Bargain or rip off? What you should, and shouldn’t, buy at duty free

Love a bargain? International travel brings a glittering array of life-enhancing goods your way, especially when they come duty-free.

What is duty-free shopping?

Most countries charge tax on goods sold within their jurisdiction. That tax goes by different names – GST in Australia, Value Added Tax (VAT) throughout Europe. It’s also charged at different rates, from just 5 per cent in Taiwan to 19-27 per cent in European countries. Duty-free shopping means whatever you’re buying is tax exempt.

There are exceptions, but for the most part duty-free shopping exists in international airports. After you pass through immigration at an international airport, you have “left” that country. Until your flight delivers you to your destination and you are processed through their immigration system, you are in international or transit territory. For customs purposes you’re no longer in that country, and therefore no duty applies on any good you might purchase.

How duty-free shopping came to be

The spark that ignited the concept of duty-free shopping happened in 1947, when Ireland passed the Customs-Free Airport Act, allowing Shannon International Airport in County Clare to become the world’s first duty-free airport. In the pre-jet era, Shannon International was a mandatory refuelling point for aircraft on long transatlantic flights. Passengers were not permitted to leave the airport, located in a remote, windswept and, at the time, impoverished part of the country.

Brendan O’Regan, then Shannon’s catering controller, had a brainwave. Since passengers were confined to the airport, and weren’t entering Ireland, why not allow the airport to sell them luxury goods, alcohol and cigarettes exempt from local duties and taxes? The Irish government agreed, Shannon Airport became a gold mine and within a few years airports and cruise ships adopted the concept, and duty-free shopping became a fixture on the travel scene.

Some countries, including the United Arab Emirates, Qatar, some Caribbean Islands and Hong Kong are duty-free ports. So was Singapore, although not all stores still offer duty-free shopping.

What’s worth buying, and what’s not?

In Australia the tax on spirits and other excisable beverages with more than 10 per cent alcohol is 105.98 per cent on the alcohol content, and just slightly lower on brandy. That puts duty-free whisky, cognac, rum and some premium liqueurs as a reasonable bargain. While they’re a popular buy for Aussies returning from overseas, caution is needed.

If you buy those items in Europe with a stop en route to Australia, any liquids over 100mls might be confiscated from your carry-ons at the final inspection point. This is mandated by Australia, not local authorities.

Better to buy at the last point where you touch down before entering Australia, or better still, save your cash for the duty-free outlet located before you pass through the immigration gates at your Australian destination. Tobacco products are a bargain but Australia’s vice-like limit on the quantity you can import means it’s hardly worth the bother.

If you happen to be in a European city during a major sale season such as the summer sales in Paris and Milan, it’s game on. Prices drop across the board on homewares, clothing, travel goods, electronic items and leather goods, and if you shop where the retailer participates in the VAT refund scheme, you’re walking away with a smile.

However, most airport duty-free “bargains” are a mirage. Perfumes, luxury goods and cosmetics are often cheaper at home. So are electronics, and you might have a warranty headache if anything goes wrong with something purchased overseas. That applies especially in Australia, where the GST is a relatively modest 10 per cent.

Where duty-free shopping works best

In Europe, it’s not just international airports that allow duty-free shopping. Throughout the EU, non-resident visitors can obtain a refund of the VAT they pay. Since that VAT is around 20 per cent, that makes Europe the sweet spot for travellers looking to score duty-free bargains.

There are rules to be followed to make sure you get the refund you’re entitled to. First, you need to shop in places that participate in the VAT refund scheme. The most likely places are major department stores. You also need to make a minimum spend, and that varies from country to country. In Austria, that figure is €50 ($90), in Italy €70 ($125) and in France, €100 ($180). You’ll need to produce your passport and complete a VAT refund form.

Some large department stores offer on-the-spot refunds, otherwise, at the airport where you depart the EU, you need to have your documents validated at the VAT refund counter. This might be located before the airport security check, and you’ll probably need to show your purchases to prove they’re being exported. Your documents will be stamped and a refund might be issued on the spot, otherwise you may need to send these forms back to the retailer where you made the purchase, and they should provide an envelope for this purpose.

There’s a catch for travellers who leave the EU by train, for example those travelling to the UK. Major stations might have a customs office that can stamp your documents. Note that for other European countries that are not part of the EU such as Switzerland and Norway, you need to claim your VAT refund in those countries, not within the EU. The VAT in Switzerland is 7.7 per cent, and a refund is only available on goods with a purchase price of over CHF 300 ($570).

And where it doesn’t

International airports are the strongholds of duty-free shopping, but surveys conducted by Choice and other consumer organisations all conclude that electronics, confectionaries and beauty products purchased from airport duty-free outlets are often more expensive than the same goods purchased from regular retailers.

Rents on airport retail space are sky high, and they’re expensive because some businesses make a lot of sales. Airports are designed to make you spend money. Instead of walking past retailers arranged side-by-side, it’s now common for passengers to have to weave along a winding passageway past liquor and perfume outlets and other retailers that attract high-volume sales. The serpentine design achieves sales up to 60 per cent above conventional layouts according to aviation consulting group InterVistas.

There’s also the dwell time. Most passengers have time to kill before their flight, and giving them the illusion they’re in a glittering world packed with luxury products encourages them to reward themselves with an impulse buy.