Tax-free shopping (TFS) is the buying of goods in another country or state and obtaining a refund of the sales tax which has been collected by the retailer on those goods.[1] 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. Buying goods tax free does not mean travellers are exempt from paying applicable taxes on their purchases when they get home; however, they will generally be able to benefit from an allowance of a certain amount on import.
Tax-free shopping countries
Fifty-four of the 130 countries that levy VAT/GST allow foreign visitors to have their taxes reimbursed.[citation needed]
Tax-free shopping is currently available in the following countries: Argentina, Armenia, Australia, Austria, Azerbaijan, Belgium, Bulgaria, China, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Guernsey, Greece, Hungary, Iceland, Indonesia, Ireland, Israel, Italy, Japan, Korea, Latvia, Lebanon, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malaysia, Mexico, Morocco, the Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovenia, Slovakia, Spain, South Africa, Sweden, Switzerland, Taiwan, Thailand, Turkey, Vietnam and Uzbekistan.
Refund
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 (83.33 + 20% VAT = €100.).A handling fee may be charged by and can vary between service providers.
National policies
Europe
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 has a different VAT rate which is reclaimable, and most have a minimum purchase amount restriction however there are exceptions.
VAT Rates and Minimum Purchases Required to Qualify for Refunds
Country of Purchase
VAT Standard Rate*
Minimum in Local Currency
Austria
20%
€75.01
Belgium
21%
€125.01
Bulgaria
20%
250 BGN
Croatia
25%
740 HRK
Czech Republic
21%
2,001 CZK
Denmark
25%
300 DKK
Estonia
20%
€38.01
Finland
24%
€40
France
20%
€100.01
Germany
19%
€50
Greece
24%
€50
Hungary
27%
54,001 HUF
Iceland
24%
6,000 ISK
Ireland
21%
€30
Italy
22%
€70
Latvia
21%
€44
Lithuania
21%
€55
Luxembourg
17%
€74
Malta
18%
€100
Netherlands
21%
€50
Norway
25%
315 NOK
Poland
23%
200 PLN
Portugal
23%
€61.35
Romania
19%
250 RON
Slovakia
20%
€100
Slovenia
22%
€50.01
Spain
21%
€0
Sweden
25%
200 SEK
Switzerland
8%
300 CHF
Turkey
18%
118 TRY
Uzbekistan
12%
1 000 000 sum
The United Kingdom (except Northern Ireland) closed its VAT refund scheme at the end of 2020, though VAT-free shopping is still available where a retailer ships goods out of the country at the time of purchase.
Delaware proclaims to be the "Home of Tax-Free Shopping" as the state does not have a sales tax
Some jurisdictions in the United States allow a refund of sales tax to foreign tourists upon leaving the country.
Tax-free shopping is a privilege enjoyed by all residents of United States jurisdictions without sales taxes, but through so-called "remote" sales—including sales to visiting out-of-state residents, sales via catalog, and sales via Internet—customers in a sales taxed jurisdiction may also make purchases in sales tax-free jurisdictions, notwithstanding the legal requirement to pay the equivalent (compensatory) use tax in their home state. Delaware is free of all sales taxes, excluding homes and cars (3% transfer tax for real estate, and a 2.75% tag fee for cars). The Christiana Mall near Newark, Delaware attracts shoppers from the nearby states of Maryland, New Jersey, New York, and Pennsylvania looking to save money on purchases from not having to pay sales tax. The Apple Store at the Christiana Mall claims to sell more iPhones than any other location in the chain due to Delaware's lack of sales tax.[2] Merchants in tax-free New Hampshire regularly advertise to residents of adjacent Massachusetts, Vermont, and Maine the benefits of purchasing goods without sales tax, ignoring the fact that there is no general exemption from the use taxes when the goods are taken back home. Many purchasers are unaware of the obligation to pay the tax, or file the necessary return, or of the fact that it is not the duty of a merchant to collect it from them and pay it indirectly. However, it is the purchaser's obligation to pay it directly to the state, often in connection with filing their annual income tax return.
The liability of any non-exempt resident of a US state with a sales tax for payment of the equivalent use tax when purchasing goods from another state (or country) through mail-order, by telephone or through the Internet should not be confused with the issue of direct Internet taxes levied on Internet services themselves, such as bit taxes, bandwidth taxes, franchise taxes, and email taxes. Most such levies are banned until 2014 by the Internet Tax Freedom Act Amendment Acts of 2007 which extends the provisions in the federal Internet Tax Freedom Act beyond its original 2007 expiration.
Goods that would be taxable at home are taxable at the same rate when taken home or delivered, regardless of where or how they were purchased. Numerous local sales tax and use tax exemptions exist according to taxpayer status (for example, there exist exemptions for charitable organizations), exemptions based on size of purchase (e.g., clothing under $110 in Vermont), and exemptions for specific types of goods (e.g., protective clothing, food, medication, and educational materials).
Even customers from jurisdictions that levy sales taxes can in theory have additional tax liabilities when shopping in neighboring no-tax or lower-tax jurisdictions. For example, if an adjacent state has a slightly lower tax rate than the purchaser's home, that shopper could face an additional tax burden even though the purchase was already taxed at the point of sale. The difference in tax rates is referred to by collecting authorities as "tax discount".
