Business owners and tourists from the United States may be surprised by the concept of the Value Added Tax, or VAT. But if you do business with companies in almost any other developed country of the world, or travel to those countries, you'll see this country-level tax added to your receipts for most goods and services. Typically, the only time leisure travelers have to worry about VAT numbers is when reclaiming VAT on their way out of a country.
VAT is, in essence, a country-level sales tax that applies to most goods and services. The tax can be applied at the standard rate, which, to use the European Union as an example, typically ranges from 8 to 27 percent. The tax can also be applied at a reduced rate – as low as about 5 percent – or at a zero rate. The zero rate means that there is no VAT assessed on the goods or services themselves, so from the consumer's standpoint, it's a tax rate of zero percent. But the zero rate entitles the company producing those goods and services to, in essence, still claim tax deductions on expenses related to their production.
The VAT Number
A VAT number is a government-issued identifier that only applies to companies that assess or reclaim VAT. So if you're traveling for tourism or other leisure purposes – or if you run a company that operates underneath the local government threshold for VAT – you don't need a VAT number yourself. But you might need this identifier when it comes time to reclaim the VAT you paid during your visit.
VAT for Travelers
Because VAT is levied on most consumables, you can expect to pay this tax while traveling abroad. But in some cases, you can reclaim VAT, either at the point of sale or on your last stop on the way out of the country. Don't bother trying to reclaim VAT on hotels or meals – you can't – but you can usually reclaim VAT paid on substantial purchases of gifts or souvenirs.
The exact process for reclaiming VAT depends on the retailer you buy from. So if you're planning to make any big purchases, bring your passport with you; be prepared to pay with a credit card, and ask about their VAT-refund schemes before the sale is complete. You'll be given a form to fill out – which will include the retailer's identifying VAT number – and your credit card may be refunded on the spot for the amount of reclaimed VAT. If it's not, you'll have to save your receipts and reclaim VAT at your point of departure from the country. Make things easy on yourself by planning some extra time at your point of departure so you can find the right customs agent or VAT-refund company, and packing a small folder or envelope you can use to save receipts and VAT refund forms until you make your exit.