What is Tax Free Shopping? The Complete Guide for Tourists
If you’re an international traveler, you’ve probably heard the term “tax free shopping” mentioned as a great way to save money when buying goods abroad. But if you haven’t – no worries, just keep reading to see how you can save up to 20% shopping abroad just by being an international tourist.
This guide explains everything you need to know about tax free shopping, including how it works, where it's offered globally, eligibility rules, how to claim refunds, and more. Read on to unlock the full potential of this travel perk and keep more cash in your pocket!
What Is Tax Free Shopping?
Tax free shopping allows eligible tourists traveling internationally to get a refund on the sales taxes and value-added taxes (VAT) they pay when purchasing goods abroad.
When you shop tax free, you will pay these taxes at the time of purchase. However, you can then claim a refund on those taxes when you leave the country as an exporting tourist. (You are considered an exporting tourist when you purchase goods and take them with you home, therefore becoming eligible for a refund of the VAT that you paid during the purchase.)
This VAT tax refund means you ultimately pay less for your vacation souvenirs and other purchases made while traveling in foreign countries. Depending on the destination’s tax rate, a VAT refund can translate to 10-25% savings off the initial price.
For example, in Europe the standard VAT averages around 20% in most countries. So tax free shopping returns about a fifth of what you first paid. That adds up to major savings, especially on big-ticket items!
Key Tax Free Shopping Terms
To grasp the world of tax free shopping and VAT refunds, it's essential to familiarize yourself with some key terms and concepts:
VAT or Value-Added Tax - This consumption tax is added onto the purchase price of goods and services in many countries globally. The VAT is what gets refunded. While VAT is the most common term, it's worth noting that in some countries, this tax may go by other names, such as IVA, GST, or Consumption Tax.
Eligible purchase - To qualify for tax free benefits, purchases usually need to cross a minimum spend threshold and meet other conditions like being for personal use. Eligible purchases can encompass a wide range of goods and services. For instance, buying a designer handbag, electronics, or even high-end jewelry could all qualify as eligible purchases, provided they meet the specific criteria and are intended for personal use.
Eligible Tourist – An eligible shopper is often referred to as an "eligible tourist." This is someone who qualifies for VAT refunds as a visitor to a foreign country.
Exporting goods - To claim your VAT refund, purchased items must be exported out of the country rather than used domestically. This simply means that you need to take them (unused) with you, back home.
Proof of export - Documents like stamped customs forms, receipts, and passport stamps verify export to claim refunds.
Claiming a refund - Submitting documentation to have your VAT refund approved and paid out by a tax refund company.
Now that you understand the premise, let’s dive into the details of how tax free shopping works.
How Does Tax Free Shopping Work?
While the specific policies can vary somewhat by country, the process for tax free shopping generally follows these main steps:
Make Purchases Abroad
First, you’ll need to make eligible purchases abroad to claim VAT refunds later. Retailers accepting tax free shopping are generally marked in-store and can confirm purchase eligibility. There is often a minimum purchase amount required to qualify for tax free.
Present Passport & Receive Documentation
When checking out, present your passport to verify tourist status. The retailer will provide applicable forms, receipts, tax free sticker, and instructions needed to ultimately claim your refund.
Leave the Country with Purchases & Documentation
You must take your purchases and the associated documentation with you when departing the country to qualify for VAT refunds.
Get Proof of Export
Before exiting, you must show customs authorities your passport, purchases, and documentation to verify export. They will stamp your forms to validate the goods left the country.
Submit Refund Claim
Next, submit the stamped documents to the tax refund company digitally or in-person to initiate processing of your claim. After validating, they will issue your VAT refund amount.
Receive Your VAT Refund!
Finally, the refund company will deposit your VAT refund to your chosen bank account, credit card, PayPal, or via other transfer methods. Under the traditional paper system, it can take up to 2 months to receive funds. Digital platforms now enable near instant refunds in some cases!
Where Can You Shop Tax Free?
Tax free shopping for tourists is offered globally in over 60 countries across Europe, Asia, the Americas, Oceania, and the Middle East.
Here’s an overview of all tax free destinations in 2023: France, Italy, Spain, Germany, Switzerland, Ireland, Sweden, Norway, Denmark, Finland, Portugal, Greece, Belgium, Netherlands, Luxembourg, Austria, Czech Republic, Hungary, Poland, Russia, Turkey, Croatia, Slovenia, Romania, Bulgaria, Greece, Cyprus, Malta, Andorra, Iceland, Singapore, Thailand, Indonesia, Japan, United Arab Emirates (UAE), Malaysia, South Korea, China, India, Hong Kong, Taiwan, Macau, Canada, United States (limited to some states), Brazil, Argentina, Mexico, Chile, Uruguay, Colombia, Peru, Australia, New Zealand, South Africa, Morocco, Egypt, Tunisia, Israel, Jordan, Saudi Arabia, Qatar, Bahrain, Kuwait, Oman.
