sparkle-illustration

Register for a NerdWallet account to access simple tax filing for a $50 flat fee, powered by 

ColumnTax Logo

Value-Added Tax (VAT): What It Is, Who Pays

Here's how value-added tax works, what it is and how you can get your VAT refunded if you shop while traveling.
Tina Orem
By Tina Orem 
Updated
Edited by Pamela de la Fuente
Value-Added Tax: What It Is and How VAT Tax Works

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

If you’ve ever traveled outside the United States and done some shopping, chances are you’ve noticed a VAT, or value-added tax, on your receipts. Here’s what VAT is, how it works, and how you might be able to get your money back.

What is value-added tax (VAT)?

A value-added tax, or VAT, is a tax on products or services when sellers add value to them. In some countries, VAT is called goods and services tax, or GST. Similar to a sales tax or excise tax, consumers pay the VAT tax, which is typically a percentage of the sale price. There is no VAT in the United States.

NerdWalletTaxes Logo

Simple tax filing with a $50 flat fee for every scenario

With NerdWallet Taxes powered by Column Tax, registered NerdWallet members pay one fee, regardless of your tax situation. Plus, you'll get free support from tax experts. Sign up for access today.

for a NerdWallet account

checkmark

Transparent pricing

Hassle-free tax filing* is $50 for all tax situations — no hidden costs or fees.
checkmark

Maximum refund guaranteed

Get every dollar you deserve* when you file with this tax product, powered by Column Tax.
checkmark

Faster filing

File up to 2x faster than traditional options.* Get your refund, and get on with your life.

*guaranteed by Column Tax

illustration

How value-added tax (VAT) works

Value-added tax is typically a percentage of the sale price. For example, if you purchase a pair of shoes for $100, and the value-added tax rate is 20%, you would pay $20 in VAT at the register when you pay for the shoes.

  • The value-added tax rate varies by country.

  • Some countries exclude certain goods or services from the tax.

  • The European Union requires that an EU country’s VAT rate must be at least 15%. Some things qualify for a reduced rate, which has to be at least 5%.

    European Taxation: Taxation and Customs Union. VAT rates. Accessed May 17, 2023.

  • Although businesses may pay value-added tax on the goods and services they buy, they generally get to recoup those payments from the VAT they collect from their customers. The businesses then remit what’s left to the government.

Is there VAT in the U.S.?

There is no VAT in the United States. But even though the United States doesn’t have a value-added tax, it does require consumers to pay federal excise taxes on the purchase of gasoline, alcohol, tobacco and other products. In addition, several states and cities collect sales taxes. Intuitively, the concepts are similar in that they are all taxes on consumption. The difference is in how the tax is collected. Over 100 countries have a VAT.

NerdWalletTaxes Logo

Simple tax filing with a $50 flat fee for every scenario

With NerdWallet Taxes powered by Column Tax, registered NerdWallet members pay one fee, regardless of your tax situation. Plus, you'll get free support from tax experts. Sign up for access today.

for a NerdWallet account

illustration

How to get a VAT refund

If you visit a country that has a VAT, you might be able to get a refund on the tax you pay when you shop there. Beware: There are a lot of steps, and some travelers decide the refund process isn’t worth the trouble. Here are some of the general rules, but before you travel, be sure to check the VAT rules in the country you plan to visit.

  • Typically, you have to pay the value-added tax at the time of purchase, and then apply for a refund from the shop.

  • Usually, your purchase must be over a certain amount in order to qualify for a VAT refund. In the EU, for example, you have to buy at least 175 euros worth of stuff in a shop.

    European Commission: Taxation and Customs Union. Guide to VAT refund for visitors to the EU. Accessed May 17, 2023.
    The threshold isn’t cumulative, meaning that spending 100 euros in one shop and 100 euros in another shop doesn’t meet the minimum. It may be worth it to consolidate your shopping if you’re angling for a VAT refund.

  • Spending on food and hotels often isn’t eligible for VAT refunds.

  • You usually have to be a visitor to get a VAT refund. The address on your passport matters here. You might qualify as a visitor if you’re living in the country temporarily but have a permanent home somewhere else.

  • You’ll likely need to show the store clerk proof that you live outside the country, and you’ll have to fill out a form.

  • Some shops don’t offer VAT refunds. Some shops process the refund directly, and some shops use third parties to process the refund. Ask for written instructions about how to claim your VAT refund.

  • Sometimes the shop charges a fee for VAT refunds, so be sure to ask about that ahead of time.

  • Usually you’ll need to mail your stamped VAT refund form to an address the shop provides. But you don’t always have to wait to get back home. Some big airports, ports and train stations have VAT refund offices where you can get your refund right away — if the retailer you shopped at uses that office.

  • When you go home with your stuff, a customs officer has to stamp your refund paperwork as proof of export. Without the stamp, you won’t get your VAT refund.

Get more smart money moves – straight to your inbox
Sign up and we’ll send you Nerdy articles about the money topics that matter most to you along with other ways to help you get more from your money.