Visiting Europe? Do you know that you can claim VAT back?
In this article, we will share with you how you can get a VAT refund when shopping in Europe.
You could be also eligible for compensation for flight delay or cancellation - check your flight now.
What is VAT?
The value-added tax (VAT), together with the goods and services tax (GST) is a consumption tax. The private consumer is charged VAT. It is not a revenue tax.
This tax on the added value that is provided at each step of the supply chain is included in the final price that you pay.
VAT in Europe
In the EU, the VAT rate is between 8 and 27%, depending on the country. There can be different rates of VAT according to the type of product or service.
What you see on the price tag is what you pay - the VAT is already included.
VAT registered businesses can claim VAT back on goods and services that are used wholly and exclusively for business purposes.
VAT refund - what is it?
A VAT refund is the reimbursement of the VAT that you paid on goods purchased in Europe as a non-resident. If you bought a product that included 20% of VAT, you can get the amount corresponding to this consumer tax paid back to you when you leave the territory.
Note: You should not expect the amount of your VAT refund amount to be based on the final price. For an item taxed at a rate of 20%, your VAT refund will be about 16.7% of the final price.
When can you claim VAT back?
To be eligible for a VAT refund, you have to:
- Purchase goods or merchandise (but not services) in Europe (and above a certain amount), and
- Not be a permanent resident in Europe.
Exports are exempt from VAT, and when you purchase an item and bring it back home, this is regarded as such.
However, you won’t be eligible to claim VAT back for your hotel or restaurant meal. These services are consumed in Europe.
There is one exception. Those travelling on business can claim the tax they paid on lodging and meals.
However, the process is tedious. Only large companies that often send their employees on business travel deal with it. Small businesses typically don’t.
As a rule, if you are not registered for VAT, you will not be able to reclaim any VAT unless you are a visitor from overseas, as in this case.
Note: There is a minimum spend requirement. It is usually 175 euro for the total purchase. However, some EU countries may choose to set lower thresholds. If your purchases cost less, you won’t be entitled to a VAT reimbursement.
In most cases, you have to spend that amount with one single retailer - you can’t add up your purchases from different shops.
You have to leave Europe to claim VAT back - so crossing borders inside the EU doesn’t count.
Note that you are not supposed to wear or use your purchased goods before you leave Europe.
The same rules apply for the UK.
You can get a refund on your online purchases too, as long as you are a permanent resident in a non-EU country and the amount you paid is above the minimum prescribed by the country of the online store.
Customers have 3 months to claim for a VAT refund from the date the goods were purchased.
How does the VAT refund process work?
The procedure isn’t the same for every country, but there are some main steps:
- Present proof of residency.
You need your passport to prove you are not a resident of the European Union.
- Collect all needed documents.
You need to fill out a tax-free form. For that purpose, you should keep all your receipts.
Many tourist-oriented merchants offer an instant refund as a service and mail your refund forms for you. You can recognise them by the “tax free” sign on the door.
Nevertheless, tax-free shopping doesn’t change the requirement that you must have the documents stamped at the border. If the merchant offers you a direct credit card or cash refund, you’ll likely pay a commission for the service.
Here is how to claim VAT back at the airport:
You need to bring your purchases together with the receipts and the VAT return forms to a VAT office at the border crossing. Be sure to allow for some extra time before your departure because there might be queues at the customs office.
If the store hasn’t offered you an instant refund, you may get your money back at your last EU stop.
Remember that not all countries in Europe are part of the EU, so if you did some shopping in Switzerland, make sure to have your forms stamped before you leave it.
What’s more, to claim VAT back, you must be able to prove the goods you purchased left the taxable area. So in the EU, you can only claim a VAT refund when you’re leaving the EU zone.
You should go to customs before you check in your luggage because they might want to make sure you are indeed exporting the purchased goods. Then they will add a customs stamp to your forms. Remember that the items shouldn’t have been used yet - otherwise, you won’t be able to get your VAT refund.
You should be able to show the goods to the customs officers so pack and plan accordingly.
How will you get your VAT refund?
If you’ve purchased through a retailer who works with a particular refund service agent, find their desk at the airport and bring your stamped paperwork.
If that isn’t an option, then you’ll have to mail the refund documents and wait several months. If you’ve used a credit card to shop, then check your statement. Otherwise, you can expect a cheque in the mail.
After submitting your VAT return forms, it can take about 3 weeks for your VAT refund to be paid back to your bank account. If you request a cash refund at the airport, you should get it immediately. Payments by cheque take about 3 weeks as well.
Note that if it is in a foreign currency, you might have to pay a fee for your bank to cash the cheque.
An alternative you could try is asking the merchant to ship the items directly to your home so that you don’t have to deal with VAT refund forms. However, this is usually not preferred since you will pay shipping costs (along with US duty).
The only way to avoid paying VAT is to shop at a duty free store, which you can usually find only at an international airport.
Is it worth chasing a VAT refund?
If you travel frequently and you don’t mind some paperwork, it’s worth a try. It depends on the amount you spend on your purchases too.
However, some travellers report that even though they have done everything correctly, they never received their money back.
In the end, you decide whether claiming VAT back is worth the trouble.
Another thing you might not know is that if you have had to cancel your flight or simply missed it, you can claim an Air Passenger Duty refund - learn more here.