Duty Free Shopping
The basic idea is that when shopping in a foreign country as a visitor for your own enjoyment and not for commercial purposes, you can avoid paying the VAT/GST imposed by the country in which you are travelling, on all purchases.
Expatriates should consider taking advantage of tax-free shopping also when getting ready to leave a country by ensuring that any large items they might wish to purchase are sent straight to the shipping company with the tax refund paperwork, as well as during their reconnaissance trip at the new location.
The VAT/GST amount, that can be as much as 23% of the purchased item, is in most cases already included in the good's price - unlike the United States where it is added at the cash register - so you may not realise you’re paying it.
Foreign nationals are usually exempt from having to pay this tax on goods purchases (but not on services such as restaurant meals, hotel rooms, and car rentals), but since the VAT is already included in the price, you end up paying it anyway. To put their record straight, governments allow foreign shoppers (that’s you!) to get VAT refunded to them at the end of their trip by waiting in line at border crossings (Which could be a counter in the airport, or an office at a port or at a train station).
Who Qualifies for Sales Tax Refunds?
Foreign visitors can get VAT (Value Added Taxes) or GST (General Sales Taxes) refunded on purchases which are not bought for commercial purposes and are exported from the country they are visiting. As an example only visitors residing outside of the European Union (EU) are entitled to a sales tax refund in the European Union.
In order to qualify for a sales tax refund there is a value amount that must be met for purchases to qualify for a refund. The amount is subject to national rules and the levels differ between countries, and there is also a time limit that cannot be exceeded from when you make the purchase to when you leave the country which also changes from one country to another.
How to Get the Refund?
To obtain the refund on purchased goods, you always have to prove your exportation with a customs stamp on your refund cheque.
Before leaving the country you have to show the retail items purchased together with receipts and refund cheque to customs officials and have your cheque stamped. This is the biggest drawback, that you have to show the purchased items at the border and they may already be in your suitcase and unobtainable, so planning ahead is needed.
When travelling within the EU, show your purchases and documents to customs officials in the last EU country before leaving Europe. Note that since the EU became a single economic zone, buying duty free when travelling on flights within European countries is no longer possible, tax free shopping is available if you are flying to a country outside the EU (or are connecting to a flight out of the EU that same day).
When leaving by train, road or sea, show your purchases and documents to customs officials at the border or when you board the ship.
The refund can be given to you as cash, direct crediting of a credit card, transfer money to a bank account or being sent as a bank cheque and it is an option you have to select on the form the shop has given you. Keep in mind that there are astronomical handling fees that apply to cashing checks in a foreign currency, so the best option, normally, is having it credited on your credit card or given it in cash.
Cash is paid out immediately at the airport of departure. It can take 2 to 3 months before your credit card statement shows the credited amount of a tax refund.
Allow enough time if you need to present a refund at airports as you might need to stand in line for some time.
Where to Shop and What Can Be Refunded?
Not all the stores show the 'TAX FREE SHOPPING' or 'DUTY FREE SHOPPING' logo in the window, such is the case in many department stores, so you better ask the staff in the store for information.
Refunds applie usually only to goods but not services (there are exceptions, as is the case for Canada that does refund sales taxes on services).
The amount that is refunded is not the total amount paid in sales taxes as there is a deduction for administration fees.
The Value Added Tax (VAT) and the General Sales Tax (GST) is a percentage added to the price of the goods. Example: if the VAT rate is 10% and a pair of shoes costs 350 including VAT. The VAT in this case is 35. (Shoes price: 315 + 10% VAT = 350). The refunded amount will be less than 35 because an administration fee is deducted from it.
Refunds on goods that are shipped, sent by courier or bought on the internet do not benefit of the 'tax free' shopping scheme.
Below are the names of the sales taxes in some countries in Europe along with the rate:
- Austria MwSt 20%
- Belgium BTW 21%
- Canada GST 7%
- Denmark MOMS 25%
- Finland ALV 22%
- France TVA 19.6%
- Germany MwSt 16%
- Greece FPA 18%
- Hungary AFA 25%
- Ireland VAT 21%
- Italy IVA 20%
- Luxembourg TVA 15%
- Netherlands BTW 19%
- Portugal IVA 19%
- Spain IVA 16%
- Sweden MOMS 25%
- Switzerland MwSt 7.6%
- United Kingdom VAT 17.5%
VAT Refunds Services
Some companies offer assistance to private individuals and corporations to obtain their VAT/GST refunds.
A company that provides the refund services to customers and merchants in 35 countries and at more than 225.000 retail outlets around the globe.
Look for the Global Refund Tax Free Shopping signs in shop windows or inside the shops.
VATax Reclaim is a service company dedicated to the recovery of VAT throughout Europe for clients throughout the world. It is a highly specialised niche organisation staffed by professionals.