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Duty-Free: How Does It Work?

 

July 27, 2020 (Investorideas.com Newswire) Walking through the passages duty-free you can pass the time before the trip and lighten your wallet on the road. Shopping in a neutral territory is a habit we consider profitable. Not without reason. The truth is, it doesn't always work that way in reality. We answer the most important questions about the tourist horn of plenty, which costs above taxation. Duty-free: what is it and how to use it wisely.

What is duty-free trade?

Duty-free shops are a marketplace in a duty-free zone. Almost always they are located after the point where is the passport control for leaving and before crossing the next border. For example, at railway stations or at airports. However, a bottle of perfume will be offered to you during the flight, in an airplane, or on board of a sea vessel.

In some countries (e.g. Argentina, Hungary, Malaysia or at some airports in the USA and Canada), you can get to duty-free shops after border control on arrival. It happens that duty-free shops are located quite outside any train stations: this is the case in Australia, New Zealand, South Korea, Thailand, the Philippines, the Bahamas, and Jamaica. There is no tax-free zones in Europe, but there are freeports (their legitimacy is questioned by fraudulent Yves Bouvier schemes).

Where did it start?

The concept of duty-free trade was already in the air at the end of the XVII century. And the modern concept of a tax-free trade zone was born in Ireland from boredom and a long flight. In the middle of the last century, transatlantic flights needed refueling at Shannon airport, and in 1947, local businessman Brendan O'Regan came up with nothing better than to open a shop in the neutral zone, which would help to dispel passengers moping. They sold cigarettes and whiskey there at first. Since the area was no longer formally Ireland, government taxation was no longer valid and prices were lower. The idea went off. In the 60s, American businessmen Charles Feeney and Robert Miller opened Duty-free shops first in Hong Kong (for the benefit of the location), and then in various European countries. Now duty-free - about 400 shops of several large chains.

How does it work?

Exactly because of the fact that you have already left the territory of one country and have not yet reached the second one, some points in taxation are losing their relevance. Import tax, often VAT or excise duties, turns out to be just nobody to pay. The "issuing" country is not interested in this, and the destination is no more. Does this mean that the best prices are at duty-free? Not always. A special kind of duty-free trade can be considered participation in VAT refund programs, Tax free, when the added value is included in the price of the goods, but you can return it upon arrival. Trying to find out which duty-free prices are lower does not show a clear trend: too much spread even within one country. However, from European duty-free shops are pleasantly democratic duty-free in Berlin and Budapest. And the higher prices are in Tel Aviv and Dubai. 

How do prices form in Duty-free shops?

It would seem that the sales without fees and excise tax promises kopecks prices. But the trick is that although you are in a duty-free zone, the taxes on goods do not always disappear. If import tax, VAT or excise duties are often deducted from the value, then the profit tax or, for example, charges on employee wages, no one canceled. Prices in duty-free are affected by geographical location, currency exchange rates against local currency and even the cost of renting a room. In addition, remember that duty-free shops enjoy their monopoly. Would you like some water? Give me your wallet or your life.

FAQ:

  • It is forbidden by the duty-free shop policy to buy more than 10 items of the same brand at a time.
  • Most often it is not allowed to open the purchased item before boarding (if, for example, it is unpacked liquid with volume more than 100 ml). Check is also better to save before boarding.
  • You can pay with any hard currency. In duty-free take simultaneously 15 monetary units, traveler's checks and credit cards.
  • The higher the tax on a certain group of goods in a certain country, the more profitable it is to buy these goods there in duty-free shops.
  • The biggest savings in duty-free - usually on alcohol and tobacco products. You can save up to 50% (not always!) of the price in the central shops of cities.
  • The most budget duty-free? Usually on board the plane. So not only taxes are deducted from the cost of goods, but also the cost of renting space, staff salaries and so on.
  • Many airport duty-free shops can pre-order online a few days before your flight. If you choose your purchases, you can pick them up on the road!

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