This article is from the Europe FAQ, by Yves Bellefeuille firstname.lastname@example.org with help from Martin Rich M.G.Rich@city.ac.uk.
Buying "duty-free" is somewhat similar to getting a VAT refund. In a
duty-free store, some or all of the taxes that would normally apply to
the purchase are omitted. You can usually shop in duty-free stores only
immediately before you leave a country (including your own country);
when travelling by air, you're usually asked to show your boarding pass
as proof that you're about to take a flight out of the country.
In the European Union (EU), you can only buy duty-free when you're about
to leave the EU. However, unlike VAT refunds, travellers from the EU are
also eligible to buy duty-free when leaving the EU.
Duty-free only refers to the taxes levied by the country where you're
buying. You may have to pay custom duties on the goods when entering
another country even if they were duty-free where you bought them.
Buying duty-free is worthwhile only for goods that are usually heavily
taxed; tobacco and alcohol are common examples. If duty-free goods seem
quite inexpensive to you, this means that the goods are heavily taxed in
your own country. Don't assume that something is a bargain just because
it's duty-free; compare the price to what you'd normally have to pay.