Tax-free Travel Shopping The taxing trials of foreign shopping, the vexing vagaries of customs duties, and how to avoid paying any of it Budget Travel Thursday, Apr 15, 2004, 12:00 AM Budget Travel LLC, 2016
 

 

Tax-free Travel Shopping

The taxing trials of foreign shopping, the vexing vagaries of customs duties, and how to avoid paying any of it

In foreign travel, there are few experiences that are more common and banal yet cause so much confusion as the tangled web of taxes, refunds, duties, and exemptions. The vicissitudes of just trying to figure out what you do and do not owe on a couple of souvenirs can get so complicated that most travelers throw their hands in the air, bite the bullet, and pay what all the governments tell them to. I say "governments" because there are actually two government levies involved in shopping in a foreign country-and the good news is that you don't have to pay either one of them.

Like I said, there are two times a government tries to swoop in and take a percentage of your purchases.

The 911 on the V.A.T.

The first levy is a sort of national sales tax--most countries call it a "Value Added Tax," or VAT--that the country in which you are traveling charges on all purchases. Unlike state-imposed sales taxes in the US, this amount (which ranges anywhere from 3 to 22 percent) is already included in the sticker price on an item, so you rarely realize you're paying it. Foreign nationals are usually exempt from having to pay this tax on purchases (but not on such things as restaurant meals, hotel rooms, and car rentals), but since the VAT is already included in the price, you end up paying it anyway.

The way foreign governments set this right is by allowing alien shoppers (that's you) to get that VAT refunded to them at the end of their trip by waiting in line at a counter in the airport--in the case of the EU, at the airport of the last EU country you'll be visiting. This means you must be sure you keep all receipts handy to fill out the VAT refund form at the airport (you mail this in after returning home).

However, shops that have a "Tax Free Shopping for Tourists" sticker in the window can fill out the paperwork for you when you make your purchase. Quite a number of businesses belong to this network, including tons of mom and pop operations, not just those vast souvenir warehouses near tourist sights. Your only job after that is to drop the forms and receipts off at the airport counter, where they hand you a pile of crisp dollars and shiny new coins as your refund (yes, dollars, because getting local currency just before stepping on the plane to leave the country would be silly).

One catch. To keep the line at this counter short, not every minor purchase counts for getting your VAT back. There is a minimum amount you must spend in a single store, which varies by country anywhere from around $50 to $200 (the VAT Calculator on the Web site globalrefund.com gives specifics for major countries) before the right to claim a VAT refund kicks in. That said, in those shops that honor the Tax Free Shopping for Tourist system can often do the paperwork for you even on smaller purchases.

OK. So much for VAT. You save your receipts, you stand in line at the airport, and you either get cash back immediately (in the case of having those pre-filled-out forms from the "Tax Free Shopping for Tourists" shops), or they give you the stamped form and an envelope for you to fill out while waiting to board your plane, then you mail it in within 90 days of returning home. Eventually, you'll get in the mail a check for your refund. Sometimes this takes a week or two. Sometimes this takes six months. There is no rhyme or reason, so just be patient.

"Duty Free"

I'd like to pause for a moment and explain about the "Duty Free" shop in the airport, a phenomenon that dates back to the early transatlantic flights in the 1940s but these days means mostly homebound travelers wandering the airport carrying plastic bags stuffed with cartons of cigarettes and bottles of rum.

The first scheduled transatlantic arrivals began touching tarmac at Ireland's Shannon airport in 1945; within two years, an entrepreneur named Sean Lomass had opened a kiosk he called "Duty Free" at the airport, and the idea (ahem) took off. The "duty" you are avoiding paying when you shop one of these places is the VAT, that local government tax, plus most import/export tariffs or duties.

The practical upshot is that, on heavily taxed items such as alcohol, perfume, and tobacco, duty free prices can be up to 25 or even 50 cheaper than the normal local retail price. You save a bit on other items bought at the Duty Free as well--jewelry, clothing, tchochkies--but nowhere near as much as you do on the more tax-burdened products appealing to vice and vanity.

It's a loophole merchants and governments have agreed upon, basically creating a little bubble between the security checkpoint and the ramp to the airplane where, for tax purposes, you're already considered to have left the country (this is why you can only buy from the duty-free when leaving). Note that since the EU is a single economic zone now, you can buy Duty Free only if you are flying to a country outside the EU (or are connecting a flight out of the EU that same day). That means if you have a ticket from, say, Rome to Paris, you can't do the duty free.

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Note:This story was accurate when it was published. Please be sure to confirm all rates and details directly with the companies in question before planning your trip.
 

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