In Europe, Is the VAT Refund Worth Your Time?

In recent weeks, the euro has risen above the $1.40 mark, making a European vacation more expensive for Americans. Add the tax, which countries like Spain, Portugal and Britain have recently raised, and the price of those souvenirs is suddenly higher.

Yet, each year American travelers leave behind an estimated 60 million euros in unclaimed value-added tax refunds, according to Global Blue, which specializes in VAT refunds for tourists. Many visitors simply don’t realize they can recover the tax, which can be as high as 20 percent, on many goods bought abroad, such as clothing, jewelry and electronics. Others don’t want the hassle of saving receipts, filling out paperwork, lugging that hand-carved cuckoo clock and those miniature Irish sweaters you bought for your nephews to Customs, getting the paperwork stamped and mailing it back for a refund.

“Everybody is doing the balance of time and money,” said Joe Brancatelli, publisher of the travel Web site JoeSentMe.com, who said that he hasn’t applied for the refund on the souvenirs he has bought on recent trips to Europe, largely because of the inconvenience.

To qualify for a refund, tourists must spend a minimum, which varies by country, in one store on the same day.

In Spain, where the value-added tax increased to 18 percent last July from 16 percent previously, a visitor has to spend 90.15 euros to get a refund of 13.74 euros. (Refunds involve some tricky math, including a “VAT content percentage” or slightly lower percentage rate rather than the tax listed on the price tag, which ultimately results in a slightly lower payout.) Britain, where the tax recently increased to 20 percent from 17.5 percent, allows individual stores to set minimum purchase amounts. Harrods in London requires travelers to spend £50 or more to apply for a refund.

The tax refund is entirely separate from the $800 duty-free exemption, or the total value of merchandise you may bring back to the United States from Europe without having to pay tax. Goods above that amount may be subject to tax upon arrival.

Not all shops participate in the refund process. Those that do often work with services like Global Blue or Premier Tax Free, which take some of the pain out of the process for a cut of the refund amount, typically 2 to 4 percent. Printemps department store in Paris has 10 tax refund desks in the store in partnership with Premier Tax Free, which will fill out the necessary paperwork for shoppers who spend 175.01 euros or more on the same day.

Travelers must then get that paperwork stamped at Customs upon departure and mail it back to Premier Tax Free, which settles up with the authorities. They can either receive the payment on their credit card or by check, or they can visit a Premier Tax Free refund desk at the airport for the payout.

If you can’t wait to get your hands on that refund, it’s possible to get it immediately, in cash, by going to the Kanoo Foreign Exchange desk in the basement level of Printemps, in return for a credit card guarantee. But travelers must be sure to follow up with the necessary paperwork and return it within 21 days to Premier Tax Free, otherwise their credit cards will be charged the refund amount. Global Blue offers a similar service in some locations, including Galeries Lafayette in Paris and Harrods.

Premier Tax Free also offers same-day payouts in downtown locations of major European cities, including four in London and nine in Paris. (Travelers can go to Premiertaxfree.com/Tourists.aspx and search for refund desks by destination.) The company opened a refund office this month on Milan’s famous shopping street, the Via Montenapoleone, where tourists can choose to get their refund in cash or credited to a gift card, which is good for subsequent purchases at popular stores along the street. Travelers who choose to receive their refund on the card will also get an extra 15 percent credit, which is 115 euros on a 100-euro refund.

Other companies are also trying to make the process easier. Global Blue introduced digital refunds in Finland in 2009, which eliminates the need for tourists to fill out paperwork (and in some cases that dreaded visit to Customs) by tracking credit card purchases on a special card. Purchases can also be linked to a traveler’s passport. Tourists can sign up for the system online before a trip or at participating stores, choosing to receive a refund in cash or as transfer to a bank account or credit card. At the airport, travelers swipe the card at a Global Blue kiosk to confirm purchases they are carrying home.

If cleared, travelers can go on their way. To keep them honest, the system randomly asks users to visit Customs for validation. Global Blue says it is exploring the possibility of introducing the system to other European countries.

 But for now, there is no other way to get around Customs if you want a refund, a chore that can add as much as an hour to your time at the airport, especially during peak summer travel times. Which brings us back to an earlier question of whether all of this is really worth the effort.

“Unless you’re buying several hundred dollars’ worth of souvenirs,” said Rick Steves, known for his European travel guidebooks, “I’d err on the side of your time is really worth more.”