Tax Planning

What Is Duty Free? (How Does It Work & What Are the Rules)

Written by TurboTax Blog Team
Published Jun 22, 2012 - [Updated Nov 17, 2020]
4 min read

If you’re a true bargain hunter, you’ve probably heard about duty-free shopping before. It’s an opportunity to save tens or hundreds of dollars on your purchases by shopping in areas that have been designated as “duty” (or tax) free. Unfortunately, like many shopping tactics, duty-free isn’t always clear-cut. Many of us know that it exists, but not in enough detail to actually do it ourselves.

Today, we’ll introduce you to the topic with our beginner’s guide on duty-free shopping.

What Is It?

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Duty-free shopping enables citizens of one country to buy goods in another and bring those goods back home without paying duty (or tax) on some or all of the purchase price. How much duty you avoid is known as your personal exemption, which depends on factors including:

Where you bought the item in question
Whether the item contains tobacco or alcohol

In most cases, your exemption is $800 (but can be as high as $1,600 under certain circumstances.) Another perk: duty-free shops get you out of paying local and national taxes of the country in question. If you buy a luxury item from a duty-free shop in France, for instance, you will pay France’s value-added tax at time of purchase, but you can apply to get it refunded later on. This adds another layer of savings on top of the duty you avoid upon returning to the United States.

Where Are The Duty-Free Shops?

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Most of the duty-free shops you’ll find are located in airports, sea ports, on ships and on airplanes. This is no accident. Retailers know (from decades of experience) that you are most likely to buy right when you arrive or right when you leave. To capitalize on this tendency, most duty-free shops are placed in these high-traffic areas for convenience.

Note however that not all duty-free shops reside in these locations. Others are located in shopping malls, along beaches, and at popular tourist areas. It all depends on the country you are visiting.

Important Rules

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It’s easy to get so caught up in the savings potential of duty-free shopping that you neglect important rules. It’s critical to know what is and isn’t permissible, because failure to follow the rules can lead to steep surcharges. Perhaps the most important restriction is this one, explained by DutyFree.com:

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.

Other key rules include:

Americans visiting a foreign country for LESS than 48 hours typically only get a $200 exemption
Family members can combine exemptions (example: a family of three could bring $2,400 worth of goods home, duty-free)
Children do not get tobacco or alcohol exemptions. Thus, these items must be taken home by adult family members
Tobacco and alcohol are treated differently than other goods. One liter of alcohol and one carton of cigarettes are the typical limits for duty-free importation

Best Duty-Free Zones

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Like traditional malls and stores, some duty-free shops are better than others. The last thing you want to do is travel somewhere far away (in search of huge savings) only to find lackluster or non-existent deals when you get there. Luckily, various publications have put together lists of the best duty-free shopping zones in the world.

Take this one from Esquire, for instance. Whether you are looking for Lacoste shirts, Chanel No. 5, or Neuhaus Chocolate, guides like these direct you straight to the best deals and biggest savings (so you can avoid chasing fruitless sales.)

When Is It Worthwhile?

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Experts are divided on whether duty-free shopping is actually worthwhile from a dollars-and-cents standpoint. A recent USA Today article on the subject, for instance, stated:

“Duty-free is almost never a deal for the casual shopper out to get a bargain,” says Jason Clampet, a senior editor for travel guidebook publisher Frommers.com. “You can save significant amounts if you’re a smoker who lives in a state with high taxes, but you’ll find that electronic goods, beauty products and luxury items such as designer purses usually cost less at home or online.”

The article went on to say that duty-free shops in the U.S. are almost never worth visiting for a U.S. citizen. Rather, Americans in search of big-time savings are advised to head abroad. Liquors and wines, in particular, are recommended for pickup in their countries of origin. Meanwhile, Americans are advised to buy electronics, watches, and handbags at home (due to both the cost and the high likelihood of being sold a fake.)