Duty-free shop
Encyclopedia
Retailing
Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...
that are exempt from the payment of certain local or national tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
es and duties
Duty (economics)
In economics, a duty is a kind of tax, often associated with customs, a payment due to the revenue of a state, levied by force of law. It is a tax on certain items purchased abroad...
, on the requirement that the goods sold will be sold to travelers who will take them out of the country. Which products can be sold duty-free vary by jurisdiction, as well as how they can be sold, and the process of calculating the duty or refund the duty component.
However, some countries impose duty on goods brought into the country, though they had been bought duty-free in another country, or when the value or quantity of such goods exceed an allowed limit. Duty-free shops are often found in the international zone
International zone
An international zone is a type of extraterritoriality governed by international law, or similar treaty between two or more nations. They can be found within international airports and can contain duty free shopping. In areas of conflict there may be international zones called green zones that form...
of international airport
Airport
An airport is a location where aircraft such as fixed-wing aircraft, helicopters, and blimps take off and land. Aircraft may be stored or maintained at an airport...
s and sea port
Port
A port is a location on a coast or shore containing one or more harbors where ships can dock and transfer people or cargo to or from land....
s, but goods can be also bought duty-free on board airplanes and passenger ships. They are not as commonly available for road or train travelers, although several border crossings between the United States and Canada have duty-free shops for car travelers.
These outlets were abolished for travellers from EU countries within the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
in 1999, but are retained for travelers whose final destination is outside the EU. They also sell to intra-EU travelers but with appropriate taxes. Some special member state territories such as Åland, Livigno
Livigno
Livigno is a town and comune in the province of Sondrio, in the region of Lombardy, Italy, located in the Italian Alps.- Geography :Livigno is located 1,816 metres above sea level. Livigno's main river is called Aqua Granda or Spöl. Trepalle, a frazione in the municipality of Livigno, is...
and the Canary Islands
Canary Islands
The Canary Islands , also known as the Canaries , is a Spanish archipelago located just off the northwest coast of mainland Africa, 100 km west of the border between Morocco and the Western Sahara. The Canaries are a Spanish autonomous community and an outermost region of the European Union...
, are within the EU but outside the EU tax union, and thus still continue duty-free sales for all travelers.
Duty-free outside the airports in the EU
Any traveller living in a country outside the EU VAT area is entitled to shop tax-free at participating shops in the EU. The traveller pays the VAT on goods in the shop in the usual way, and can request a refund when exporting the goods. To qualify, the traveller must:- have residency in a non-EU country
- have a maximum stay of six months within the EU
- make purchases no more than three months prior to export
- obtain a form from the shop where he or she makes the purchase
- present the form, and in certain cases the goods, to a customs officerCustoms officerA customs officer is a law enforcement agent who enforces customs laws, on behalf of a government.-Hong Kong:4 931 posts, of which nine are directorate officers, 3 804 are members of the Customs and Excise Department, 504 are Trade Controls Officers and 614 are staff of the General and Common...
when leaving the EU, where they will be stamped
Only goods meant for personal use are eligible for the refund. The stamped forms and receipts can then be sent back to the retailers, or their agents, for a refund.
In most cases, a minimum purchase applies to use the tax-free shopping scheme. The actual amount of VAT reclaimable depends on the VAT rate applicable in the particular country to the goods purchased, and may be subject to a deduction for administration fees.
History
The world's first Duty Free shop was established at Shannon AirportShannon Airport
Shannon Airport, is one of the Republic of Ireland's three primary airports along with Dublin and Cork. In 2010 around 1,750,000 passengers passed through the airport, making it the third busiest airport in the Republic of Ireland after Dublin and Cork, and the fifth busiest airport on the island...
in Ireland by Dr Brendan O'Regan in 1947 and is in service to this date. Designed to provide a service for Trans-Atlantic airline passengers typically travelling between Europe and North America whose flights stopped for refuelling on both outbound and inbound legs of their journeys, it was an immediate success and has been copied worldwide.
Duty free shopping was in its infancy when two American entrepreneurs, Charles Feeney and Robert Miller, created what is now Duty Free Shoppers (DFS) on 7 November 1960. DFS started operations in Hong Kong and spread to Europe and other places around the globe. Securing the exclusive concession for duty free sales in Hawaii in the early 1960s created a business breakthrough for DFS, and the company was positioned to focus on emerging Japanese travelers. DFS continued to innovate, expanding into off-airport duty free stores and large downtown Galleria stores and grew to become the world’s largest travel retailer. In 1996, LVMH
LVMH
LVMH Moët Hennessy • Louis Vuitton S.A., better known as LVMH, is a French multinational luxury goods conglomerate headquartered in Paris, Île-de-France, France. The company was formed after the 1987 merger of fashion house Louis Vuitton with Moët Hennessy, a company formed after the 1971 merger...
