If you have ever shopped abroad, you may have noticed value added tax or VAT. But there’s one detail that many travelers miss: if you’re visiting a country with such a tax, you may be able to get a refund on a portion of what you paid for the product or service.
According to the US Council on International Business, there is no value added tax in the US, but more than 100 countries do. Learning the refund process can save you money.
However, getting your VAT back isn’t easy, says Melissa Klurman, travel reporter for The Points Guy. In some cases, “you can’t just come in and show someone your receipts,” she says. “You have to fill out the paperwork and you have to pay attention to the rules.”
Here’s how VAT works and how to get it.
VAT vs sales tax
In the US, buyers are used to seeing sales tax on the items they buy. “VAT is different from a sales tax,” Klurman says. “If you go to New York and buy a pair of trousers, you will go to the checkout and pay sales tax.” The sales tax only appears when the buyer actually makes the purchase, so only the buyer pays the tax.
Video by Helen Zhao
On the other hand, VAT, according to the European Commission, is a “multi-stage sales tax”. This means that it is paid by everyone who has any interaction with the product or service. From a technical point of view, according to the Tax Fund, it is levied on the gross profit from a good or service at each point of production, distribution and sale of a good or good. “In fact, VAT is already included in the total price of the item,” says Klurman.
“VAT goes on health care and other social services that only EU members receive or use,” explains Klurman. This is why US visitors may be eligible for a refund.
VAT varies by country
Each country with VAT has a different percentage it charges, a threshold for the amount that qualifies, and a different refund rate.
For example, let’s say you buy a bag in France where VAT is 20%. To qualify for VAT in France, you must buy goods worth 175 euros from the same store. If the handbag costs 300 euros, the seller keeps 240 euros and gives the government 60 euros. Here’s where the savings come in: The return rate in France is 14% of the purchase amount, so you may be eligible for a €34.71 refund, according to the VAT calculator from TaxFreePlus.eu.
How to apply for a VAT refund
How you receive your VAT refund depends on where you shop. If you’re in an expensive store, often they’ll have a desk to help you fill out the paperwork required for a VAT refund, “but you’ll still have to file at the airport,” Klurman says. . In other cases, there may be more work on your part.
Here are some of the steps the European Commission thinks travelers may need to take.
- Ask questions at the store: see if they can help you fill out the required paperwork, and find out what price threshold applies to eligibility for a refund. It…