Taxing jurisdictions generally extend an exemption from use tax to commercial taxpayers that purchase business stock. This type of exemption applies to goods purchased tax-free for resale, but lapses if the goods are converted to use by the company itself (for example, a company car, office supplies, and cleaning supplies).
Some countries charge a value added tax (VAT) or goods and services tax (GST) that extends to retail purchases. When those customers are residents of a US state having sales taxes on such goods, the VAT or GST taxes paid might be used as a credit against the amount of use tax otherwise owed, unless excluded, such as in Massachusetts. However, when a post-travel refund of the VAT or GST is claimed, the purchaser's home taxing jurisdiction can then assert a claim for the full sales tax liability.
Despite the fact that most shoppers are unaware of their use tax obligations, there are potentially severe penalties for willful tax evasion. Any online, telephone mail-order, or traveling shopper who makes "tax free" purchases could be successfully prosecuted for evading state use taxes if he or she willfully fails to file the necessary return and pay the required tax, or intentionally omits the information from a required annual return. When a taxing jurisdiction enforces use tax liability, it often also seeks additional penalties and interest accrued for failure to timely remit the necessary tax return and tax payments, as well as possible perjury for omissions on official forms filed. The statute of limitations on taxes due may not begin to run until and unless a required tax return is filed. Some states also provide a "safe harbor" scale of use tax that is most likely owed by every taxpayer, based upon the taxpayer's adjusted gross income. For example, someone with an income of over $100,000 could earmark 0.0005 of his or income as payment for "use tax", without having to account for any actual out-of-state purchases under $1,000 each.
To step up the opportunity for collection of use taxes, several US states have been working to implement a "streamlined" interstate use tax agreement. To effectuate this multilateral interstate compact, many states have enacted, or are considering enacting, statutory changes that require residents to disclose, under penalty of perjury, their annual use tax liability for out-of-state purchases. The focus on use tax collection has increased because the U.S. Supreme Court has placed significant hurdles in the path of state efforts to collect sales taxes on transactions in other no-tax or lower-tax jurisdictions. In National Bellas Hess, Inc. v. Department of Revenue of the State of Illinois and Quill Corp. v. North Dakota, the Court concluded that the Commerce Clause and Due Process Clause of the U.S. Constitution require that there be a nexus between the taxing state and the vendor of goods or services, in the form of a physical presence. This has been interpreted to apply to both catalog sales and out of state sales over the Internet. States are thus prohibited from collecting sales taxes on so-called remote transactions because to do so would unconstitutionally burden interstate commerce. (These court cases were later overruled in South Dakota v. Wayfair, Inc. (2018), which stated that a state may collect sales tax on purchases made from out-of-state sellers that do not have a physical presence in the state.)
The Streamlined Sales Tax Project is the states' response, by which they are seeking to collect use taxes on remote Internet and catalog sales in lieu of sales taxes. In connection with it, there has been discussion among state tax officials of creating obligations or incentives for merchants to collect taxes from customers who are residents of sales tax states, especially in the area of online sales, in exchange for a remitting to the merchant a percentage of the taxes that would be otherwise unpaid. Some US states are also considering a tax amnesty, pursuant to which residents could settle unpaid use taxes and penalties at a discount, but only if the settlement is offered before collection of the tax liability commences.
Australia
In Australia tax-free shopping is called the Tourist Refund Scheme (TRS) which allows overseas visitors and Australian residents to claim a refund of the Goods and Services Tax (GST) and Wine equalisation tax (WET) paid on certain goods bought in Australia within 60 days of leaving Australia, and then taken out of Australia in carry-on bags or worn.[3] The refund is available on goods purchased in the 60 days before leaving Australia, purchases from any single business (even on separate invoices) must total $300 (GST inclusive) or more, the traveller must have an original tax invoice for the goods, the goods may require to be verified by an officer at the Customs and Border Protection Client Services counter.[4]
Claims for a tax refund can be made at the TRS counter in an international airport or the cruiseliner terminal of some Australian seaports.
A tax is a mandatory financial charge or some other type of levy imposed on a taxpayer by a governmental organization to collectively fund government spending, public expenditures, or as a way to regulate and reduce negative externalities. Tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax relief. The first known taxation took place in Ancient Egypt around 3000–2800 BC. Taxes consist of direct or indirect taxes and may be paid in money or as its labor equivalent.
The United States has separate federal, state, and local governments with taxes imposed at each of these levels. Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as various fees. In 2020, taxes collected by federal, state, and local governments amounted to 25.5% of GDP, below the OECD average of 33.5% of GDP.
A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase.
Tax exemption is the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions. Tax-exempt status may provide complete relief from taxes, reduced rates, or tax on only a portion of items. Examples include exemption of charitable organizations from property taxes and income taxes, veterans, and certain cross-border or multi-jurisdictional scenarios.
Goods and Services Tax (GST) in Australia is a value added tax of 10% on most goods and services sales, with some exemptions and concessions. GST is levied on most transactions in the production process, but is in many cases refunded to all parties in the chain of production other than the final consumer.