Möet Hennessy Louis Vuitton acquired the interests of Mr. Feeney and two other shareholders and today jointly owns DFS with Mr. Miller.
In this same period, several locales grew as duty free shopping destinations. They are exemplified by Saint Martin and the U.S. Virgin Islands in the Caribbean, Hong Kong and Singapore. Still others claim prices competitive to duty free. Generally, goods are free of duty and tax levied on imports for sale anywhere in the shopping destination. Merchants may pay inventory/business or other taxes, but their customers usually pay none directly. Buyers must declare all purchases (duty-free or otherwise) as they enter any duty-levying country.
The mere absence of duty or other taxes on goods being sold does not assure that they are bargains. Costs of identical goods from different duty-free sources can vary widely. They often depend on the presence or absence of nearby competition, e.g., airport stores, especially if all at any airport are owned by a single firm such as Dufry. Also, prices can often be driven upward by the costs of buyer convenience, e.g., in-flight sales by airlines. This July 2011 article discusses the economics of shopping in airport stores and others.
Duty-free shopping away from ports
Some duty free shops operate in central business districts away from airports or other ports. In Japan, for example, any visitor whose passport indicates that they have been in the country for less than six months can buy duty free items. Duty-free shops are also a mainstay in the AkihabaraAkihabara
, also known as , is an area of Tokyo, Japan. It is located less than five minutes by rail from Tokyo Station. Its name is frequently shortened to in Japan...
electronic shopping district of Tokyo
Tokyo
, ; officially , is one of the 47 prefectures of Japan. Tokyo is the capital of Japan, the center of the Greater Tokyo Area, and the largest metropolitan area of Japan. It is the seat of the Japanese government and the Imperial Palace, and the home of the Japanese Imperial Family...
.
In Thailand, the King Power
King Power
The King Power International Co., Ltd. is a Thai travel retail company based in Bangkok. Its current chairman and CEO is Vichai Raksriaksorn.The company is the leading travel retail in the country, with its own Duty Free shopping mall covering over 10,000 square metres and at Suvarnabhumi Airport...
chain has shops where duty-free items are pre-purchased and delivered separately to the airport to be picked up on departure. For certain other purchases, a VAT
Value added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
refund may be claimed at the airport upon departure.
In the Philippines, other than shop outlets in airports there is also Duty Free mall called Duty Free Fiesta Mall which is located a few miles away from the Ninoy Aquino Airport. The goods that are sold in this mall are often imported products which come from around the world (mainly from USA, Asia
Asia
Asia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.7% of the Earth's total surface area and with approximately 3.879 billion people, it hosts 60% of the world's current human population...
and Australasia
Australasia
Australasia is a region of Oceania comprising Australia, New Zealand, the island of New Guinea, and neighbouring islands in the Pacific Ocean. The term was coined by Charles de Brosses in Histoire des navigations aux terres australes...
) which are not found in any other shopping malls in the country other than Duty Free malls. Most tourists, visitors and back-to-home citizens of Philippines pay a visit to these malls very often after their arrival (since, only arriving passengers can gain entry to the mall). In order to gain entry, a passport is needed to be presented and registered at the Customer Registration Counter which is located at the entrance of the mall. The customer will then be issued a shopping card, these shopping cards must be presented to the cashier for sales validation of purchases. Duty Free malls before used to only accept US Dollars and Philippine peso
Philippine peso
The peso is the currency of the Philippines. It is subdivided into 100 centavos . Before 1967, the language used on the banknotes and coins was English and so "peso" was the name used...
but in recent years, Duty Free malls had begun accepting Japanese Yen
Japanese yen
The is the official currency of Japan. It is the third most traded currency in the foreign exchange market after the United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling...
, Brunei Dollar
Brunei dollar
The ringgit Brunei or the Brunei dollar , has been the currency of the Sultanate of Brunei since 1967...
, Australian Dollar
Australian dollar
The Australian dollar is the currency of the Commonwealth of Australia, including Christmas Island, Cocos Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu...
, British Pound, Canadian Dollar
Canadian dollar
The Canadian dollar is the currency of Canada. As of 2007, the Canadian dollar is the 7th most traded currency in the world. It is abbreviated with the dollar sign $, or C$ to distinguish it from other dollar-denominated currencies...
, Swiss Franc
Swiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...
, Saudi Riyal
Saudi riyal
The Riyal is the currency of Saudi Arabia. It is abbreviated as ر.س or SR . It is subdivided into 100 Halalas . The Saudi Ghirsh is 5 Halalas.-History:...
