Section 1: VAT Refunds Save Travelers Money Overseas
VAT Refunds: An Underused Tool for Saving Money While Traveling Abroad
VAT refunds are often overlooked by Americans traveling internationally. That’s a big mistake if you’d rather save money than spend it.
Travelers often focus exclusively on saving money before their trips. Finding airfare, hotel, and sightseeing deals usually get first priority. After all, who doesn’t like saving money, right?
But what if there’s a way to save money after your trip? After, you say? Yes, after.
Welcome to the wonderful world of VAT refunds!
What Are VAT Refunds?
VAT is short for: Value-Added Tax. Many nations charge this type of tax on goods and services. It is, in essence, what we call a sales tax in the U.S.
Some important differences between VATs and U.S. sales taxes include:
Who Imposes the Tax
- In VAT countries: The national government does.
- In the USA: State and local governments do, not the federal (i.e. national) government.
Price of item/service
- VAT countries: Prices already include VAT.
- USA: Prices do not include sales taxes.
- VAT rates are, in general, much higher than U.S. sales tax rates.
VAT countries: Foreigners can apply for VAT refunds on qualifying purchases.
USA: Foreigners cannot apply for sales tax refunds.*
*Two exceptions: Louisiana and Texas offer foreigners tax-free shopping options, albeit with very high refund handing fees.
Each VAT country has its own official name for this tax.
- France: TVA (Taxe sur la Valeur Ajoutée)
- Germany: MwSt (Mehrwertsteuer)
- Colombia: IVA (Impuesto al Valor Agregado)
- U.K.: VAT (Value-Added Tax)
The English term VAT, however, is used worldwide.
VAT Refund Basics
Important Note: Going to Europe? Be sure to also read Section 2 down below.
The VAT refund process usually consists of:
- Buying VAT refund-eligible items in a foreign country.
- Keeping receipts/other paperwork.
- Completing VAT refund application.
- Showing receipts, VAT documents, passport, purchased items to customs officer.
- Receiving customs stamp on VAT paperwork.
- Collecting VAT refund*/Leaving foreign country with purchased items.
*Refunds can occur instantly or take several months, depending on country and refund method.
Watch this short, 2-minute video to see the VAT refund process in action at the Frankfurt, Germany airport.
Research VAT Refunds Before Your Trip
For best results, research your destination’s VAT process and:
- Understand all requirements/procedures.
- ALWAYS visit a country’s official government websites for the most accurate info.
- Start by searching: [NAME OF COUNTRY] [VAT refund] (i.e. France, VAT refund).
Purchase Minimums For VAT Refunds
Your purchases must meet a country’s threshold for VAT refunds. A 1€ (€ = Euros) postcard of Rome’s Coliseum, for example, wouldn’t qualify for a VAT refund, but a 500€ Italian leather jacket would. This threshold varies by country, from a few bucks to several hundred.
Goods vs. Services
For tourists, physical goods are eligible for VAT refunds, but services are not. To receive a refund, you must prove to customs that you are exporting the good(s).
When you leave the European Union with your new 500€ Italian leather jacket, for example, you are technically exporting the jacket.
Services, on the other hand, cannot be exported. Thus, hotel rooms, car rentals, and restaurant meals are not eligible for VAT refunds. They are considered services you consume while in that country.
VAT Refund Forms in the European Union (EU)
In the EU, you should inform the salesperson whenever you plan to seek a VAT refund for a particular purchase. Both you and the store employee will fill out VAT refund paperwork. In order to complete this paperwork, you’ll need your original passport (i.e. not a photocopy). This tax-free shopping paperwork is sometimes called a cheque.
VAT Refund Forms Outside the European Union
Outside the EU, in contrast, the VAT refund process is not always as streamlined. The tourist is responsible for locating the proper form(s).
In those cases, try to find the forms online and print them before traveling. Doing so could save you headaches and cash.
Here’s the English version of Colombia, South America’s VAT refund form. (Form provided as sample only. Always find most recent version.)
Avoid Unpleasant Surprises
Every single country’s VAT refund process has gotchas. They’ll vary by country, so research your destination well.
If something is still unclear after your research, consider contacting your destination country’s embassy or consulate.
As an example, Colombia, South America’s gotchas include:
- Needing to present photocopies of your receipts and passport with your refund application.
- Your credit card’s bank must have an agreement with Colombia. No agreement= No VAT refund on items purchased with that card.
- Avoid this by using credit cards issued by large, international banks.
- VAT refunds can take up to 3 months.
When are you going home?
Tax-free purchases are subject to export time limits. As are result, you must export (i.e. leave with) your item(s) by a certain date.
In EU countries, for example, you have three months from the purchase date. Outside the EU, this time limit varies by country.
Partial VAT Refunds
Some goods may only be eligible for partial VAT refunds. It depends on a country’s rules.
New Merchandise Means New Merchandise
VAT refunds are granted for new, unused items in their original packaging. Wait until you get home to use your purchases.
If an item appears used, or not in its original packaging, customs has the right to refuse your VAT refund.
Service Fees, Credit Card Fees, Currency Exchange
Some of the things that will reduce your refund include:
Service fees: Some stores use third-party VAT refund service providers who charge commission. (See VAT Refund Service Providers in Section 2.)
Credit card fees: Use credit cards with zero foreign transaction fees.
By receiving you refund on a credit card, you also:
a.) Avoid the currency exchange fees you would pay to convert the local currency to U.S. dollars.
b.) Receive more favorable currency rates than when receiving cash.
Foreign exchange rates: Due to currency market fluctuations, these can help or hurt you.
