Two women with shopping bags.

What exactly is duty free

6 min read

An essential part of any trip to the airport is a dash through duty-free. Garish whiskey displays, oversized chocolate bars, and exotic perfumes all compete for your attention, claiming to offer luxury goods at bargain prices. With Dubai Airport’s duty-free generating more than $2 billion in sales each year, and Paris’ Orly and Roissy Charles-de-Gaulle airports averaging €34 in duty-free expenses per customer, many travelers are cashing-in. 

But does duty-free actually save you money? Let’s look at the facts and debunk some of the myths surrounding this ubiquitous airport landmark so you can spot a deal next time you’re heading abroad

The bank you'll love

No paperwork, no hidden fees, no hassle. Just 100% mobile banking that works beautifully.
Discover your free bank account
An elevated hand holding a transparent N26 Standard card.

What are duty-free shops?

Duty-free means “without tax.” So, in a duty-free shop, the prices don’t include value-added tax (VAT) or consumption taxes making duty-free shops micro free-trade zones. So, for example, an Australian tourist who buys a bottle of perfume in France before returning home won’t pay any VAT on that purchase.

What is VAT?

VAT (value added tax) is added to nearly all consumer goods. The amount varies depending on the type of product and where it’s being sold. For example, in the UK there’s currently a 20% VAT on all tobacco and alcohol products but a 5% VAT on all smoking cessation products such as nicotine patches and gum. In general, 20% is the standard VAT rate in the UK, whereas in Hungary it’s 27%, and in Luxembourg it’s 17%. In duty-free, this VAT amount is no longer applicable. That means that if the standard VAT rate is 20%, a bottle of whisky that’s usually €40 will now, in theory, be €32. But, as individual duty-free shops set their own prices, this may not always be the case.

The history of duty-free

The idea of free-trade zones was introduced thousands of years ago as a way to encourage exports in large ports. Thanks to being a free-trade zone, the small Greek island of Delos, in the heart of the Aegean Sea, emerged as a true trading hub in the Mediterranean region. The privileges granted to the merchants buying there made it a bustling hub for commerce. Later, in the Middle Ages, many “free” ports developed. Cities like Marseilles, Genoa, and Hamburg are a few examples of such free ports.

However, the first duty-free shop as we recognize them today opened in 1946 in Shannon airport, in western Ireland. It was first marketed as a chic stopover for celebrities and socialites hopping over to Europe as their jets had to refuel there before continuing to the continent.

Does duty-free actually save you money?

It’s a myth that you’ll always save money in duty-free. Prices vary wildly between countries and airports depending on local costs like employing staff, retail space rental, and other taxes. Additionally, airports rely on you making some impulsive buying decisions thanks to your heightened levels of vacation excitement. While a €96 bottle of perfume may be €24 cheaper in a duty-free store, if you wouldn’t have otherwise bought that perfume, that’s a €96 loss, not a €24 gain for you!

Additionally, before buying anything in duty-free, be sure to check the price of that item both in your home country and your vacation destination. That way, you can make an informed decision on the item and work out if it’s a good deal or not.

Types of duty-free shops

Beyond airports, duty-free shops can also be found in certain tourist hot spots. Some islands also operate their own duty-free shops, like St. Barts and St. Martin in the Caribbean or Langkawi in Malaysia. Likewise, as the sky and international waters are classified as free-trade zones, both cruise lines and airlines frequently offer duty-free purchases. Korean Air, for example, hosts a line of mini shops called “Sky Shops” in some of its airplanes. Here, you can make an online pre-order and enjoy an in-flight delivery to your seat! 

However, a few airlines, including Qantas and United Airlines, have stopped selling duty-free on their flights, citing low sales. Additionally, there are a few duty-free shops located in train stations such as Waterloo station in Belgium or the Eurotunnel terminals. These duty-free shops can also be found at the terminals for the Eurostar at Gare du Nord in Paris and London’s St. Pancras.

What are the downsides of duty-free?

There are a few downsides to consider before going on a spending spree in a duty-free shop. These include:

  • Duty-free purchases inside the EU are only possible if you’re coming from or going to a non-EU country. In 1999, the EU also got rid of special exemption status in the international zones among its member countries. Places like Andorra, the Canary Islands, and the UK are special exceptions because they’re not part of the EU Customs Union. 
  • Certain duty-free items are banned from specific countries. For example, it’s illegal to bring Spanish Serrano ham or French soft cheese into the United States. Be sure to check the customs laws in the country you’re traveling to before buying anything from duty-free.
  • Each country also has a different limit on the amount of duty-free produce you can bring in. In Germany, for example, you can bring up to 200 cigarettes and four liters of non-sparkling wine. Whereas in Switzerland, you can bring in five liters of alcohol below 18% and 250 cigarettes, and in Spain, you can bring in 2 liters of wine duty-free. If you exceed these thresholds, you’ll have to pay tax on all your purchases.

What to buy and what to avoid in duty-free shops

Skyscanner carried out an illuminating survey comparing the average prices of duty-free products in international airports to the average prices displayed in French supermarkets. Here are some of the key takeaways:

  • Spirits can be up to 25–30% cheaper in supermarkets than in duty-free stores.
  • Sweets such as Toblerone and Ferrero Rocher are on average 40% cheaper in supermarkets.
  • Burberry perfume (90 ml) costs on average €98 in duty-free and €115 in French retailers.
  • Surprisingly, duty-free prices are higher on average than prices in French supermarkets. Skyscanner attributes this to the geographical location of the duty-free shop, exchange rate variations, and the fact that each store is free to set its own prices.

The results of the study indicate that the cost-saving of a duty-free product should be evaluated case-by-case. However, generally speaking, luxury goods such as watches, jewelry, fashion accessories, and perfumes are the most attractive duty-free products in terms of price. But try to purchase any tourist souvenirs in advance because they’re likely to be more expensive if you buy them at the airport.

Final considerations

To make sure you’re getting the most out of your money, here are some tips to follow next time you’re in duty-free:

  • Check the regular store price online before buying anything in a duty-free shop.
  • Don’t go over the authorized limits. If you do, all of your goods may be confiscated and you’ll have to pay a fine in your destination country.
  • Keep an eye on the exchange rate, this will influence how much of a bargain an item really is!

Your money at N26

Make your next trip stress-free by letting N26 take care of your travel insurance. As an N26 You or Metal customer, you can enjoy an extensive travel insurance package that covers everything from pandemic-related cancellations to luggage loss and flight delays. Plus, cash withdrawals in the EU are free for all N26 customers, and international withdrawals are free for You and Metal account holders. Find the right plan for you today.

Save up with Spaces

Use N26 Spaces sub-accounts to easily organize your money and save up for your goals.
Discover sub-accounts
Different N26 spaces to save money.

By N26

Related posts

These might also interest you
Portugal flag and barcode.

How to Save and Where to Go if You Travel to Portugal

To make the most out of your vacation, here's where to go, what to do, and how to budget for your Great British adventure!

Netherlands flag and barcode.

Travel to the Netherlands—Where to Go and How to Budget for your Trip

How to get the most out of your Dutch adventure and return with plenty of cash to spare!

Customer using a mobile to pay in a swipe machine.

The ultimate guide to tipping in Europe

Tipping can seem like a complicated subject to navigate, but don’t let anxiety take you over. We break down some of the most common tipping practices across Europe to make your next holiday a breeze.