One of the most commonly asked questions we receive at the Tax Policy Center concerns the procedure involved in recovering taxes paid while overseas on a business or pleasure trip.  We have developed this section to help answer a few basic questions regarding the tax recovery process, and provide a list of resources one may use to obtain more information. 

PLEASE DO NOT CONTACT THE TAX POLICY CENTER FOR VAT REFUND INFORMATION OR PROCEDURES.  CONTACT A COMPANY THAT SPECIALIZES IN THE VAT RECOVERY PROCESS, AS THEY ARE BETTER EQUIPPED TO ANSWER YOUR QUESTIONS.  A LIST OF THESE COMPANIES IS PROVIDED HERE.

What are VAT/GST?

Value Added Tax (VAT) is a form of indirect tax applied to the value added at each stage of production (primary, manufacturing, wholesale and retail). This tax is much like the sales tax paid in the United States.  VAT may be calculated by the subtraction method or credit method. The subtraction method applies the tax to the difference between the value of the purchases and the value of outputs. The credit method applies the tax rate to total sales and then gives each member of the distribution channel a rate adjusted credit on purchases. The European Union, Japan and some South American countries assess VAT at a rate of 15-25 percent.  The GST, or Goods and Services Tax, is a 7 percent tax charged on most goods and services sold or provided in Canada; it is similar to VAT.

Why are taxes refunded?

The main principle of VAT is that governments do not charge the tax on exports of goods to other countries.  They extend this principle to include purchases made by foreign visitors when they take goods back to their country. This, in theory, is supposed to stimulate trade and economic development.

What countries allow VAT refunds?

The EC countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Monaco, Netherlands, Portugal, Spain, Sweden, and the United Kingdom), Canada, Croatia, Czech Republic, Estonia, Hungary, Iceland, Japan, Liechtenstein, Luxembourg, Norway, Slovenia, South Africa, South Korea, Turkey, and Switzerland all refund VAT/GST to varying degrees.

Who can recover VAT- businesses or tourists?

While both business travelers and tourists are entitled to VAT refunds, the refund opportunities differ greatly.  Tourists can apply for VAT refunds on merchandise, but not services.  Custom officials must validate this merchandise to prove that the merchandise is indeed leaving the country.  Business refunds, however, also include a wide range of services and do not require customs validation. The individual business traveler's employer files for refunds on their behalf.

What VAT expenses can be recovered?

Business travel costs (car rentals, hotel accommodation, meals, gas expenses, telephone expenses), business operating costs (jet fuel, maintenance costs), marketing/advertising services, and trade show/conference expenses are the most typical business expense categories that qualify for a VAT refund.

What are the procedures involved in recovering VAT?

For the tourist, reclaiming a VAT is a fairy straightforward process.  The typical scenario is to get some form of documentation when you make a purchase, stipulating the amount of refund due. You then show these documents to customs officials upon leaving the country to claim your refund.  Most countries specify a minimum amount you must spend in a particular shop to claim a refund.  The minimum amount ranges from US$ 25 in Sweden to US$ 340 in Switzerland.

Another way for tourists to reclaim VAT is by purchasing items at stores participating in the Europe Tax-free Shopping  program.  When your buy from these merchants you simply show your passport and get a Tax-Free Shopping Cheque showing the amount of refund owed to you.  When you leave the country, you show your purchases to an appropriate customs official, who stamps your checks.  You then claim your refund from a Europe Tax-free shopping desk on site, or have the refund mailed to you.

For the business traveler, the easiest way to reclaim taxes is to have a company specializing in VAT refunds do the work for you.  You save your receipts from all your purchases and send them to one of these service providers.   They will then identify which receipts are eligible for a refund, fill out all necessary paperwork, file the claim with the appropriate authorities, and send you a check once the refund has been issued.  As a fee, the company will claim a percentage of the refund; the fee is waived in the event a refund is not issued.