Photo by Kamil Macniak/Shutterstock
If you’ve never heard of the VAT refund, get ready to see some serious financial returns the next time you go shopping abroad. If you’re looking for the best price on a high-end item, you may save thousands of dollars by buying it overseas. (Discount luxury shopping: It’s not an oxymoron.) Here’s the breakdown on how to get your refund.
What is VAT?
VAT—sometimes redundantly called VAT tax—stands for value-added tax. This tax is primarily seen in the European Union, though more than 160 countries around the world use value-added taxation. It is a sales tax paid by consumers (not businesses), and it doesn’t exist in the United States, so often U.S. tourists are unaware they can claim a refund to the tax they pay abroad.
Keep in mind, VAT is often factored into the price of a product (so a 100€ dress with a 20 percent VAT rate might have a price tag of 120€). Other times, it is listed on the receipt. Ask a sales associate wherever you’re shopping if it’s unclear.
The rate of VAT in Europe varies depending on where you’re visiting and shopping, and ranges from 7.7 percent in Switzerland (technically not an E.U. country) to 27 percent in Hungary. The average VAT rate in the E.U. is 21.3 percent, and the minimum in the E.U. is 15 percent. Deloitte provides a very useful country-by-country breakdown.
Said rate also varies depending on what you’re buying. Food and pharmaceutical products are typically taxed at a lower rate than leather goods like shoes and handbags.
Can you get a VAT refund in the U.K.?
For now, yes. This will end on December 31, 2020, due to Brexit.
What qualifies for a refund?
Almost all consumable goods—including clothes, shoes, cosmetics and skincare, jewelry, handbags, leather goods, and art—have value-added tax. Many items qualify for a VAT refund, but it’s important to note that only new goods (not used) can be claimed. Each transaction also has to be over a certain threshold, and this threshold varies by country. For instance, you have to spend over 175€ per transaction in France to qualify for a VAT refund. This means you can buy several products at one store for a total over 175€, but if you spread those products out over multiple stores, you would not get to claim the refund. You can also make a single large purchase over 175€ at many different stores and claim for each transaction.
Your items are supposed to be unused when you declare them. That said, you can typically get away with using your handbag or wearing a coat. But you may want to hold off on breaking in those new leather slingbacks before you present them to customs. You also will want to ensure that items you are declaring are recent purchases because you must make your claim within three months of leaving the European Union.
Items that do not qualify for a VAT refund
- Vintage items. Those vintage Chanel clip-on earrings you bought from the Marché aux Puces de Saint-Ouen? The (probably very good) price you paid is final. No refunds here.
- Goods purchased in the tax-free zones of airports because there is nothing to refund.
- Transactions that do not meet the minimum threshold.
- Services, including hotel stays, restaurant meals, and tour guide fees—because these are experienced abroad and not brought home.
- Anything you aren’t bringing back to the United States. The goods have to come home with you.
- Cars, unless the vehicle is being used exclusively for business purposes, in which case you can get up to 50 percent back on your VAT.
- Alcohol and tobacco.
- Counterfeit items. This may seem obvious, but a faux Dior tote does not qualify for VAT (and in France, purchasing a counterfeit is a criminal offense).
What you need to do while shopping
Before you leave for your shopping excursion, make sure you have your passport in tow—you’ll have to provide proof that you are a visitor. If you’re shopping specifically to get a discount, ask the shop if it participates in VAT refunds, and if it has a specific purchase-amount threshold. On occasion, smaller shops and boutiques do not participate, therefore you will not be able to get a VAT refund on that purchase. It’s best to know before you start shopping.
Ask for paperwork at each place you shop—the sales assistant, cashier, or store manager should have information. Occasionally, stores can process a refund for you on site (called “instant refund”), but most use Global Blue, Premier TaxFree, or another third-party to handle the refund process. [Author’s note: I shopped at some of the largest stores in Paris and London—Le Bon Marché, Liberty, Louis Vuitton, Chanel—and was unable to get the instant refund at any of them.]
Don’t leave the store without signed, official documents. Many department stores have a VAT office, such as Liberty in London, or Gallerie Lafayette in Paris. These offices will help you get your paperwork sorted. Staple your receipts to your forms, and keep them in a safe place so you can access them when you’re claiming your refund.
