How to get your maximum VAT refund

Did you go on a shopping binge at Harrods during your London visit? Did you succumb to the charms of that cute outfit you spied while window shopping in Nice? Couldn't help but splurge on that piece of jewelry you saw in Madrid?

If you bought something overseas, especially in Europe, you likely paid a value added tax, or VAT. The good news is that visitors to the European Union (EU) may be able to get a refund on that tax.

The problem is, many travelers don't bother to apply for the VAT refund. The amount of money Americans leave on the table each year in unclaimed VAT refunds is estimated to be in the billions. Why would so many travelers slavishly tally airline points to maximize savings on fares, and scrupulously track their credit card points to splurge on that great hotel room, only to miss out on a significant chunk of change that they have coming to them?

Don't be one of those travelers. If you're going on an international shopping spree, getting your VAT refund is worth the time and effort it takes, especially if you're traveling in the EU. Here's how you get your maximum VAT refund when traveling in Europe:

What is a VAT?

VATs and goods and services taxes (GSTs) are common throughout the world; more than 160 countries have them. In the EU, the VAT is somewhat similar to the sales taxes imposed in the United States.

But there are some big differences. One of the biggest: VAT rates are much higher than those you pay in state and local sales taxes in the U.S. The EU's minimum standard VAT rate is 15%, which is far more than the combined state and local sales tax rates you'll find anywhere in the U.S. Currently, all EU countries have standard VAT rates above that 15% minimum, from 17% (Luxembourg) to 27% (Hungary).

"The VAT is a major income revenue for the tax authorities in Europe," said Britta Eriksson, a VAT expert and CEO of euro VAT Refund, a Los Angeles-based company that helps companies manage VAT in their overseas operations. "[VAT] represents almost as much as the income tax in terms of revenue for the government," she said.

Fortunately, many countries offer reduced VAT rates on certain goods. Sweden, for example, has a standard VAT rate of 25%. But for some food items, nonalcoholic beverages, shoes and clothing, there's a reduced VAT of 12%. For books and newspapers there, the VAT is only 6%.

The EU exempts some goods and services from VAT, with medical care and postal services being two examples. But the VAT is a way of life in Europe.

What are the refund rules?

Prices in the EU have the VAT included. If you're a visitor to the EU, you'll generally have to pay that price, VAT and all, and get your refund after the fact. There are quite a few requirements. For instance, you must take your new item or items home with you within three months of the purchase. You can't get VAT refunds for large goods like cars. If you're an EU visitor, you can't get a VAT refund for services like hotel stays and meals.

In some countries, your purchase must exceed a certain amount to be eligible for a VAT refund. Like the VAT rates, this minimum purchase amount varies from country to country: in France the minimum amount is 175.01 euros for the total amount of purchases you buy on the same day in the same shop; in Belgium, the minimum is 50 euros, and in Spain, it's zero.

Also, the goods must be new and in their packaging when you leave Europe. They can't be unpacked, consumed or worn. So wait until you get back home to rock that shiny new European outfit.

Getting your refund

Thousands of stores in Europe do what they can to accommodate tourists seeking refunds. Such stores will usually have signs in the window reading "tax-free" or "VAT-free" shop. As you go to pay for your item, inform the clerk that you're an EU visitor and that you intend to get a VAT refund. The store will have some paperwork for you to fill out. Have your passport ready to prove your visitor status. You may have to present your airline ticket to show you're leaving Europe in the allotted time to claim a VAT refund.

Sometimes the store will refund your VAT. But you'll likely have to take your refund forms and get your refund processed somewhere else. Many stores work with third-party agencies, such as Global Blue or Planet, to process VAT refunds, and these agencies usually have facilities in major cities where you can take your completed forms and get your refund. When making your purchase, check to see if your merchant is partnered with these agencies.

On departure day, be sure to take your receipts, the refund forms the shops filled out, the items you bought, and all your other travel documents with you to the airport, where you'll present everything to customs. If you're touring multiple EU countries during your trip, you'll do this process at the last EU country you visit. Customs may inspect your purchases, so make sure they're available and not in your checked baggage. And again, make sure the goods are unused and unworn.

If all goes well, the customs office will stamp your refund forms. If either the store or one of the third-party refund agencies has already given you your refund, you'll have to mail this stamped form back to them to prove you left Europe within the mandated three-month period. Otherwise, you risk having your refund canceled and your credit card charged for the VAT you owe.

If you haven't done so already, you can also get your refund in the airport. The big refund agencies have facilities at all the major EU airports; sometimes, they're at a currency exchange. Just show them your stamped customs forms and your passport and you'll get your refund, minus a fee.

Refund tips

Here are some do's and don'ts for getting your VAT refunds:

Research the country

Before your trip, look up the VAT rules for the country you're visiting: the standard and reduced VAT rates, the minimum purchases, etc. Keep in mind, lots of countries outside the EU also charge a VAT, and their refund policies can differ greatly from what you'll find in Europe.

Research the store

Stores aren't required to provide VAT refund assistance of any kind. "If you have a store that doesn't have this program, then getting a refund is very complicated," warns Eriksson. So during your trip, look for stores with the "tax-free" or "VAT-free" signs. Ask the store employees which third-party agencies they partner with for refunds. Ask them exactly how they process refunds, and what fees they charge.

Allow extra airport time for your refunds

Other travelers are also seeking VAT refunds, so give yourself extra time at the airport. "We do hear that sometimes that line is so long," said Eriksson, who's known people who risked missing their flights because of long lines at customs and at refund agencies. "They had to run to the plane, and they didn't get the refund." If you're strapped for time after leaving customs, some agencies will let you drop your stamped forms in one of their mailboxes and they'll issue your refund later.

Consider shipping

If you don't want to deal with any of this stuff, Eriksson suggested another option. "You can also have the store ship [your items] to you directly," she said. "Then, they won't charge you VAT." But, she noted, there's a catch: "You still have to pay for the freight." Since shipping from Europe to the U.S. can be expensive, make sure to weigh that cost against the VAT and the effort it would take to get your refund. Speaking of weighing costs ...

Make sure the refund's worth the trouble

"If you buy expensive clothing and china, then it's absolutely worth it," Eriksson said. And while many VAT countries have purchase minimums for refunds, in others, any purchase a visitor makes qualifies, no matter how small. So you should ask yourself if it's worth applying for a VAT refund for that cheap tchotchke you bought as a souvenir.

Bottom line

All this talk of forms, looking for signs, standing in line, and getting stamped can take the impulse out of your impulse buy. But it could save you a lot of money in the long run. Who knows? Maybe you can use that refund money to fund your next big shopping trip to Europe.

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