What is VAT?
Value-Added Tax (commonly abbreviated as VAT) is a sales tax in Europe that is added seamlessly to the price of products. Many visitors don't even know they've paid it, but it can be a significant tax that adds as much as 25 percent to purchase prices.
If you are not a resident of the country where the purchases are made, you do not have to pay the full tax in some cases. However, merchants collect it on every transaction.
It sets up the possibility of a refund for visitors as they exit the country collecting the VAT.
Unfortunately, collecting the refund is not always easy, and each government that collects VAT has a specific set of rules and procedures that apply to obtaining refunds.
For that reason, many people who know about VAT refunds don't go to the trouble of collecting their money. A sad fact: North Americans leave many millions of dollars behind each year that could be paying for splurge meals, applied to airline upgrades or saved for future travel.
What is refundable?
Leisure travelers generally cannot collect refunds for VAT paid on food or lodging. You'll only be collecting on purchases of merchandise.
More bad news: most governments impose a minimum that must be spent (usually with one retailer) before any refund is possible. One exception is Ireland, where there is no minimum. But in other countries, the minimum can be well in excess of $200 USD.
How difficult is the refund process?
It varies greatly from government to government, but there are a few common steps that are fairly easy.
You must be able to document your purchase, both with a receipt and with a form that the merchant will furnish. Some stores will display a "Tax Free Shopping Network" sign. These businesses cater to international shoppers and are (theoretically) well-versed in the documentation needed. But any merchant should be able to furnish refund information upon request. Always ask for it at point of purchase.
Once the receipt and the proper refund form is prepared, you'll need to present these items along with your passport at your point of departure from that government's jurisdiction. For example, within the European Union, there is no need to settle a VAT refund when passing from one member nation to the next. Just be certain you take care of the refund at your point of EU departure.
The customs officials will review your paperwork and stamp it. They frequently ask to see the merchandise as well, so be prepared to show them your purchases.
In summary, the approval process isn't all that difficult. But your travel situation can complicate this relatively simple procedure. The proper customs officials aren't always available at the time of your departure. Sometimes a form is filled out improperly and cannot be approved. You get the idea. This is a prime example of government red-tape at work. But if you've made a significant purchase and you're entitled to a 25 percent refund, it's certainly worth the attempt.
Your final step is collecting the cash, but that isn't always simple. It's best to get help from collection experts.
Many of the merchants who display Tax Free Shopping Network signs work with a third-party business that expedites refunds. These agents will have offices inside the airport or port terminal from which international departures are made. The largest of these is Global Blue, which will take a small fraction of your refund (maybe five percent) in exchange for the convenience of completing the transaction. In the interest of time, it usually pays to use their services.
More information about VAT Refund procedures
Global Blue supplies an excellent set of links to VAT refund rules by country. While many countries in Europe belong to the EU, each has its own separate refund process.
Many of the rules will be quite similar from nation to nation. Each will have a minimum amount you must spend with a merchant before a refund can be requested, a paperwork requirement, and a time limit for the period between when you make the purchase and request the VAT refund.
One final thought: when you ship merchandise from the store to your home, it's possible to have the VAT subtracted from the purchase price. Naturally, that savings might be more than offset by the costs of shipping and your country's import fees. But on larger items, this could save you money on extra baggage fees and make your travels much smoother. It's certainly worth consideration at the point of purchase.