In the European Union, tax free shopping is standardized for all non-EU residents. Other regions have more variation in country-specific rules. Always check the latest requirements for where you are traveling.
Tax Free Shopping Eligibility
To shop tax free as a tourist and claim VAT refunds, you must meet certain eligibility criteria:
Non-resident status - Tax free shopping and VAT refunds typically apply to non-residents, which means foreign visitors. Citizens and residents usually don't qualify. However, there may be additional considerations based on your length of stay in the visited country. In some cases, expatriates can also qualify.
Travel visa - Some countries may require you to hold a tourist visa to access tax free benefits. It's important to check the visa requirements of the country you plan to visit.
Exporting goods - All items you purchase must be exported when you depart the country. This means you should take your purchases with you, unused.
Minimum purchase - Many countries impose a minimum spending threshold per store, typically ranging from $30 to $125. Your purchases must meet or exceed this amount to be eligible for tax free benefits.
Personal use - Eligible goods should be intended for personal use, rather than for business or commercial purposes.
Receipts and documentation - To claim your VAT refund, you'll need to retain purchase receipts and complete any necessary forms. These documents are crucial for processing your refund.
Time limitations - Be aware that there is usually a time limit for claiming VAT refunds after leaving the country. Make sure to adhere to this timeframe to ensure you receive your refund.
Remember that specific tax free shopping requirements can vary from one country to another, and eligibility criteria may also differ based on your nationality, visa status, and duration of stay in the visited country. It's advisable to research the rules and regulations of the particular destination you plan to explore.
What Purchases Qualify for Tax Refunds?
One common question is what goods tourists can actually buy tax free. Here are some of the purchase conditions and restrictions:
Tangible goods - Services like hotel stays generally don’t qualify, only physical products.
Non-consumables - Food, drinks, perfumes, etc. are usually excluded.
Non-restricted items - Some goods like alcohol or tobacco may have restrictions.
Store eligibility varies - Department stores, duty free shops, boutiques etc. may have different tax free policies.
Luxury focus - Big ticket luxury items tend to be popular tax free purchases.
Check which categories qualify for tax free treatment in your destination and shop accordingly to maximize potential VAT refunds!
How Much Can You Save with Tax Free Shopping?
The great thing about tax free shopping is that the more you spend, the more you can save! VAT refunds are calculated based on the pre-tax price minus any discounts.
Your exact VAT refund amount will depend on:
VAT/GST rates - Typically range from 10-25% globally. The standard EU rate is around 20%.
Purchase amounts - Higher spending means bigger refunds. Minimums also impact this.
Refund fees - It's worth noting that refund fees can slightly diminish the final payout. These fees encompass a variety of charges, including credit card fees, cash charges, "per-form" charges, fees levied by the tax free shopping company, foreign exchange (FX) fees, and more.
How to Claim Your Tax Refund
There are a few different processes tourists can use to claim their VAT refunds:
Paper Forms
The traditional method involves filling out paper forms, getting them validated by customs at the airport, submitting forms by mail, and waiting 4-8 weeks for the refund.
Digital Platforms
Newer digital VAT reclaim platforms allow tourists to complete most of the refund process electronically via a smartphone app. This cuts wait times down to 24-48 hours in many cases.
Tax Refund Companies
Various private companies like Pie VAT, Global Blue, and Planet Payment handle all the logistics of processing tourist tax refund claims and payments, for a service fee.
For example:
Maximize Your Tax Free Shopping Refunds
Follow these tips to make the most of tax free shopping:
Always ask for a tax free option when shopping abroad.
Plan purchases to meet any minimum spend thresholds efficiently.
Compare tax refund companies on fees, digital capabilities, destinations, and support.
Organize all receipts, forms, stamps, and paperwork meticulously as you shop.
Submit claims immediately after leaving the country while details are fresh.
Use a digital platform like Pie VAT to get higher refunds in 24 hours.
Leave some extra time for requirements at the airport.
Tax Free Shopping with Pie
Pie offers a digital-first solution to simplify tax free shopping for tourists. Our easy-to-use mobile app allows you to submit VAT refund claims instantly with rapid processing and funds transferred to your chosen payment method within 24 hours in most cases.
Get your claim via email or text, upload any customs documents required, and receive your refund quickly and reliably. No more waiting months to access your savings!
Pie also unlocks exclusive Pie-only discounts and deals not offered to other tourists. Our tax free app can be used across Europe, Asia, and new popular destinations globally.
Experience the digital future of tax free shopping with Pie. Download the Pie VAT app before your next trip to Denmark, Norway, Sweden, Germany, or Japan.