Last updated: 12:00 PM ET, Wed November 16 2016

The ABCs of VAT

Dear Tammy: My clients love to go on shopping trips to Europe and I know about Value-Added Tax, but I’m a little confused about it all. How do I do it and is it really a refund? I’d like to tell them how they can get back some of the money they are spending.

Tammy: Europe is a great shopping destination. From the "The Galleria Vittorio Emanuele II,” which is the oldest shopping mall in Italy, to buying name brands like Christian Dior, Yves Saint Laurent, Luis Vuitton, and Pigalle as well at the “Triangle d'Or” in Paris, it’s very easy to spend money in Europe. The refund of the Value-Added Tax is a refund on taxes that you spend in Europe only, but there are some restrictions and guidelines on how to get your money back. I did it on a recent trip to Europe and got my $120 dollars back. 

Just like in the United States, the Value-added tax (VAT) is a multi-stage sales tax, and the appropriate rate will be included in the price you pay for the goods you purchase. It is for visitors of the EU only, which is someone who lives outside of the country permanently or habitually. This is why you need to bring your passport when you are shopping.

According to the European Commission, you may qualify as a “visitor” if you are living in an EU country for a defined period of time for a specific purpose, but your permanent home is outside the EU and you are not intending to return to the EU in the immediate future.

The concept is relatively simple. You buy goods and pay tax. After you purchase the items, you will be asked if you are a visitor to the EU and you must show proof. The store will fill in a form with the details. In some cases, the store will refund you, but in other cases the store uses a third party to help with the refunds and they will refund you.

Keep the invoice and the forms that you are given because you’ll have to show these again at customs where they will be stamped. No stamp, no refund. The documents will also tell you how to complete the form, either mailing it in or you can do it at the airport.

The good news is that you will receive part of the taxes you paid back, but just know that not every shop does this. There will be a tax-free or VAT-free sign in the window or just ask. There are also caps on the total purchase price, which is about 175 EUR per store, but check with the European Commission before traveling so you know the current amount and any other details (traveling by train, etc.).