What to Know Before Going Duty-Free Shopping

5 Min Read | Published: January 12, 2023

This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

International airports are brimming with duty-free shops, but these stores aren’t always a bargain. Here’s what you need to know to get deals on duty-free purchases.

At-A-Glance

  • Duty-free shopping can save you money, but it’s no slam dunk. Many items cost more at these shops.
  • In some cases, applying for a VAT refund is the better option.
  • A smart spending strategy involves using a travel credit card with no foreign transaction fees to pay in the local currency.

If you travel regularly, you’ve certainly come across duty-free shops. They provide a glitzy diversion, overflowing with eye-catching goods like fragrances, cosmetics, electronics, accessories, liquor, tobacco, food, candy, and much more. Put simply, they’re a tempting haven.

 

In some cases, duty-free shopping can deliver noticeable savings. But this doesn’t necessarily mean that everything you buy at one of these stores is a bargain. It’s important to understand how duty-free shops work and whether you are actually saving on a purchase.

 

In addition, prices can vary from store to store, even within the same airport. And, depending on how you pay, you could get hit with foreign transaction and currency conversion fees. However, armed with a bit of knowledge and a duty-free shopping strategy, it’s possible to scoop up some genuine bargains on your way to the boarding gate.

Understand How Duty-Free Shopping Works Before You Buy Into the Concept

A starting point for understanding duty-free shopping is to know what the term “duty free” actually means. In simplest terms, a “duty” is a type of tax levied by a government. “Duty free” is typically defined as the act of purchasing an item from another country without the usual tax obligation. In many locales around the world, the primary tax that duty-free purchases avoid is the value-added tax (VAT) or goods and services tax (GST). Most countries impose a VAT or GST system. They’re similar to sales tax in the U.S., but usually have much higher rates.

 

However, depending on what and how much you buy, duty-free purchases may be subject to certain import taxes and duties required by the country of entry.

 

It’s also important to recognize that prices at duty-free shops may or may not be a real bargain. In some cases, it may be less expensive to buy the product at home and pay the standard taxes. Why? Prices for some products might be higher than they would be at regular stores and online sites to make up for the cost of high rent and, in some cases, having to fork over a percentage of royalties to airports.

Factors to Consider Before Going Duty-Free Shopping

The best bargains usually involve items that are subject to significant excise taxes or strict price controls by manufacturers. An excise tax refers to a tax that is levied by the government when the product is produced, rather than at the point of sale (like a sales tax).

 

In practical terms, liquor, tobacco, and food usually have the best deals. Items like watches, cameras, and electronics are typically available at lower prices through online sites or at stores that offer discounts. In the past, travelers could usually score great deals on perfumes and cosmetics, but many of these items are now available at deep discounts online.

 

Another factor to consider is whether you can shop at regular stores in a country and obtain forms to apply for a VAT refund or a GST refund. In many cases, you will have a larger universe of items available for purchase. And, if you take the time to get a refund, you might end up paying a lower overall price than buying the same goods at a duty-free shop.

 

Different countries have different systems and rules for obtaining VAT refunds. In Iceland, for example, a nonresident can submit receipts at a booth inside the airport terminal and receive a cash or credit card refund for any goods above ISK 6,000 (about U.S. $44, as of mid-2022).1 In other countries, merchants might provide the paperwork for a VAT refund.

How to Navigate Duty-Free Shopping Like a Pro

There are several things to consider if you’re eyeing a purchase at a duty-free shop. Most importantly, how does the final price compare with what you would pay at home? One study found that prices vary considerably – sometimes by 50% or more – for the same item at different stores in different terminals of the same airports.2 Moreover, some airports charge much higher prices than others.3

 

As a result, it’s wise to use a search engine to check the price you would pay at home, along with a currency calculator to determine the exact price at the duty-free shop. Then compare the two to check if you’re actually getting a deal. If duty free is the more cost-effective option, it’s wise to pay with a no foreign transaction fee credit card, and make sure you pay in the local currency. If you select your home currency at checkout, you’ll use a system called “dynamic currency conversion” (DCC). While convenient, DCC transactions impose additional fees.

Finally, make sure you know the import rules for your home or destination country before you buy, as duty-free purchases are often subject to limitations. If you exceed the limit, you will likely pay additional taxes or duties. If you’re traveling back to the U.S., it’s a good idea to check the U.S. Customs and Border Protection’s duty-free exemption rules before making any duty-free purchases.

The Takeaway

The next time you snake your way through a duty-free shop, pay close attention to the prices. Don’t get caught up in the moment and follow your impulses. Duty-free shopping usually makes the most sense when it allows you to purchase items not available in your country or when there are real discounts. A smart shopping strategy will ensure that you’re finding genuine bargains.

Headshot of Samuel Greengard

Samuel Greengard has traveled to 65 countries and all 50 U.S. states while writing about business, technology, and finance for numerous magazines and websites. He is the author of the Internet of Things (MIT Press, September 2021).
 
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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