We all loving shopping when we travel overseas. In many countries outside of the US, merchants and vendors list the sales price of their merchandise to include the country’s value added tax. The value added tax (VAT) is a form of consumption tax that many countries especially in Europe include in the sales price. The value added tax is meant for the country’s citizens. In the US, merchants and vendors list sales prices on merchandise before taxes are calculated and at checkout time added to the cost of the merchandise.
In some instances, foreign tourists traveling to countries with a Value Added tax can apply for a Value Added tax refund when they depart the country. That means you can basically shop tax free! This is often handled at the airport at the time of departure from the VAT country. Below are some tips to help you better understand the many rules, exemptions, handling fees, wait times, and delays that you may encounter during your visit to claim your “tax-free” status. Handling VAT refunds can be frustrating not only for you – the tourist but the personnel handling the “tax-free” refund requests.
- While making a purchase, be sure to ask the sales staff for a VAT refund receipt. This is typically printed directly from the cash register. At that time, the sales staff will inform you if the purchase you are making qualifies for a VAT refund or “tax free” refund.
- Some purchases do not qualify for a VAT refund or a “tax free” refund. Typically food items such as candy, biscuits, cakes, etc are exempt from a tax free refund. Every store has a minimum purchase requirement. For example, if you purchase a shirt for €10, the store where you purchase the shirt may have a €50 minimum purchase before they will process a VAT tax refund.
- In order to qualify for a VAT refund or a “tax free” refund, you may want to consider combining several smaller purchases together to meet the minimum purchase requirement for a VAT refund.
- There are several companies that handle VAT refunds
- Many stores, and almost always the larger department stores now charge handling fees that unfortunately reduce the amount of the VAT tax refund you ultimately receive. The largest department stores like Bon Marche in Paris and El Cortes Ingles in Spain are truly horrible experiences and if possible, best to avoid – there have dozens of registers to quickly take your money when checking out but all tax free (VAT refund) paperwork is processed at a central office. That’s efficient for them but for you it’s the equivalent of waiting in line at the DMV. It’s possible to waste an hour and a half of your vacation waiting in a crowded basement while processing your tax free refund. All handling fees will be deduct from your refund as well as a hefty administrative fee for their (not your) time.
- You MUST declare and get your VAT refund paperwork stamped before you return home, at the airport
- You MUST either mail the stamped paperwork at the airport or submit for a cash refund at a counter at the airport
- The type of refund you can receive (cash at the airport versus a credit to your credit card) depends on the company
- Be aware if you are requesting a cash refund at the airport, there are another two potential issues that can even further reduce your ultimate refund:
- If you do not request a specific currency, the cash refund will likely be provided you in the country’s currency (e.g. Euros in EU countries) – if you request your home currency or anything other than theirs, they will likely charge you a currency exchange fee
- And if you request a different currency, they will also likely give you a non-favorable exchange rate (well, it’s favorable in their direction!)
- You may want to consider requesting refunds to a credit card that does not have any foreign transaction fees to maximize your refund. The only downside is that you will have to wait for your refund. Timelines vary by company but we typically receive refunds 2 to 3 weeks after returning home.
- Always keep your purchases with you in your carry-on luggage as you may be asked to present the goods to the customs official who applies their official customs stamp to your paperwork. If you pack your goods with your check-in luggage before talking with customs officials, they may refuse your refund
- The process can be done all at once if you are visiting multiple countries before heading back state side
- As a rule of thumb, although the VAT tax can be upwards of 20% on your purchase, after all is said and done you may only receive back 10% to 15%. Use the tips above to maximize your refund. The rest is your contribution to the pensions of your new friends overseas.