Ask for a second receipt. You may want this for U.S. customs upon your arrival home.
Try to group purchases at boutiques into one transaction, because you may get a higher rate of return. Don’t buy a bag at Hermès and then come back later to get a scarf. If you can, buy them both at the same time.
How to collect your refund
When you’re ready leave the E.U.—your last port of departure—make sure you have your goods ready to declare and your paperwork completed, then head to the airport well in advance of your flight. Keep in mind, if you’re traveling around multiple European countries, you do not go through this process each time you leave and go somewhere new within the continent (even if you’re going to a non-E.U. country, like Norway or Switzerland).
The refund process is completed on your final departure when you’re headed home. Your forms should have instructions on what steps to take (and where to go), but here’s what to do.
Find your VAT counter. You’ll want to identify your options in advance of your flight so tracking them down is easier on the day of your travel—Travelex, Moneycorp, Planet, Global Blue, and Forexchange are all common. Check your individual airport’s website for more information—some (like Heathrow) have detailed instructions specific to their location.
Once you’ve arrived at the counter, present your completed forms and paperwork alongside your passport and boarding pass to the employee. You may need to present certain purchased goods, particularly if they’re over 1,000€. At this point, if you do have a larger purchase, you will likely be sent to the local customs office to have an officer see your goods and give you a customs stamp. If that step doesn’t apply to you, an employee will stamp your documents at the refund counter and either hand them to you to drop into a mailbox, or mail them off themselves.
Choose your refund delivery method. You receive your refund either in cash or as a direct credit back on your credit card. Cash refunds are faster but typically have a higher fee. Credit card refunds can be slower, but typically get more money back. Sometimes the refund is instant, sometimes it takes five days, sometimes it takes months. Keep your paperwork in case you have to track down your refund. If you haven’t received information in six weeks, it’s time to contact the agency.
Now for the less fun news: You do not get the full 15–20 percent VAT refunded. There are unavoidable processing fees that unfortunately cut into the final refund amount, but typically it’s a small charge. You can get an estimate on the Global Blue website of what your refund might be.
How this affects your travel home
Consider adding at least two hours to your travel time when declaring your goods at an airport VAT counter.
Repack your items into your checked bag after you present them for your refund. [Author’s note: I did not know this and kept all my VAT refund items in my carry-on to present at the counter, then went through the security line at Heathrow. An officer promptly took my Louis Vuitton perfume and Embryolisse face creams (they were under 100mL, but he decided I had “too many” liquids) and confiscated them, to be mailed back to me from LHR to California for the price of £200.]
In addition, you have to declare your goods when you come back to the United States, and a customs officer may want to see your items if you’ve spent over $800. You may also have to pay duty, depending on the value of your purchase and the size of your party. The first $800 (per person) is tax free, the $1,000 after that is taxed at 3 percent, and beyond that the rate is variable.
Can I just go to the duty-free airport shops?
Yes, but often the products are only slightly discounted from what you’d see outside the terminal. You’ll save more money if you go through the VAT refund process.
How to maximize VAT savings
At this point you may be thinking that’s way too much effort for a few bucks. To that end, you’d be right—sometimes this is too much if the rate of return is small. The best way to maximize your VAT refund is on larger purchases like luxury items or a group of items at one store.
Buy something made in the country you’re visiting. Purchasing a Louis Vuitton purse in France will save you a significant amount of money compared to buying the same purse in the United States.
Travel with family. The United States allows $800 per person of duty-free goods. If you travel with a family of four, that’s $2,400 collectively of U.S. tax–free import.
Don’t try to avoid U.S. customs tax authorities if your purchase is over $800. This is tax fraud, and you can be fined a major penalty and lose Global Entry status. Your VAT refund is connected to your passport number, so do yourself a favor and go through the process.
Pay in euros or use a credit card with no foreign transaction fees so you don’t incur unnecessary charges.
Some travelers have managed to save substantial amounts on certain luxury goods. Others have had less success, despite following instructions to the letter. But if you’ve spent a lot on souvenirs in Europe, you’ll at least want to try to get that VAT back to offset the duty you’ll pay in the United States.
>>Next: How to Legally Write Off Your Vacation
