Chapter 6: How It Works – VAT Refund and Custom Duties

Throughout the France Shopping Adventure series, PurseBop has taken the reveals and narratives of four fashionistas to show you the advantages and surprises that come with shopping abroad. Since France is home to many of our favorite fashion houses like Hermes, Chanel, and Louis Vuitton, prices are often lower compared to other regions to maintain loyalty to the domestic consumer base. However, many brands have adjusted their pricing schemes by reducing prices outside of Europe or raising prices in Europe to compensate for the weakened state of the euro, which somewhat equalizes prices everywhere.

Nonetheless, shopping abroad can come with big savings as visitors are entitled to “tax-free” shopping. In each chapter, we’ve demonstrated price breakdowns with the US retail prices, Europe price, and adjustment for VAT refunds to show you how everything balances out. Up until this point, we’ve left duties out of the equation, but they can also be an important factor in our shopping savings game. PurseBop is here to clarify the whole process with a quick FAQ.

What is VAT?

VAT stands for ‘Value Added Tax’. It is a consumption tax levied on goods and services. In some ways, it is like a sales tax except it is already built into the price you pay instead of being calculated separately at the register. VAT rates vary from country to country. In France, VAT ranges from 5% – 20% depending on the item. For most of the goods in our series, the VAT percentage has been around 10%.

Who is eligible for a VAT refund?

If you are a “visitor” or any person who lives permanently or habitually outside the EU, you may be eligible  to shop free of VAT at certain stores.

How does the VAT refund process work?

You must pay the full price for your goods including VAT at the store. After going through the process of showing proof of export, you will receive your refund. Due to administrative fees,  sometimes your refund percentage will be less than the VAT percentage. There are several ways you can go about claiming your VAT:

#1 Use the Store’s Refund Affiliate

Stores that have VAT free shopping usually have “tax free shopping” signs placed in the building. Upon checkout, you will receive a tax free shopping cheque that you can present to customs when leaving the EU. Once customs stamps your cheque, you can get your refund immediately at a service desk or kiosk in the airport,  drop them in a box, or mail them to the refund service upon return.

#2 Get a Refund Directly from the Shop

If the store you shopped at handles refunds directly, you can get a VAT refund form, have it stamped by customs and then mail it to back to the store. The refund is usually refunded back to your credit card or sent by check.

#3 Charge with a Credit Card and request for one charge slip with the amount of the VAT and one charge for the sale minus VAT.

With this method, the store will post the sale minus VAT charge slip and set the charge slip with just the VAT aside. After you have your VAT refund form stamped by customs and mailed back to the store, the merchant will destroy the charge slip with just the VAT without submitting it, and your card will not be charged. This method is usually only used by merchants who handle credit card transactions manually.

PurseBop's Experience

From my personal experience, options #1 & #2 worked best for us. All the stores I shopped at provided me with the necessary forms to take to the customs officials at the airport. I always requested a credit card VAT refund from my SA. This means my refunds will be applied by the retailers directly to the credit card used at the time of purchase. In my opinion, this option works best, especially with large purchases. However, be aware that the refund could take as long as 6 months to process.

Things were even easier returning home from Nice, France this last August. The original process of meeting the customs officer with your forms, the actual item and boarding passes had been replaced with a bar code reader that simply scans your forms and triggers an approval light to indicate the process is complete. The only thing left  to do is mail your forms in the pre-stamped envelopes provided by each store.

In a few cases, the scanner did not approve the form, in which case one must go to the assigned customs officer with the item, boarding pass, and forms.  The customs officer will manually work through the VAT app to process it.

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PurseBop and crew waiting for the VAT refund paperwork to get approved at the Airport in Nice Cote d’ Azur

What is a duty?

In this case, a duty or a customs duty is a tax imposed on goods transported across international borders. Custom duties are meant to protect each country’s economy. Anything you bring back that you did not have when you left home must be “declared” meaning that you alert customs officials that they are in your possession and estimate its value.

How much are duties?

Each item has a specific custom duty rate. For leather handbags coming into the United States, the duty rate is around 9%.

Let’s look at @dreamingofh ‘s situation for example:

She received about 10% back as a VAT refund, but then paid approximately 9% duty on her Hermes Kelly.

Hermes Kelly 32

RegionHermes Kelly 32
USA$10,400
Europe€6,800
VAT Refund (approx. 10%)- €680
Cost after VAT€6,120
Custom Duty (approx. 9%)+ $610
US $ Equivalent$7,390

Even taking the custom duty into account,  dreamingofh still saved $3,010 on her Kelly bag since the price in France was much lower in the first place.

So, in the simplest of terms a VAT refund is the money you get back as a visitor in a EU country. A duty is the money you pay to bring goods back into the US. You still may be wondering, am I still really saving money from shopping abroad?

The answer really varies on a case to case basis. Sometimes, that VAT refund essentially cancels out or is marginalized by the amount of duty taxes you pay. However, VAT percentages and duty tax percentages vary between each item. For handbags at least, the true savings come into play when the price abroad is much lower equivalently to what it would be in your home country.

The conversation continues! Bring your questions and personal stories to the BopTalk threads

Important Update: VAT, Duty and Customs 2017 – DECLARE YOUR PURCHASES

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