Coping With the Value Added Tax

Not long ago, I was in London and made the typical American tourist pilgrimage to Harrod’s. I entered the department store confident of my purchasing power.

Twenty minutes later, as the saleswoman added up the damages, I was shocked. Immediately, I had visions of the American Express SWAT team surrounding my house demanding payment. The total for goods I had bought was much higher than I expected.

Not to worry, the clerk assured me. I qualified for a hefty VAT refund. I filled out some forms. Three days later, at the airport, I showed my purchases to customs officers at Heathrow airport, presented the forms and boarded my plane.

Six weeks later a large refund check arrived, as promised.

The value added tax, or VAT, is a nasty little surprise found throughout Europe, a hidden cost attached to almost every conceivable purchase you can make overseas.

Not New Phenomenon

Actually, the VAT is not a new revenue phenomenon. The United States and Germany considered levying such a tax in 1920. But nothing was implemented. In 1954, France started its own limited version of the VAT (with few refunds available).

Then, in 1967, the first comprehensive value added tax was instituted by France, Germany, Sweden, Brazil and Denmark.

Today, many European and South American countries have value added taxes, mostly applied against the purchase of luxury goods and always included in the retail sale price of these items.

Some countries, like Yugoslavia, offer no refunds on VAT purchases. Others, like Cyprus, Greece and Malta, have managed to avoid any tax on luxury items. Then there are the duty-free ports, like Hong Kong in Asia and Port Said, Egypt, in the Middle East.

But these places are the exception to the VAT rule.

If you’re traveling abroad and expect to buy anything, be on the lookout for the VAT, automatically added on to local products and services. In some countries, the VAT adds as much as 40% to the cost of your purchase.

As a result, several countries, concerned that the VAT might be considered a form of economic terrorism on American tourists, are offering visitors substantial refunds on VAT items. When purchasing anything abroad, always ask for a VAT refund form. Unless you’re buying something from a street vendor, you stand a good chance of getting that form.

Many merchants will gladly give you the VAT forms to complete. After all, they don’t like the tax any more than you do. In theory, all you have to do is fill out the form, and show it to the appropriate customs officer for validation upon leaving the country. The form will be mailed by customs, and a refund check should reach you within four weeks. More often than not, there is no charge for this service by the store selling you the goods.

Keep Receipts

However, at Harrod’s, in London, the VAT has been turned almost into a profit center. Tourists shopping at the legendary store are encouraged by salesclerks to keep their receipts, especially if they intend spending more than 100 on items. (At Harrod’s, spending 100 is easier than you may have thought.)

Nearly every item in the store qualifies for the VAT refund--the exceptions are food, books and children’s clothing--and the refunds can be substantial. The prices at Harrod’s are all inclusive of the VAT, which in England is 15%.

Once shoppers have exceeded the 100 limit, they’re directed to Harrod’s Export Bureau on the fourth floor. At peak shopping times, one can usually discover long lines at this office, as clerks add up receipts and process VAT refunds. The refund forms must be filled out in the store.

Foreign shoppers should go to the Export Bureau for their refund only when they’ve completed all their shopping. The reason: Harrod’s charges 2.50 to handle the paper work for each refund application. And if you want your refund check made out in dollars, Harrod’s will be glad to do it, although there is an additional bank processing charge of 2.50.

Unless you’re planning a return to Great Britain soon, take the check in dollars. U.S. banks often charge a higher processing fee to convert the currency. Also, most banks won’t credit your account with the refund check until the conversion to dollars is completed, and this can further delay the process.

The Proper Forms

Remember, not every merchant in every city has the proper forms to process a refund. (They dislike the extra paper work even more than they dislike the VAT.) Therefore, on some high-ticket items, you might want to negotiate with the merchant if he claims he doesn’t have the proper forms--either insist on a reduction in the price, or tell him you’ll pay the asking price if he’ll get the VAT forms, and arrange to return to the store later.

If you’re about to purchase some widely sold merchandise (electronics, cameras, etc.), and the merchant can’t provide the proper VAT refund forms, go elsewhere. The 15% refund is worth the extra search.

In some countries, like Belgium and Germany, VAT refunds are always made in local currency. But you can take your refund check to the airport bank and cash it upon your departure. In Denmark, while the VAT is included in the price of goods, travelers can avoid the tax if the items are mailed out of the country or delivered to their ship or plane as they depart.

However, more often than not, to get a VAT refund, you have to fill in the appropriate form and have it validated by a customs official. Most countries require you to show your purchases to the officials before they validate the forms.

Large or Bulky Items

Sometimes this can present a problem, especially if you’ve bought items that are large or bulky. In England, for example, customs officers who validate the VAT forms are located beyond the passport control area. If the item is not in a carry-on bag, and you arrive at the VAT desk with only your form, you could be out of luck.

If you get to the airport early, you can ask to have a British customs officer come to the airport check-in counter to inspect your goods there. If that doesn’t work, British customs will also validate your form if you have U.S. Customs certify, upon your arrival, that you have brought in the goods. In all cases, keep your receipts handy.

The VAT varies widely from country to country, and from item to item.

In Austria, for example, the VAT can be as little as 10%, for items such as books, 20% for clothing purchases, and a whopping 32% for luxury items, such as jewelry, furs, cameras, cars and perfume.

Streamlined System

That’s the bad news. But the good news is that the Austrians have recently streamlined their VAT refund system for foreigners.

Ask for something called a U34 form at the store. A completed and validated U34 form will get you a mailed refund in Austrian shillings. However, if the store has something called the OeAMTC form (offered by the Austrian Automobile and Touring Club) you’re in luck. Presenting a validated Auto Club VAT form at the airport gets you an immediate, redeemable bank draft.

“You can even get the check at many border railroad stations,” says Irmi Kuenzle of the Austrian National Tourist Office. “It’s really quite easy, and certainly a great savings.”

It may take a little extra time to apply for the VAT refund, and you may have to fill in a few forms. But remember, with the U.S. dollar weaker today against many foreign currencies than it was a year ago, the VAT refund can often make the difference between happily purchasing an item or being afflicted with a severe case of post-vacation buyer’s remorse.