Pack Luggage Correctly
Pack as many of your VAT refund items in your carry-on luggage as you can. If you pack any in checked baggage, be sure you can reach them easily. This way, if customs wants to see the actual items, they’ll be close by.
Allow Time For Your VAT Refunds
Give yourself enough time to complete the VAT refund proces. Organizing paperwork, locating offices, unpacking/packing items, and possibly standing on long lines will certainly take time.
Calculate VAT by Dividing, Not Multiplying
Calculate U.S. Sales Taxes by Multiplying
In the U.S., sales taxes are not included in an item’s price. They’re added at the time of purchase.
If you buy a $250 item in the U.S., the final sales price = [item price] x [1.XX]
(XX = tax rate). If the tax rate is 8%, for example, multiply:
$250 x 1.08 = $270 (final sales price)
$270 (final sales price) – $250 (item price) = $20 (sales tax)
Calculate VAT by Dividing
In VAT countries, an item’s price already includes the VAT.
Let’s, once again, use the 500€ Italian leather jacket example again. We know the 500€ price includes the VAT, correct?
How much of that sales price went towards the VAT? Let’s find out, shall we?
To do so, we divide the price by 1.XX (XX = VAT rate).
The VAT rate in Italy is 22%, thus:
500€ (sales price) ÷ 1.22= 409.84€ (cost of jacket)
500€ (sales price) – 409.84€ (cost of jacket) = 90.16€ (VAT)
90.16€ = $104.68 USD (on date article published).
As you can see, on just this one purchase, your potential VAT refund is over $100! (before any fees)
U.S. Import Tax
When you reenter the U.S., you are importing whatever your bought overseas. You are allowed to import merchandise valued up to a given dollar amount.
This given amount is called your duty-free exemption, or personal exemption. It will vary based on where you’re returning from and current laws.
If you exceed your duty-free exemption, you may have to pay a U.S. import duty (a.k.a. import tax). Not everyone who exceeds their exemption has to pay, but it is a possibility.
For the latest laws, search online for: U.S. CBP* duty-free exemption
*CBP= Customs and Border Protection
Section 2: Claiming VAT Refunds in the European Union (EU)
European Commission Guide to VAT Refunds
All of Section 1 applies to claiming VAT refunds in the EU. When visiting EU countries, however, there are additional considerations.
First, start by reading this general guide on tax-free shopping refunds by the European Commission. After that, look into the specifics for the countries you’ll be visiting.
VAT Refund Service Providers
VAT refunds in the EU are handled a few ways:
1. Directly by the merchant: In some cases, you might even get an immediate refund.
The fees you pay them eat into your refund, but simplify your life.
We haven’t used them, but there are also stand-alone apps that assist with VAT refunds. These include: TaxFree4U and vatfree.
3. In some cities, Global Blue has Global Blue Lounges. In upscale surroundings, you can process VAT refunds, receive VAT consulting services and, of course, shop.
Make VAT Refund Claims at Your EU Exit Point
Scenario 1: VAT Refunds When Visiting Only One EU Country
Spain is an EU member. Suppose Spain is the only country you visit during your trip.
Simply process your VAT refund claims at the airport when leaving Spain. In this case, Spain would be your exit point from the EU.
Scenario 2: VAT Refunds When Visiting Multiple EU Countries
Now suppose that in addition to Spain, you also visited France, Belgium, Germany, the Czech Republic, and Austria. You’ll be returning home from Vienna, Austria.
All of those countries are EU members. Let’s also assume you made VAT refund-eligible purchases in each of those countries.
Where should you process all your VAT refunds? Correct! At the airport in Vienna, Austria.
Why? Because Austria will be your exit point from the EU. In other words, it will be your last stop in the EU before leaving the EU.
Scenario 3: Visiting Both EU & Non-EU Countries
For this scenario, assume you’ll visit the same countries as in Scenario 2: Spain, France, Belgium, Germany, the Czech Republic, and Austria. All, you may remember, are EU members.
This time, however, you’ll conclude your trip by traveling from Austria to Switzerland. You’ll fly home from Zurich, Switzerland.
Where should you process your VAT refunds? Take a moment. Think carefully. OK, time’s up!
The answer is: It depends. On what, you ask? It depends, of course, on which VAT refunds we’re talking about.
You’ll end up with two kinds:
- EU VAT refunds
- Swiss VAT refunds
Your EU VAT refunds must be processed in Austria. Why Austria? Because, as we mentioned in Scenario 2, Austria will be your last stop within the EU. In other words, Austria will be your exit point from the EU.
Since Switzerland is not an EU member, you will no longer be in the EU once you leave Austria and enter Switzerland. Hence, Austria is where you should process your EU VAT refunds.
Your Swiss VAT refunds, of course, must be processed at the airport in Zurich.
See PABLO Before Leaving France
In France, you can use automated kiosks at large airports to validate VAT paperwork. This is the PABLO system.
For now, the kiosks only certify VAT paperwork for items bought in France. You’ll need a human customs agent if you bought items outside France.
Other countries will, no doubt, adopt a similar system in the near future.
VAT Refunds When Taking Trains and Ferries to Non-EU Countries
Some things to keep in mind when leaving the EU by train or ferry include:
- Process your VAT refunds before leaving the EU.
- Customs agents may or may not board when crossing borders. Even if they do, they might not have the necessary stamps for your VAT paperwork. Consequently, you would have to get off the train before leaving the EU if you wanted to claim your refund.
- Study your train route and try to process your VAT refunds at larger train stations.
- For ferries, ensure the port you’re leaving from has a customs office that handles VAT refunds.
Section 3: More VAT Videos
Finally, here are two more helpful VAT videos:
1.) A longer, detailed, 1st-person account by an expert shopper:
2.) A 2-minute Global Blue corporate video: