Think you understand duty-free?

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Is duty-free shopping a true tax loophole or just a gimmick? attempts to answer that question in this week's article "What's the Deal With Duty-free?"

Our reporter, David Farley, scoped out the duty-free items offering the deepest discounts. He found that booze and cigarettes are usually discounted from what you would pay at an overseas or U.S. retail store, and some of the best bargains now are at British airports. Yet discounts are typically rare for other products, such as watches and perfume, in England and elsewhere in the world.

Here are some other fun facts he and our staff learned during our research.

Why are electronic gizmos almost never sold duty-free? The most dedicated duty-free customers are Japanese, and electronics are relatively cheap and plentiful in Japan—so there's little demand for duty-free shops to stock high-tech products.

Must you pay U.S. duty on products you bought duty-free? Sometimes, yes! If you bought more than $800 worth of duty-free and standard retail products during your international trip, then you'll usually be slapped with a duty of at least 3 percent. (Full rules, here.)

Are perfume prices marked up at duty-free? We couldn't prove it, but we suspect so. When we comparison shopped, we found that fragrances were often cheaper in U.S. retail stores. And while the duty-free and travel trade research firm Generation Research told us that the products are not usually marked up, the firm also reported that the profitability of "duty free and travel retail accounts" for major beauty manufacturers is usually in the 10 to 50 percent range. Says the firm, "The big fragrance and cosmetics houses make more from duty free and travel retail than from many domestic markets." So it doesn't seem to us that you are bound to find many deals on perfume in a duty-free shop, given that the companies make more profit selling items in duty-free shops than elsewhere.

Is there a limit on how much alcohol you can bring back into the U.S. without paying U.S. duty? Yes, usually. If you're returning from Europe, for instance, there's a one-liter per adult limit. From the Caribbean? Two liters per person, max. Above that, you'll pay duty and taxes.

Will duty-free shops spare you from paying sales or value added tax? Often, yes. In Europe, for instance, most duty-free shops double as "tax-free" shops. (The signs screaming "tax-free" are your clue.) You'll save between 5 and 25 percent, depending on the country you're shopping in. (Here's a PDF file of V.A.T. (value-added tax) rates by country.)


"What's the Deal With Duty-free?"

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