An ad valorem tax is a tax whose amount is based on the value of a transaction or of a property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT). An ad valorem tax may also be imposed annually, as in the case of a real or personal property tax, or in connection with another significant event. In some countries, a stamp duty is imposed as an ad valorem tax.
A use tax is a type of tax levied in the United States by numerous state governments. It is essentially the same as a sales tax but is applied not where a product or service was sold but where a merchant bought a product or service and then converted it for its own use, without having paid tax when it was initially purchased. Use taxes are functionally equivalent to sales taxes. They are typically levied upon the use, storage, enjoyment, or other consumption in the state of tangible personal property that has not been subjected to a sales tax.
Goods and Services Tax (GST) is a value-added tax or consumption tax for goods and services consumed in New Zealand.
A duty-free shop or store is a retail outlet whose goods are exempt from the payment of certain local or national taxes and duties, on the requirement that the goods will be sold to travelers who will take them out of the country, who will then pay duties and taxes in their destination country. Which products can be sold duty-free vary by jurisdiction, as well as how they can be sold, and the process of calculating the duty or refunding the duty component.
Sales taxes in the United States are taxes placed on the sale or lease of goods and services in the United States. Sales tax is governed at the state level and no national general sales tax exists. 45 states, the District of Columbia, the territories of Puerto Rico, and Guam impose general sales taxes that apply to the sale or lease of most goods and some services, and states also may levy selective sales taxes on the sale or lease of particular goods or services. States may grant local governments the authority to impose additional general or selective sales taxes.
Income taxes are the most significant form of taxation in Australia, and collected by the federal government through the Australian Taxation Office. Australian GST revenue is collected by the Federal government, and then paid to the states under a distribution formula determined by the Commonwealth Grants Commission.
The tax system of the Russian Federation is a complex of relationships between fiscal authorities and taxpayers in the field of all existing taxes and fees. It implies continuous communication of all its members and related objects: payers; legislative framework; oversight authorities; types of mandatory payments. The Russian Tax Code is the primary tax law for the Russian Federation. The Code was created, adopted and implemented in three stages.
The European Union value-added tax is a value added tax on goods and services within the European Union (EU). The EU's institutions do not collect the tax, but EU member states are each required to adopt in national legislation a value added tax that complies with the EU VAT code. Different rates of VAT apply in different EU member states, ranging from 17% in Luxembourg to 27% in Hungary. The total VAT collected by member states is used as part of the calculation to determine what each state contributes to the EU's budget.
Digital goods are software programs, music, videos or other electronic files that users download exclusively from the Internet. Some digital goods are free, others are available for a fee. The taxation of digital goods and/or services, sometimes referred to as digital tax and/or a digital services tax, is gaining popularity across the globe.
Taxes in Germany are levied at various government levels: the federal government, the 16 states (Länder), and numerous municipalities (Städte/Gemeinden). The structured tax system has evolved significantly, since the reunification of Germany in 1990 and the integration within the European Union, which has influenced tax policies. Today, income tax and Value-Added Tax (VAT) are the primary sources of tax revenue. These taxes reflect Germany's commitment to a balanced approach between direct and indirect taxation, essential for funding extensive social welfare programs and public infrastructure. The modern German tax system accentuate on fairness and efficiency, adapting to global economic trends and domestic fiscal needs.
Taxation may involve payments to a minimum of two different levels of government: central government through SARS or to local government. Prior to 2001 the South African tax system was "source-based", where in income is taxed in the country where it originates. Since January 2001, the tax system was changed to "residence-based" wherein taxpayers residing in South Africa are taxed on their income irrespective of its source. Non residents are only subject to domestic taxes.
Value-added tax (VAT) was introduced into the Indian taxation system from 1 April 2005. The existing general sales tax laws were replaced with the Value Added Tax Act (2005) and associated VAT rules.
The United Arab Emirates is a federation of seven Emirates, with autonomous federal and local governments. The UAE has historically been a low-tax jurisdiction. The federal government and local governments are entitled to levy taxes on citizens and companies. The federal government currently levies a value added tax, corporate income tax, and excise taxes. Some emirates levy property, transfer, excise and tourism taxes. Some emirates also charge corporate taxes on oil companies and foreign banks.
In Slovakia, taxes are levied by the state and local governments. Tax revenue stood at 19.3% of the country's gross domestic product in 2021. The tax-to-GDP ratio in Slovakia deviates from OECD average of 34.0% by 0.8 percent and in 2022 was 34.8% which ranks Slovakia 19th in the tax-to-GDP ratio comparison among the OECD countries. The most important revenue sources for the state government are income tax, social security, value-added tax and corporate tax.
A value-added tax (VAT or goods and services tax (GST), general consumption tax (GCT)), is a consumption tax that is levied on the value added at each stage of a product's production and distribution. VAT is similar to, and is often compared with, a sales tax. VAT is an indirect tax because the consumer who ultimately bears the burden of the tax is not the entity that pays it. Specific goods and services are typically exempted in various jurisdictions.
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