Tax Free. Travelling abroad: find out about the tax exemptions on your purchases

The “Tax Free” means a significant saving, as you will be deducted the internal consumption taxes.

Few tourists stroll through the main shopping streets of the major capitals or other areas without being tempted to buy a “whim” or a typical product from the country they are visiting. This activity, far from affecting your personal finances, could benefit you if you do it in a planned way and take advantage of certain tax facilities for travellers in some purchases and various destinations.

In the case of Spain, for example, as well as other countries in the European Union and other nations around the world, its tourism offer is not only focused on cultural, educational and leisure destinations, but for some time now it has been positioned as a shopping tourism destination, thanks to benefits such as “Tax Free”, which exempts tourists from paying internal taxes that increase the price of certain products.

Ámbar Rodríguez, a young Dominican, who recently made a trip to Spain for academic and cultural reasons, was able to benefit from the Tax Free, among other requirements, because she does not have the nationality of the country to which she travelled nor reside there for a long time.

He comments that, thanks to the information provided by a Spanish company where he consumed, he was able to obtain part of the Value Added Tax (VAT), which is the direct tax on the consumption of products and services. VAT is what in the Dominican Republic is known as the Tax on the Transfer of Industrialised Goods and Services (ITBIS).

“It was a surprise and a very good experience, as I was able to receive a percentage of the taxes I paid in clothing shops,” explains Rodríguez, recalling the “high” tourist expenditure he made in various shops.

But not all expenses apply to Tax Free. That is, most of the food he consumed and services such as hotels and restaurants fall outside the exemption, as do vehicle accessories. Some states require that the goods you take back to your home country be unused and unsealed if you want to qualify for the tax deduction.

However, few Dominicans visiting Spain are as lucky as Rodriguez. Many are unaware of this tax benefit or do not know how to manage the whole process and end up returning to their country without having taken advantage of the tax refund in Spain or other countries where Tax Free is applied.

Experts in financial matters urge you to know this tax, when and why it is paid, the Tax Free policy in each country (if applicable) in order to have a correct tax planning for your next purchase abroad and thus benefit your financial health.

How it works

How it works can vary depending on where you are buying and the country you are going to. For example, in the United States, specifically New York, one of the most visited destinations by Dominicans, the Tax Free does not apply as such, but some department stores and shopping malls decide to grant certain discounts to tourists through a discount card that must be requested at the “Visitor Center” of the business, as well as your passport and round-trip airline tickets to apply.

Therefore, the first thing you should do when travelling abroad is to make sure that the country you are visiting applies Tax Free (under what conditions) and that the shop where you buy is adhered to this benefit.

In some countries, this benefit is given to tourists in different ways. For example, they apply the discount directly in the shop, on presentation of your passport (and/or flight tickets, both outbound and return).

In other cases, you only need to present your passport and purchase ticket to have it validated and stamped, so that you can register it in a DIVA machine at the airport from which you will be returning.

Once there, you must go to the Customs office or Tax Free managing entities and present the tax refund form and your travel documents (passport, visa…) to be refunded a percentage for this concept in the currency of your choice.
This indicates that you will have to arrive at the air terminal several hours before your trip, because the process can take a long time and this time is in addition to the two hours prior to the flight that it is recommended to arrive for the flight formalities.

The VAT refund for tourists varies according to the policy of each country and the deductible is the current rate. For example, in the Dominican Republic the ITBIS is 18%. The percentage of VAT in the country where the purchase was made is what will be deducted and refunded.

“Please note

1) If the country you are travelling to applies. Get advice and ask in the shops where you make your purchase if they operate the Tax Free system. There are some where they apply the discount directly, but in others they give you documentation so that you can do the process at the airport.

2) It varies from country to country. The Tax Free refund process requires a series of steps both at the time of purchase and once at the airport on your return to your country. Ask at all the establishments where you buy the validated or stamped documentation for these purposes.

3) Time. From the moment of purchase, Tax Free will only apply for the following three months. Remember that the discount is applied because it is assumed that the product purchased will not be used in the country where it was purchased, as you will be taking it back with you.

4) Go to the refund office. The Tax Free managing bodies will refund the money back to you, depending on the applicable percentage. In some countries they will deduct a part of the tax as a commission. The refund can be in cash or credited to your credit card.

5) Do it in good time. To take advantage of this benefit, do the process in advance (arrive at the airport a few hours before) and do not lose your validated purchase tickets and the return form, because in case your bags are lost, you can claim the full value of the product.

Author: Massiel de Jesús. El Dinero