What Is Duty-Free?

Duty-Free Explained in Less Than 4 Minutes

Two women in an airport look at items in their shopping bags.
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Duty-free means that governments will not charge a tax on goods you buy that will be transported across borders. A duty, also known as a tariff, is a type of tax levied by governments on imported goods. 

If you stop by a duty-free shop in an airport and make a purchase, the items you bought in that store will be exempt from the duty tax for the country the store is located in. Keep reading to better understand how duty-free works, when you may need to pay duties, and how to avoid paying them.

Definition and Example of Duty-Free

Duty-free essentially means you will not be charged a government tax on goods that will be transported across borders.

Customs duties are a type of tax imposed on products that end up transported across international borders. This tax helps control the flow of goods that go in and out of a country. When you shop at a customs duty-free shop, you don’t have to pay any duty taxes for the country the shop is located in. 

Normally, if you exceed your personal allowance of acquired articles, you have to pay a customs duty when you enter your destination country.

If you shop in a duty-free store, you won’t have to pay the tax. This can save international travelers money on items like perfume, beauty products, and liquor, among many others.

For example, if you bought a liter of alcohol at the duty-free shop in Los Angeles, you would not have to pay taxes on it when you brought it to Mexico.

However, any items you buy in U.S. Customs duty-free shops will be subject to U.S. Customs duty if you do bring them into the United States. So if you brought that bottle back to the United States when you returned from Mexico, you would need to pay customs duty and Internal Revenue Service tax (IRT).

How Duty-Free Works

To understand how the concept of duty-free works, it can be helpful to understand what customs duties are. 

Customs duties have to be paid on articles that are considered “dutiable.” Different products have different duty rates that are determined by factors such as where the shopper bought it, what the product was made of, and where it came from.

If you are a U.S. citizen traveling abroad, you have to declare any items you didn’t have with you when you exited the United States upon your return. Purchases made abroad include the result of services like tailoring to an article of clothing that you already owned.

You don’t have to declare American goods returned (AGR), which are American-made items that are returning from abroad.

But you do have to prove to the U.S. Customs and Border Protection that items in question are AGR or you will need to pay a customs duty. 

Even if you did not shop at a duty-free store, there’s a chance you may not need to pay duties on your new purchases if they come from certain countries. For example, the majority of products that come from Israel, Jordan, Chile, and Singapore can be brought into the United States duty-free or at a reduced duty rate thanks to the U.S. trade programs with those countries. 

You can also bring items from Canada or Mexico into the U.S. either duty-free or at reduced duty rates if they were actually manufactured, produced, or grown in either of those countries as a result of the North American Free Trade Agreement (NAFTA).

How To Pay Duties

If you do need to pay a customs duty, you have to pay it before you finish U.S. Customs and Border Protection (CBP) processing. 

You can pay via personal check for the exact amount owed in U.S. currency and the check can be made payable to the U.S. Customs and Border Protection. In certain locations, you can pay your duty taxes with MasterCard or VISA credit cards.

If you plan to do a decent amount of shopping while traveling internationally, it can be helpful to account for any duties you may need to pay when budgeting for your trip

Key Takeaways

  • A duty is a type of tax levied by governments on imported goods and it can affect international travelers who shop while they are abroad. 
  • All articles subject to duty taxes have a set duty rate that is determined by key factors such as where you bought the product and where it was made. 
  • The U.S. has trade agreements that allow you to bring certain articles from select countries into the U.S. without paying any duty tax.