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What is a VAT Tax Refund?

By A. Gabrenas
Updated Feb 01, 2024
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A VAT tax refund is the reimbursement of Value Added Tax paid on certain purchases. VAT is charged in many countries throughout the world. Non-resident tourists and companies located outside those countries are often eligible for VAT tax refunds for goods and services purchased for export or business purposes. There are certain restrictions and requirements that must be followed to be eligible for a VAT tax refund.

Different countries have different names for VAT. For example, in Australia and Canada, value added tax is typically called Goods and Services Tax, or GST. In Japan, it is generally referred to as Japanese Consumption Taxo or JCT.

No matter what the exact name, VAT essentially works like a sales tax. It typically adds a set percentage of tax onto the cost of an item to account for the “value added” from production to delivery to the consumer. The tax commonly ranges from 5 percent to 25 percent, depending on the country and sometimes the type of item purchased.

To qualify for a VAT tax refund, a non-resident consumer typically must purchase goods for export (such as souvenirs) from a store that participates in the VAT tax scheme. In many cases, the purchase must meet a minimum amount at the single store. To receive a refund, consumers usually have to keep receipts and fill out special forms, often given out at participating stores. Then he or she generally has to get this paperwork stamped by a customs official before leaving the country in which the VAT was paid. The stamped paperwork typically must then be mailed in or brought to a refund counter for the consumer to receive his or her VAT tax refund.

For non-resident businesses to qualify for VAT tax refunds, the goods and services purchased must generally be strictly related to business dealings. In some cases, prior VAT registration may be required for the purchased goods or services to qualify. Many large companies and companies that do a lot of international business work with a VAT refund company that generally handles the paperwork and procedures required to get VAT tax refunds.

Some may wonder why non-residents are allowed VAT tax refunds, while residents are required to pay VAT. There is some thought that a consumer or business that is unlikely to benefit from a tax shouldn’t have to pay it. More commonly, though, VAT refunds are part of a set of tax schemes designed to promote tourism and international business. When a country allow for VAT refunds, it often make the goods and services more competitive in a global economy.

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