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Duty-Free Shopping and Taxes

by Lux Joseph 24. January 2014

Taxes, taxes, and more taxes...Each and every year consumers around the world are being faced with announcements and declarations about an increase in taxes. Whether it is property taxes, food tax, hotel tax, or sales tax; it appears that taxes around the world are always increasing. To confront this unpleasant change in society, the consumer is always looking for ways to reduce the amount of taxes they pay if at all possible. One way that people can reduce the amount of taxes they pay is to take advantage of duty-free shopping while traveling.

Duty-free shopping is available within international airport terminals, ferry stations, cruise ports and border shops.  For international travel the airlines require you to be at the airport at least two hours prior to your flight. At Commercial Medical Escorts our expectation is that our escort is at the airport at least three hours prior to an international flight. Once you check in with your airline and clear TSA you typically have time to explore the airport. This is when many people take advantage of the duty-free shopping that is available. But does the traveler really know what duty is?

The concept of duty-free shopping began back in 1948 and the idea was that once you were between passport controls you were essentially between two countries and therefore sales tax wouldn’t apply. Years ago when this was first established the three major commodities among travelers were alcohol, tobacco, and perfume. Even today, you will see in duty-stores that these three items still maintain a major presence and are a major source of revenue for storeowners. Many consumers wonder, “How much money are you actually saving at these stores?” The savings depends on the country of origin. Those countries that have a high value added tax (VAT) are listed below including the savings that are offered at the duty free shops:

  • Portugal          23%
  • UK                  20%
  • China              17%
  • Sweden          25%
  • India               13.5%
  • Russia            10-18%

If you were traveling through Hong Kong, United Arab Emirates (UAE), and Singapore to name a few, while there is duty-free shopping available, the savings are not as high. Hong Kong is 0%, Singapore is 7%, and UAE represents 4.5% savings. As a traveler, you must decide if the savings are substantial enough to make the purchase. It is important for the traveler to understand the prices at the airport and those prices within their home country.

Furthermore, before you going on a shopping spree, make sure you are familiar with the rules and laws surrounding duty-free shopping. These laws vary by country so before you think you are saving money we recommend that you review the following (

  1. If you're a U.S. citizen returning home after staying at least 48 hours in a foreign land, you typically may bring $800 of duty-free merchandise into the country. If you exceed that limit, you'll pay a 3 % surcharge on the next $1,000 worth of purchases. Those with over $1,800 of merchandise must pay a tax of up to 25% on the amount that exceeds this limit. 
  2. Americans with a foreign visit of less than 48 hours may usually import only $200 of duty-free merchandise. After that, the next $1,000 worth will be taxed at a 3% rate. Amounts over $1,200 are assessed a surcharge of up to 25%.
  3. When traveling with family members who live in the same home, you can combine exemptions. For example, a family of three may bring a total of $2,400 into the country on a duty-free basis. However, children aren't given a tobacco or alcohol exemption, so parents must stay within their own limits on these items.
  4. Items such as alcohol and tobacco products carry special restrictions that vary depending on where you bought the merchandise. Generally speaking, however, U.S. citizens may import up to one liter of alcohol and one carton of cigarettes on a duty-free basis.

Be smart and come prepared when it comes to doing duty-free shopping. Just like when you are shopping at the mall or your local department store; understanding prices and the value of an item will help you determine if the price is right. If you’re a fan of history and traveling to Shannon, Ireland in the near future be sure to check out the first duty-free store established in 1948. It is still there today.

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