where you enter the country by road).

A brief history of duty free shopping
The first duty free shop was established back in 1946 within the international zone of Shannon airport in Ireland. Passengers stopping over on transatlantic flights could buy goods at a lower cost, particularly cigarettes, perfumes and alcohol, products traditionally subject to tax or duty in European countries.

The next major development in the world of duty free shopping was the creation of Duty Free Shoppers (DFS) in 1960 by two American entrepreneurs, Charles Feeney and Robert Miller. DFS started in Hong Kong and quickly developed what amounts to a kind of monopoly on duty free shopping worldwide. It is now jointly owned by LVMH Moet Hennessy Louis Vuitton.

In 1999 everything changed when tax free shopping was abolished within the European Union, but it's still an option for travellers whose final destination is outside the EU.

So how does duty free work?
Goods are free of the duty levied on imports for sale within the shopping destination. Buyers must then declare all purchases (duty free or otherwise) as they enter any duty-levying country.

In most tax systems exported goods are not taxed in order to avoid disadvantaging exporters who are competing with goods from other countries. There are two primary methods of doing this: either by allowing the goods to be exported untaxed (and stored prior to export in a bonded warehouse), or allow taxes to be claimed back when they are exported.

Goods sold to passengers on board ships or aircraft are tax free because they are consumed outside the country and duty free shops work on the same principle. The goods must be exported intact (they cannot be consumed in the airport), and they are imported into the destination country under that country's own tax rules.

The so-called duty free allowance most countries have is simply because it is not worthwhile collecting the small amount of tax involved and inconveniencing passengers.

October 2009