Value Added Taxes Add a Wrinkle to Shopping

The growing presence of value-added taxes around the world has added a new dimension to comparison shopping.

To be more effective, travelers should learn whether a country has a VAT, how high this charge is on the type of purchase you might make and if that destination offers the possibility of VAT refunds.

The VAT is a broad-based sales tax that has spread beyond Europe. The U.S. has toyed with the notion. Sometimes the tax is structured into the cost of purchases, so it isn’t always evident. Unfortunately, the VAT can be applied to nearly everything, including merchandise, restaurant meals, hotel rooms, car rentals, tours, etc.

The rates vary from country to country, and sometimes from category to category of purchase, with a general range from 5% to 35%. Moreover, procedures for getting VAT refunds can also differ.

Always ask at stores about VAT refunds before making any purchases. Not all stores offer such refunds, nor do they necessarily advertise that they do. Some stores may levy a service charge to cover their costs in processing VAT refunds.

Deduct From Price

In some countries you can ask to have the VAT deducted from the price of goods shipped home directly from stores. You have to pay for the cost of the shipment, and possibly pay duty on your purchase back in the United States. Exemptions from duty on gift parcels to the United States are allowed for items valued at less than $50.

You may, in some countries, be able to avoid the VAT by having merchandise delivered to the airport for pickup at your departure. But you still pay a processing fee for having the goods cleared through customs.

How much you spend on your purchases is another factor, as there may be a minimum amount needed to qualify for a VAT refund. Two examples, from opposite ends of the globe: In France you have to shell out at least 1,200 francs or about $200; in South Korea the minimum expenditure would have to be at least 50,000 won or about $55.

At most destinations you have to fill out a form at the store if you want a VAT refund. Then you present your copy of the form as well as the item purchased to customs before leaving the country. As a rule, these items should be unused at the time you leave the country to qualify for a VAT refund. Consequently, don’t wear or use anything involving such a refund.

After going through customs, you mail your customs-stamped copy back to the store while still in the country. Some stores provide stamped and pre-addressed VAT refund envelopes.

Your refund will be mailed to you in the United States. Unfortunately, these refunds may come in a foreign currency check, which means paying a service charge to get it converted and cashed. At some stores you may be able to set up a refund in dollars, though a service charge might be imposed.

VAT refunds, in some countries, may even be issued at the airports and in U.S. currency.

One way to avoid waiting for a VAT refund check is to use a credit card for your purchases, and have your refund credited to your credit card account. This also saves any currency exchange fee.

“Using a credit card simplifies the whole procedure for travelers with the value added tax, but they should always find out in advance if a store offers refunds on the VAT and which credit cards it accepts,” advised Jean-Michel Harzic, head of the French Government Tourist Office.

If you have to take care of any VAT processing by customs before departure for home, allow extra time. There can be relatively long lines at airport VAT refund desks, particularly during peak flight periods. And if you’re leaving a country by different means, say by train, find out in advance how to handle the customs/VAT procedure at the pertinent terminals.

“In Holland--and the same is true for most countries in Europe--the traveler leaving by train may not get VAT forms stamped by customs officials because the train is just staying for a few minutes at the last station before crossing the border,” said Rose Loeff of the Netherlands Board of Tourism. “But travelers shouldn’t despair, as they can get these forms stamped back in the United States.”

In case a customs official doesn’t show up at your train, ask to have your VAT forms stamped by U.S. Customs upon your return to LAX. This should satisfy the foreign authorities that the merchandise you bought really left the country where you bought it. You then mail your forms back to the store. This signing is done at a separate customs office at LAX and not at arrival, so it will take some extra time.

Worth Checking Into

If you plan to do a fair amount of shopping or make an expensive purchase, it’s particularly worth checking the VAT options. For example, if you intend to rent a car and drive around several countries in Europe, it might be worthwhile to get the car in the nation with the lowest VAT on car rentals. Don’t forget, though, to find out about any drop-off charges if you expect to return the car to a different country.

The best sources of information are the foreign government tourist offices in the United States (before your departure) and at the destinations.

The following rundown, while not inclusive, covers many major countries that have VATs:

Europe/Middle East: Austria, Belgium, Denmark, France, Germany, Great Britain, Ireland, Israel, Italy, Netherlands, Norway, Portugal, Spain and Sweden all have VATs and offer refunds under one procedure or another. Greece has a VAT but doesn’t offer refunds.

Africa: South Africa offers a refund on its VAT. Morocco has a VAT but its refund policy isn’t established, and a tourist office spokesman said it is not likely that travelers would get refunds on most items bought in Morocco. Tunisia does not have a VAT, but one is expected later this year, according to a tourist office spokesman.

Asia/South Pacific: Korea has a VAT, and it’s possible to get refunds. New Zealand and Indonesia have VATs without providing refunds. Japan doesn’t have a VAT, but has a sales tax on some luxury items that you can avoid by buying such items at authorized tax-free outlets.

Latin America: The general situation is that countries may have value-added taxes or other sales taxes included in retail prices and without refunds to travelers.

While Canada doesn’t have a VAT, travelers can get refunds of the sales tax on some purchases at many stores, according to a tourist office spokesman. However, you have to ask at stores for the appropriate forms to fill out.