Discounts and tax exemptions help in making a trip wallet-friendly no matter where you are shopping in the world. However, if you are buying something in the European Union (EU), where Value Added Tax or VAT is imposed on the goods and services bought and sold, you can avail of a VAT refund of up to 25 per cent on purchases in the region.
Although the VAT is levied on most of the goods and services traded for consumption within the EU, it is typically not applied to products sold for export or services provided to clients in other countries.
Let’s look at it in more detail and how to save money by availing tax exemption on heavy-duty VAT.
What are VAT and VAT refunds?
The VAT is a multi-stage sales tax applied on goods and services at each level of the supply chain — from initial manufacturing through the point of sale. This tax is levied on the amount of value added to products and services. The final burden of this tax is borne by the end consumer. Additionally, depending on the EU country, VAT is referred to as TVA, IVA, moms, MwST and so on.
In Europe, the VAT rate usually ranges from 5 percent to 25 percent, and it differs based on the country that corresponds to the type of product or service.
These rates are categorised as standard, reduced and super-reduced. While standard rates apply to the majority of products and services supplied at a set VAT applicable to each EU nation (and cannot be less than 15 percent), reduced rates are imposed on specific goods and services mentioned in Annex III of the VAT Directive. However, they cannot be less than 5 per cent. Super-reduced rates are levied on a few goods and services that are subject to the extremely low VAT rate, which is less than 5 per cent, in some EU nations.
On the other hand, a VAT refund in Europe is the reimbursement of the tax that an individual pays on goods and services while purchasing as an end consumer.
Who is eligible to claim a VAT refund?
According to the Europe Union law, VAT can be reimbursed only if the goods were bought and exported by a visitor to the EU. Here, a ‘visitor’ would be somebody who resides permanently or regularly in a nation outside the EU. The address on an individual’s passport or other identity document is considered to verify their permanent residence by authorities.
The VAT is refunded on purchases by the visitors because when a tourist buys goods, they take them to their home country. Thus, the goods are classified as exports and EU countries generally exempt exports from VAT.
Services like lodging, meals at restaurants or hotels, spa facilities and medical expenses are excluded from a VAT refund for usual tourists as opposed to travellers visiting the EU for business purposes. However, services are not considered exports.
Thus, if you purchase goods with 25 per cent VAT in Europe as a tourist, then you can claim a 25 per cent VAT refund at the time of exiting the country. But visitors must remember that the EU consists of 27 member states, but not all countries in the European continent are part of the EU. So, travellers will have to get their VAT documents at the airport of the EU country before exiting it.
The minimum amount that can be recovered under each VAT refund application is defined by the EU, European Economic Area (EEA) and European Free Trade Association (EFTA) member states. While the annual application fee is EUR 50, the interim application fee is EUR 400. The term interim application refers to a request made at any point after filing your claim and before the trial.
How can you claim a VAT refund in Europe?
To begin the refund process, you must produce a document of identification, verifying that you are not a resident of the EU. This identification can be any international photo ID that mentions your country of residence.
When you purchase any merchandise, the retailer will assist you in completing the tax-free form. However, many retailers, especially those geared towards tourism, offer an instant refund service to their customers by directly mailing buyers’ documents to the concerned authority.
However, these shops generally use third-party companies, like Premier Tax Free or Global Blue, to manage their claim refund. So, remember to carry all tax-free shopping documents provided by the retailer(s) before exiting the EU.
Wondering how to find a shop offering this service? Well, these shops have a ‘tax-free for tourists’ board hung outside. Additionally, some tax-free shops provide immediate credit card or cash refunds. But the shop owner might charge a service commission to avail of this facility.
Where to claim VAT refunds in Europe if you haven’t shopped from a tax-free shop?
In case you have shopped from a non-tax-free store, keep the receipt of goods and services you have bought safely. This is essential, as the receipts specify the purchase amount, including the VAT. Keep the tax-free form also with you, as you would need both to get a VAT refund at the airport or customs.
You have to present them at the airport’s VAT office. If the shop has not provided you with an instant refund, then you will be able to recover your money at your final EU destination.
Additionally, you must validate that the purchased goods are actually leaving the taxable region. So, you cannot claim a VAT refund if you are travelling to another EU country, but you can do so if you leave the EU zone.
Next, get the VAT refund form stamped at customs, without which you won’t be able to get the reimbursement. Customs will stamp the tax form only if goods are brand new and unused. So, make sure you don’t use your purchases before exiting the EU country.
Lastly, if you have bought your goods from a retailer that works with a specific refund service agent, then you will have to approach the respective airport desk with the stamped papers for a refund. They will charge a nominal commission fee to process the refund.
If the store’s service agent does not have a desk at the airport, then you will have to mail the reimbursement documents and seek a reply from them. This process can be done after leaving an EU country. However, it can take at least a month or more.
How long do tax refunds take to reflect in your bank account?
VAT refunds take approximately three weeks to be credited to your bank account. But if you ask for a cash refund at the airport, you can get it immediately. Cheque or credit card payments, however, take roughly three weeks to process.
How to avoid paying VAT in Europe?
You can avoid paying the VAT by purchasing from tax-free airport stores, which typically appear after completing security check procedures for departure at the airports. However, prices of goods and services at these stores might be slightly lower than the local “high-street” VAT-inclusive commodities, but not the local price before the VAT is applied. These hefty markups contribute to the airport’s funding.
Can you shop tax-free?
No, there are some goods, such as boats and cars, that do not meet the requirements of being exempt from the VAT. The facility is intended for items that can be transported in personal luggage and do not require to be exported via freight.
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Frequently Asked Questions (FAQs)
Answer: Yes, VAT is refundable in Europe. Visitors can get a VAT refund of up to 25 per cent in EU countries.
Answer: Yes, you can claim the VAT back on purchases in the EU. Usually, visitors can avail 5 to 25 per cent as VAT refund.
Answer: You can claim up to 12 per cent VAT in Paris. According to 'INSIDR', “In France, the Value Added Tax (TVA in French) is at a standard 20% on all commercial goods. Travellers in France can claim up to 12% of this back upon leaving the country. Since 2021, the minimum amount has now changed to 100€ within 3 days!”
Answer: You can claim up to 19 per cent VAT in Germany. According to 'Germany Info', “In Germany, the amount paid for merchandise includes 19% value added tax (VAT). The VAT can be refunded if the merchandise is purchased and exported by a customer whose residence is outside the European Union."
Answer: Yes, as per 'MoneyCorp', one can claim a VAT refund in London. Visitors from non-EU nations are eligible to recoup the VAT they spent on purchases made in the UK or other EU nations.