VALUE-ADDED TAX

A value-added tax (VAT) is not a sales tax, but travelers should think of it as one. A VAT is a fee levied on all goods and services by some 40 countries as the goods and services go through the production chain. The amount that is taxed is the amount of value a particular step in the production chain added to the value of the good or service. (For example, a book may have been taxed as the paper making up the book was manufactured, as printing was added to the paper, as covers were produced and added to the book, and as the book was moved into the marketplace for resale.)

The VAT can add substantially to the final cost of purchased items, with total VAT charges ranging from 6% to 25%, depending upon the country and the type of good purchased.

Many countries, particularly Canada and countries in Europe, allow foreign visitors to reclaim portions of the VAT they pay. Rules vary enormously by individual country, and in some circumstances the amount recovered may not be worth the trouble involved in recovering it. But if you plan to purchase and bring home expensive items, you should be aware of general principles concerning recovery of VAT amounts.

Every country has a threshold amount that must be spent before recovery of VAT payments is allowed; this amount can be a total amount spent within the visited country, a total amount spent at individual stores within the visited country, or a minimum amount paid per item.

As you purchase items at stores, ask for a VAT refund form, which is a government document that will show you made the purchase in question. You likely will need to show your passport when obtaining the refund form to prove that you are a foreign visitor.

In some countries you can obtain refunds, minus an administrative fee, at major airports or checkpoints as you leave the country. Other countries require travelers to complete forms after they return home and mail the paperwork to tax authorities in the country visited.

No matter what country you are leaving, stop by the customs desk at the airport or checkpoint before checking your luggage. Officials often ask to see the items for which you are claiming VAT refunds. You may have to obtain and complete forms at the airport or checkpoint before your departure.

The refund process can take several months. The refund will be in the form of a payment to your credit card or a check. Keep in mind that cashing a foreign check at your local bank can involve the payment of substantial processing fees.

Travel expert Peter Savage notes in his book, The Safe Travel Book, "In some cities stores will, informally, arrange to credit your credit card for the refund when they receive the mailed forms -- this requires good faith all around." Peter Savage is a member of iJET's Health Intelligence Board.

VAT refunds are useful to business travelers as well as leisure travelers. Businesses often can receive refunds for the VAT paid on business expenses incurred while overseas, including travel costs, operating expenses, trade show expenses, and related costs. There are several companies that help businesses with VAT refunds, including International Sales Tax Refund Corp. (2930 Pine Ave., PMB 5160, Niagara Falls, NY 14301; phone: 716-284-6287; Web: www.insatax.com/) and Retourtax (Koopmanslaan 3, P.O. Box 355, 7000 AJ Doetinchem, The Netherlands; phone: 31-0-314-37-36-35; Web: www.retourtax.com/).

Most states in the U.S. require their residents to pay a "use tax" on certain goods brought into their states, and the states are becoming stricter about collecting the use tax. The use tax usually serves as a substitute for the sales tax the state would have collected if the item had been purchased within the state. At least one state, Virginia, has decided that payment of a VAT in a foreign country does not relieve a Virginia resident of the obligation to pay Virginia's use tax and does not count against the use tax amount.

Without a VAT refund, then, U.S. travelers could end up paying taxes twice on the same purchase.