VAT Refunds have been a key part of the travel shopping opportunity for a long time. The system lets you buy something in town and get the tax refunded when you leave the country.
Virtually every country in the world imposes some sort of tax on goods and services, whether it’s VAT, GST (Goods & Services Tax), or sales tax. To my knowledge, only Hong Kong doesn’t impose such a tax (the lucky so-and-so’s.)
In most countries, VAT and GST work the same way – both are national taxes and are included in the retail price. Therefore, the tax rate isn’t a percentage of the retail price. It’s based on the net price. So if you want to see VAT as a percentage of the retail price, you have to convert it. The math isn’t obvious, so here’s a conversion table for some selected countries (click here for a full table):
The main exception to this system is the United States. Sales taxes are levied by various local entities and are added to the posted retail price. There are only two states which have a mechanism to recover part of the sales tax – Louisiana and Texas. Otherwise, when researching US prices as a visitor, you have to add rather than deduct the sales tax.
Canada has a similar system. The national General Sales Tax (GST) and the Provincial Sales Taxes (PST or QST) are added when you pay. Similarly, there’s no mechanism for non-residents to recover these taxes when they leave.
You’ll find VAT and sales tax rates for all countries in the Destination Prices and Sales Taxes section.
How to Get Your VAT Refunds
Today, VAT refunds are dominated by VAT recovery services, the biggest of which is Global Blue. They’ve done a great selling job, but essentially they’re offering you very little for a lot of money.
The only benefit for you is that you can get your (now partial) VAT refund back a bit sooner. But you still have to go through all the other, sometimes time consuming, procedures yourself:
- fill out the retailer’s refund form in the store
- queue up on departure to present that form, your receipt, and the actual goods to a Customs officer, who stamps the form.
- return the stamped tax refund form to the retailer or Global Blue to get your refund.
From Global Blue you can get your partial VAT refund either immediately at the airport or credited to your credit card account.
How Much Will It Cost You?
I’ve had a close look at the average of Global Blue’s processing fees for a cross-section of 12 major tourist destinations* where they offer their services, and the results are interesting.
In general, the percentage fee drops as the retail price goes up. But there are a few countries where it remains the same irrespective of the price:
- China (18.2%), Japan (18.7%), Argentina (19.3%), and France (28%)
France is a particularly bad deal. On a $10,000 purchase, your VAT refund should be $1,670, but you’d have to pay $468 to Global Blue.
* Argentina, China, France, Germany, Hungary, Italy, Japan, Morocco, Singapore, Spain, Switzerland, UK
The Fine Print
This is where you have to be careful.
Global Blue requires that your stamped tax refund form and receipts reach them no less than 21 days after purchase. That’s pretty tight. If you miss that deadline, your early refund will be debited back to your credit card along with a penalty. Have a look close to the bottom of their explanatory webpage. From what I’ve seen online, they’re pretty strict about this.
It’s not surprising and here’s why.
Most tax jurisdictions give you a much longer time to file your refund submission. China, for example, gives you 90 days and the EU gives you until “the end of the third month after that in which you buy them.” (See the section How soon do the goods have to leave the EU? in the EU’s online guide.) What that means is – if you miss Global Blue’s deadline, they’ll reverse your refund and charge you a penalty. However, if your documents are correctly filled out and comply with the official time limits, Global Blue and the retailer can still recover and pocket your VAT.
However, that’s not all.
As a visitor, you can only get your VAT refund documents stamped when you eventually leave the EU. (See the section ‘Tax-free’ shopping: how is the VAT refunded? in the EU’s guide.) Now, if you’ve been touring the continent and happily buying stuff on your trip under the impression that you’re going to get 15 to 20% back when you go home, you better make sure you leave the EU no more than 2 ½ weeks after your first purchase if you want to get your money from Global Blue. Remember, Global Blue specifies that the documents must reach them no less than 21 days after the purchase date.
What Can You Do About It?
Unfortunately, your options are limited. Global Blue has pretty much all the major retailers signed up. They claim to have almost 300,000 participating stores in some 43 countries. They also have quite a few airports locked up. So what you should do is factor in their fees using their Refund Calculator when evaluating a “tax free” purchase. You should also respect their deadlines and procedures scrupulously (including timing your purchases on a long trip in the EU.) Otherwise, you might not get your money back. Better yet, look out for independent retailers (most likely smaller ones) who are prepared to reimburse you directly. There aren’t many, but they do exist.
I’ve been in the Duty Free business a long time. I find it ironic that you regularly see articles in the popular press hyperventilating (whether correctly or incorrectly) about what a bad deal Duty Free is. But despite many complaints on Travel forums like Trip Adviser or FlyerTalk, and not just about the fees, no mainstream publication, to my knowledge, has ever done a similarly critical piece on the VAT recovery business. They should.