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If you're shopping overseas, here's how to get a tax refund on purchases, according to a travel expert

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Key Points
  • Some goods and services overseas have a value-added tax, or a VAT, and you may qualify for a refund.
  • "You can't just show up and show somebody your receipts, you have to fill out the paperwork, and you have to pay attention to the rules," says Melissa Klurman, travel reporter at The Points Guy.

If you've ever shopped overseas, you may have noticed a value-added tax, or a VAT. But there's a detail many travelers miss: If you visit a country with such a tax, you may be able to get a refund on some of what you paid for a good or service.

There is no VAT tax in the U.S., but over 100 countries have one, according to the U.S. Council for International Business. Learning about the process of getting a refund can save you money.

Getting your VAT back, however, isn't so straightforward, says Melissa Klurman, travel reporter at The Points Guy. In some cases, "you can't just show up and show somebody your receipts," she says. "You have to fill out the paperwork, and you have to pay attention to the rules."

Here's how the VAT works and how to claim it.

VAT versus sales tax

In the U.S. shoppers are used to seeing a sales tax on items they buy. "The VAT is unlike the sales tax," says Klurman. "If you go to New York City and buy a pair of pants, you get to the register and pay a sales tax." Sales tax only shows up when a customer actually makes the purchase, so only the customer pays the tax.

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The VAT, on the other hand, is "a multi-stage sales tax," according to the European Commission. Meaning it's paid by everyone who has any interaction with the product or service. Technically speaking, it's levied on the gross margin of the good or service at each point of manufacturing, distributing, and when the item or good is sold, according to the Tax Foundation. "The VAT has actually already been worked into the overall price of the item," Klurman says.

"The VAT goes to health care and other social services that only members of the EU are receiving or benefiting from," explains Klurman. That's why U.S. visitors may be eligible for a refund.

VAT varies by country

Every country with a VAT has a different percentage it charges, a threshold on the amount that qualifies, and a different refund rate.

For example, let's say you purchase a handbag in France where there is a 20% VAT. In order to qualify for the VAT in the France, you have to buy €175 worth of goods at the same store. If the handbag costs €300, the merchant keeps €240, and hands over €60 to the government. That's where the savings come in: France's refund rate is 14% of purchase amount, so you may be eligible to receive a refund of €34.71, according to a VAT calculator from TaxFreePlus.eu.

How to claim a VAT refund

How you claim the VAT refund depends on where you're shopping. If you're at a high-end store, oftentimes they'll have a desk that helps you fill out the paperwork required to get a VAT refund, "but you'll still have to submit your paperwork at the airport," Klurman says. Other times, there may be more legwork on your part.

Here are some of the steps travelers may need to take, according to the European Commission.

  1. Ask questions at the shop: See if they will help you fill out the necessary paperwork, and find out what price threshold applies for refund eligibility. It can also help to ask if the shop provides the refund itself and if there's a fee for this service.
  2. Be prepared with proof when you purchase: You may need to show your passport or other identity document proving your residence outside the EU, and details of your departure. The salesperson will ask you to fill in a form with the necessary details.
  3. Retain your records for customs: You must show the shop invoice, the completed refund form, and the purchased goods, among other documents, to the customs officers of the last EU country you leave. The customs officers must stamp the form as proof of export.

From there, you might have to mail those completed documents (your refund form will dictate where). Or there might be an opportunity to get a refund more quickly. "In some larger ports and airports, you may be able to obtain a refund straight away once the customs officers have stamped your form, provided the shop in which you bought the goods uses this facility," according to the European Commission.

"It can go directly back into your bank account, or be refunded to you credit card automatically depending on how you ask for it," says Klurman.

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