, Bahrain Dinar, and Thai Baht
Thai baht
The baht is the currency of Thailand. It is subdivided into 100 satang . The issuance of currency is the responsibility of the Bank of Thailand.-History:The baht, like the pound, originated from a traditional unit of mass...
. Currency Exchange booths are also available inside the mall if a customer wishes to exchange currencies into Philippine peso or US Dollars. Credits cards can also be used for purchasing goods.
In Australia, duty-free shops have all but disappeared after the introduction of the GST in 2000. Currently, duty-free shops are nearly all located within international airports. Residents and tourists are now allowed to purchase virtually any physical good within 30 days of departure, which needs to be taken on the outward flight, and claim the GST component back through the Tourist Refund Scheme when passing through customs. Consumers are now free to fully use their items prior to departure. This is in contrast prior to 2000, where all purchases had to be packed by the duty-free store in a sealed clear plastic bag, and could only be broken open by customs staff just prior to departure.
Security considerations
Travelers on long-haul routes with at least one transit stop between their departure airport and destination airport should be careful to purchase their duty free alcohol or perfume at the last transit port, as otherwise they may have it confiscated by security when they board at the transit port, as they will be exceeding the current limit on liquids in hand baggage. This does not apply to passengers transferring within the EU, Singapore and Croatia on the same day, as long as the liquid item is sealed in a plastic bag with the receipt showing in the bag. Arrivals Duty Free shops are now becoming more common. Most of South and Central America, and the Caribbean have such shops, as does SE Asia and Oceania. Switzerland and Canada are looking to introduce them in 2010, this method of retail removes any security problems for the transit of liquids as they are not carried on aircraft.Inbound duty free
Some countries, including Australia, Argentina, Iceland, India, Kenya, Malaysia, New Zealand, Norway, Sri Lanka, the Philippines, and SwitzerlandSwitzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
have inwards duty free facilities, where arriving passengers can purchase duty free items immediately before going through customs. This not only saves the inconvenience of having to carry these items around the world but also solves the security problem mentioned above. Other countries such as Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
and Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
have been considering duty free on arrival.
Legal basis
It is a common feature of most tax systems that taxes are not raised on goods to be exported. To do so would place the goods at a disadvantage to those from other countries. Either the tax system allows the goods to be exported without taxes (stored prior to export in a bonded warehouseBonded warehouse
A Bonded warehouse is a building or other secured area in which dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty. It may be managed by the state or by private enterprise. In the latter case a customs bond must be posted with the government...
), or taxes can be claimed back when they are exported (see VAT
Value added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
).
Such exemption also applies to goods supplied for use on ships and aircraft, because they are consumed outside the country. Businesses supplying such goods can do so tax- and duty-free.
Goods sold to passengers on board ships or aircraft are tax free. The passenger can either consume them on board, or import them tax-free into the country they are traveling to, so long as they are within the traveler's duty-free allowance. Most tax regimes also allow travelers entering a country to bring in a certain amount of goods for personal use without paying tax on them, the so-called "duty-free allowance"; because it is not economically justifiable to collect the small amounts of tax involved, and would be an inconvenience to the passengers.
A duty-free shop works under the same system. The goods must be exported intact (they cannot be consumed in the airport), and they are importing into the destination country under that country's own tax rules. In some countries, in order to ensure that goods are exported intact, they are hand-delivered in a closed bag to the passenger at the gate after his ticket is scanned. In the United States, duty-free shops are technically considered class 9 Bonded Warehouses with regard to the U.S. Customs & Border Protection:
- Class 9. Bonded warehouse, known as duty-free stores, used for selling, for use outside the Customs territory, conditionally duty-free merchandise owned or sold by the proprietor and delivered from the Class 9 warehouse to an airport or other exit point for exportation by, or on behalf of, individuals departing from the Customs territory for destinations other than foreign trade zones. Pursuant to 19 U.S.C. 1555(b)(8)(C), Customs territory, for purposes of duty-free stores, means the Customs territory of the U.S. as defined in 101.1(e) of this chapter, and foreign trade zones (see part 146 of this chapter). All distribution warehouses used exclusively to provide individual duty-free sales locations and storage cribs with conditionally duty-free merchandise are also Class 9 warehouses.
Moreover, in the U.S. some duty-free stores will sell their goods to domestic passengers with appropriate taxes included. Alcohol and tobacco products are restricted to international passengers only and subject to the age limitations of 21 and 18 respectively, even though the age one must be to import those items into other countries may be lower.
Visiting U.S. protectorates
U.S. citizens receive substantially higher duty exemptions than normal when they visit or transit these locales, e.g., Guam, U.S. Virgin Islands. See for precise details.External links
- The Moodie Report - Duty Free & Travel Retail News Website
- TREND-News.com - Duty Free & Travel Retail News
- Duty Free on Arrival - Global duty free and tax free shopping search portal