Duty-free and tax-free have long been familiar terms in the world of tourism. The basic concept behind these methods of saving money on purchases is that goods to be exported are not subject to tax, because otherwise the goods would not be able to compete with those from other countries. Either the goods are exported without tax (duty-free) or taxes can be claimed back after they have been exported (tax free shopping).
Duty-free was abolished for travel within the European Union in 1999, but it still applies for travellers whose final destination is outside the EU. There are some special member state territories within the EU but outside the EU tax union, and these offer duty-free sales for all travellers, including those bound for EU countries. Examples of special member state territories are: Azores and Madeira, the Canary Islands, Aland Islands (Finland), Channel Islands (UK), Andorra, Bermuda (UK), Campione d'Italia (Italy), Ceuta (Spain), Faroe Islands (Denmark), Gibraltar, Heligoland and Busingen (Germany) Livigno (Italy), Melilla (Spain), Mount Athos (Greece), the Vatican, and French overseas possessions (Guadeloupe, Martinique, Réunion, St. Pierre Miquelon, French Guyana).
Tax-free shopping in the EU
If you are not resident in the European Union, you have the right to have the VAT on purchases reimbursed. In fact, the prices of goods sold in shops is already inclusive of VAT at rates that vary from country to country. This reimbursement applies to goods that you have bought for your own personal use, and that are exported outside the EU still unused. To be eligible to a refund of VAT, the requirements are that the traveller must have residency in a non-EU country, have a maximum stay in the EU of 6 months, the purchases must have been made no longer than 3 months before export, and goods must be for personal use only. The goods must be exported in the traveller's luggage, and so tax free is not available for goods that are sent by courier or bought on the Internet. There is a minimum purchase value (this varies from country to country) in the same shop on the same day. Shops also can set a minimum value at their discretion (equal to or higher than the national minimum).
Tax Free Shopping is available in EU countries for non-EU residents, and it is also available for overseas tourists visiting other countries: Argentina, Croatia, Iceland, Korea, Lebanon, Liechtenstein, Mexico, Morocco, Norway, Singapore, Slovenia and Turkey.
Tax Free Shopping is generally not available for personnel working for certain specialist organizations: diplomats, NATO, UN, and military staff.
Services – hotels, taxis, restaurants, business services, etc. – are subject to VAT, but are not applicable for VAT refunds through conventional tax free shopping services. (Click here to read more about tax rebates on services). In theory, travellers can save their purchase receipts, visit Customs before leaving the EU to obtain an export validation stamp, and then send back the recepts to the retailers for their refund request.
The process of claiming tax refunds on purchases has been simplified by tax free shopping companies who perform parts of this service in return for a small percentage on the reimbursement.
Three such companies are Tax Free Shopping services: premiertaxfree (www.premiertaxfree.com), Tax Free Worldwide (www.taxfreeworldwide.com) and Global Blue (www.global-blue-com).
For all three, the procedure is basically as follows:
1. Shopping. The store has to be affiliated with one of the tax refund services (there is generally a logo on the door or window, or at the cash desk). Ensure that the store offers the service before making the purchase. Ensure that the total of your purchases is equal to or greater than the minimum purchase value. When you pay, you will pay the full amount, and the shop will compile a Tax Refund Cheque. This must include your name, address, and passport number. The store whould also give you a pre-addressed envelope. Remember not to use the items you have purchased before leaving the European Union.
2. Customs Stamp. When you exit the European Union, the Tax Refund Cheque has to be stamped by the Customs officials (when leaving, i.e. before your flight check-in). You have to show your purchases when having your cheque stamped. You have to have the cheque stamped within three months after the date of purchase. If you are travelling by rail or car, you should find out how to obtain the customs stamp before your journey.
Remember that without the customs stamp of an EU country on the Tax Refund Cheque, no reimbursement is possible.
If you are travelling in the EU, you should show your purchases and the Tax Refund Cheque to Customs in the last EU country you visit prior to leaving Europe. If you are travelling by rail, road or sea, show your goods and the Tax Refund Cheque to Customs on the border, or when boarding ship.
3. Cash back. Take the Tax Refund Cheque to a Reimbursement Office in your country of destination. The organization will pay the value in cash or as a credit on your credit card. It may be possible to post the Refund Cheque to the Organization (in this case, you should use the envelope provided in the shop). In this case, the organization can credit the refund on your credit card, or send you a bank cheque to your home address. A handling fee will be deducted from the VAT reimbursed, and there may also be a currency conversion fee in the case that a refund is made in a currency different to that in which the Tax Refund Cheque is issued.
Links to Tax Free Shopping companies:
Business Tax Reclaim
VAT should be a business neutral tax, in other words paid only by consumers. However, many businesses end up paying VAT when their staff are abroad for sales, meetings, conferences or workshops. Professional VAT reclaim services assist companies with retrieving VAT paid abroad, taking a percentage of the refund. Refunds are available from the EU, UK, Switzerland, Australia and Japan. Basically, you enrol with the service provider by filling out their forms, and then send them the invoices for services that you have purchased abroad. Refund of VAT will be implemented over a timescale that varies from 2 months to a year, generally paid on a quarterly basis.
Business Tax Reclaim service providers: