What is a Value Added Tax?
Value Added Tax (VAT) is a consumption tax imposed on the sale of goods and services within the European Union (EU). The specific VAT rates and regulations vary among EU member states, as each country has the authority to set its own rates within certain limits defined by EU legislation. The rates depend on the type of good. For example, “necessities” like toothpaste and shampoo are subject to a lower rate (5%), whereas luxury consumer goods are taxed at the highest rate (between 17% and 27%). As a non-EU citizen, you have the right to get a refund on the VAT for qualifying purchases.
*Some EU countries do have a minimum spend required for VAT refund eligibility. See the table below for the minimum spend and the VAT refund percentages by country.
Why does the VAT refund matter?
The VAT refund can be very significant when purchasing luxury goods in Europe. For luxury goods produced primarily in Europe like Hermes, Louis Vuitton and other top-tier consumer brands, the actual cost of the item is usually cheaper than the US for a variety of production and tariff reasons. Additionally, you can claim back another 17%-27% on that item. So for example, if you wait to buy your new LV handbag while on vacation in Paris, rather than paying $4,000, you will pay closer to $3,500 and you will be able to get a refund for another 20% so $700. So your total cost for that same handbag will be $1,200 less in Paris than if you bought it in NYC, a 30% discount!
