Maximize your VAT refund while traveling internationally

A trip to Europe is certainly memorable, but it can also be quite pricey.

That's why smart travelers employ various tactics to cut costs on flights, accommodations, and car rentals (ideally by following some of TPG's excellent money-saving tips).

One of the most frequently overlooked methods for saving money is failing to apply for a VAT refund.

VAT stands for Value Added Tax. For instance, if you indulged in some shopping in Rome or treated yourself to gifts at El Corte Ingles near Las Ramblas in Barcelona, you probably paid VAT on your purchases. The good news is that visitors to the European Union can often reclaim that tax, effectively giving them a traveler's tax break.

Even though VAT refunds can lead to significant savings, Americans collectively forfeit billions each year by not claiming them. Don’t be one of those travelers.

Claiming your VAT refund is definitely worth the effort, especially if you're traveling within the EU.

Recent changes to VAT refund regulations make it essential to stay informed about the latest guidelines (including the U.K.'s elimination of VAT refunds for international visitors following Brexit). Here’s everything you need to know to secure your maximum VAT refund while traveling in Europe.

What exactly is a VAT?

VATs and goods and services taxes (GSTs) are prevalent globally, with over 160 countries implementing them.

In the European Union, VAT resembles the sales taxes found in the U.S., yet there are significant distinctions. Notably, VAT rates tend to be considerably higher than state and local sales taxes in America.

The minimum VAT rate in the EU is set at 15%, which surpasses the combined state and local sales tax rates in the U.S. Currently, the average standard VAT rate across the EU hovers around 21%. All member states maintain VAT rates above 15%; for instance, Luxembourg's rate is the lowest at 16%, while Hungary's stands at a high of 27%.

"VAT is a critical source of revenue for tax authorities in Europe," stated Britta Eriksson, a VAT specialist and CEO of Euro VAT Refund, a firm in Los Angeles that aids companies in navigating VAT for their international operations. "[VAT] generates revenue almost on par with income tax for the government."

Several EU nations apply lower VAT rates on specific goods. For instance, Sweden's standard VAT is 25%, but a reduced rate of 12% is available for certain food products, restaurant services, and hotel stays.

In France, the VAT on selected agricultural goods and some cultural events is lowered to 5.5%. Additionally, various countries offer reduced VAT rates of only 6% on items like books, newspapers, and repairs for bikes and shoes.

As illustrated, these 'special rates' differ from one country to another, so it's essential to do your research before traveling. Additionally, the EU exempts certain goods and services from VAT, including educational services, financial services, and healthcare.

What are the rules for refunds?

In the EU, prices always include VAT. When you visit an EU country, you'll typically pay the full price of an item, VAT included, and then seek your refund afterward.

To qualify for a VAT refund, there are several criteria to meet. For example, you need to bring your purchased items back home within three months of buying them. Note that VAT refunds are not applicable for large items such as cars. Moreover, visitors to the EU cannot receive VAT refunds for services like hotel stays and dining.

Some countries mandate that your purchase total exceeds a specific amount to qualify for a VAT refund. Like VAT rates, this minimum purchase threshold varies between countries.

For instance, in France, the minimum purchase requirement is currently set at 100.01 euros (approximately $107) for total purchases made on the same day in a single store. In Belgium, the threshold is 50 euros (about $54), while in Spain, there is no minimum amount needed to apply for a VAT refund.

It's crucial to remember that you can only claim a VAT refund for brand new items. The products must be new and in their original packaging when you leave Europe. They should not be opened, consumed, or worn. If you wish to claim your refund, it's best to keep your purchases packed and only open them once you're back home.

Claiming your refund

Numerous European retailers are eager to assist tourists in obtaining refunds, often displaying signs in their windows indicating "tax-free" or "VAT-free" shopping.

When you're making a purchase, let the clerk know that you're a visitor from outside the EU and plan to claim a VAT refund. The store will provide some forms for you to complete. Be sure to have your passport on hand to verify your visitor status. You may also need to present your airline ticket as proof that you're departing Europe within the specified timeframe to qualify for the VAT refund.

While some stores will handle your VAT refund directly, in many instances, you will need to take your refund paperwork elsewhere for processing.

Many retailers collaborate with third-party services like Global Blue or Planet to facilitate VAT refunds, and these companies typically have offices in major cities where you can submit your completed forms to receive your refund.

When making your purchases, be sure to verify if the merchant is affiliated with these refund agencies.

