Tax-free shopping (TFS) is the buying of goods in a foreign country and obtaining a refund of the sales tax which has been collected by the retailer on those goods. The sales tax may be variously described as a sales tax, goods and services tax (GST), value added tax (VAT), or consumption tax.
Promoting tax-free shopping and making it easier for tourists to claim the refund back, has helped to attract travellers to many countries. TFS is subject to national regulations, such as minimum spend and restrictions on the types of products on which it can be claimed. Refunds can only be claimed on goods which are exported. However, buying goods tax free does not mean travellers are exempt from paying applicable taxes on their purchases when they get home.
Approximately 52,000 people benefit each day from tax-free shopping around the world. Tax-free shopping services are available from more than 320,000 stores in 52 countries worldwide.
The refunded amount corresponds to the VAT or GST paid and in which country the traveller buys goods. VAT/GST is a tax added to the cost of a product, calculated as a percentage of the products retail price. Often in Europe the ticket price includes VAT, this is less often the case in the US. As an example, if the VAT rate on a product is 20% and the ticket price is displayed as €100, including VAT, the VAT will be €16.67 (83.5 + 20% VAT = €100.). A handling fee may be charged by the service provider.
Tax-free shopping in the European Union
Travellers resident in a country outside the EU, can shop tax-free at shops outside EU airports. The traveller pays the VAT over goods in the shop, and can request a refund when leaving the European Union with the goods. General restrictions are that a traveller must be a resident in a non-EU country, has a maximum stay of 6 months when visiting the EU, purchases are made up to three months prior to export, and only goods meant for personal use are eligible for the refund. Travellers need to keep the purchase receipts and visit Customs before leaving the EU to get an export validation stamp. Receipts can then be sent back to the retailers for a refund request.
Each country in the EU has a different VAT rate which is reclaimable and a minimum purchase amount restriction.