On the day of your departure, remember to bring your receipts, the VAT refund forms provided by the stores, the items you purchased, and all your travel documents to the airport, so you can present everything to customs.

If you're visiting several EU countries during your travels, you will complete the VAT refund process in the last EU country you visit. For example, if your itinerary includes France and Italy before concluding in Spain, you would apply for the VAT refund on your purchases in Spain.

Customs officials may want to check your purchases, so ensure they are accessible and not packed away in your checked luggage. Additionally, confirm that the items are unused and unworn.

If everything goes smoothly, the customs office will stamp your refund forms. If you have already received your refund from either the store or a third-party agency, you'll need to mail this stamped form back to them to verify that you left Europe within the required three-month timeframe. Failing to do so may result in your refund being canceled and a charge to your credit card for the VAT owed.

If you haven’t claimed your refund yet, you can do so at the airport. Major refund agencies have facilities at prominent EU airports, often located near currency exchange services. Simply present your stamped customs forms and your passport to receive your refund, minus any applicable fees.

No VAT refunds available in the UK

Before diving into tips for obtaining your VAT refunds, it's important to note that the UK has discontinued VAT-free shopping for international tourists. In fact, Great Britain is now the sole European nation that does not offer this benefit to visitors from abroad.

The VAT retail export scheme was abolished following the UK's departure from the EU in 2021. It was briefly reinstated before being permanently removed in 2022.

There is some hope that VAT refunds may eventually return to Britain, as the UK tourism sector is advocating for their reinstatement, but for now, this option is unavailable.

While VAT refunds are not offered in England, Scotland, and Wales, visitors to Northern Ireland can still claim refunds. However, there are specific rules and exceptions to be aware of; for instance, it does not cover services like hotel stays. You can find a comprehensive list of these restrictions here. Additionally, some merchants and refund agencies in Northern Ireland may charge fees for tax-free shopping, but if you're planning a trip, there are still opportunities to save money on your purchases.

Strategies for maximizing your VAT refund savings

Here are some essential do's and don'ts for claiming your VAT refunds.

Investigate the country

Before embarking on your journey, make sure to check the VAT regulations for the country you'll be visiting. Look into the standard and reduced VAT rates, as well as the minimum purchase thresholds.

As previously mentioned, VAT rates and the criteria for refunds can differ significantly depending on your destination, so it's crucial to be informed before you arrive.

Keep in mind that numerous countries outside the EU also impose a VAT, and their refund policies can vary significantly from those in Europe.

Investigate the store

Retailers are not obligated to offer any assistance with VAT refunds.

"If you shop at a store that doesn’t participate in this program, obtaining a refund can become quite complex," Eriksson cautioned.

Look for stores that display signs indicating "tax-free" or "VAT-free" shopping. Inquire with store staff about which third-party agencies they collaborate with for refunds. Additionally, ask how they handle the refund process and what fees may apply. As mentioned earlier, some retailers in certain countries might charge visitors a fee for using tax-free shopping.

Allow extra time at the airport for your refunds

Don’t assume you’ll be the only one at the airport trying to obtain a VAT refund before your flight. Be prepared to wait in line for a while. Plan ahead and allocate additional time at the airport, as the queues can be lengthy.

If you’re pressed for time after clearing customs, some agencies allow you to drop off your stamped forms in designated mailboxes, and they will process your refund later.

Consider shipping your purchases home to completely avoid VAT

If you’d prefer to bypass all this hassle, Eriksson recommends another alternative.

"You can also ask the store to ship your items directly to you," she mentioned. "That way, they won't apply VAT."

However, there’s a downside.

"You will still need to cover the shipping costs," Eriksson pointed out.

Shipping fees from Europe to the U.S. can be exorbitantly high, so you should consider these costs alongside the VAT savings and the effort required to obtain your refund to determine if it’s worthwhile.

Ensure that the refund is worth the hassle

"If you're purchasing high-end clothing or fine china, then it's definitely worth it," Eriksson stated.

While several VAT countries impose minimum purchase amounts for refunds, in others, any purchase made by a visitor qualifies, regardless of size. So, consider whether it’s worth the effort to apply for a VAT refund on that inexpensive souvenir you picked up.

In summary

Navigating forms, searching for signs, waiting in line, and getting stamps can dampen the excitement of spontaneous shopping. However, it has the potential to save you a significant amount of money in the long run.

If you stay mindful and manage your time effectively, the VAT refunds you receive might just cover part of your next trip across the Atlantic.