Over 50 countries have a VAT refund scheme for tourists, but it’s complicated and the fees are exorbitant, which leads many people to just give up. A few Israeli start-ups are stepping up to help.
Who doesn’t compare airline ticket prices while planning a trip overseas, be it business or pleasure? Doesn’t the same apply for hotel rates and prices at restaurants or attractions? We all try to get the most out of everything while trying to spend as little money as possible. That makes sense, especially when you consider that many people take the opportunity to shop while they’re overseas. But many tourists don’t take advantage of another monetary perk – a refund for purchases they make abroad, which can add up to hundreds of Euros.
Value Added Tax (VAT) is a tariff which applies to residents of many countries but, in practice, is also collected from everyone as it is automatically included in the final price paid by the consumer. Non-residents are not required to pay VAT and they’re entitled to a refund, based on each country’s laws. Under these regulations, Non-EU tourists are entitled to a refund for many goods but not services. If you’re on a business trip however, you can get money back for expenses such as services and equipment.
A VAT refund scheme exists in over 50 countries around the world. It’s particularly appealing in Europe where VAT rates are relatively high, running anywhere between 17 to 27 percent of the price of a product. In addition, there are also minimum amounts you must spend to be entitled to a refund. This varies from country to country. In the U.K. the minimum is 30 pounds, Belgium – 50 Euro, Italy – 155 Euro and in France one needs to spend at least 175 Euro.
Research conducted by Adkit for Refundit, an Israeli company which offers a digitized service of VAT refund for tourists, shows that annually about 90% of VAT refunds owed to visitors to European Union, some 23 billion Euros, are never claimed. The reason is that the process is long and complicated leading most people to just give up on the money they have coming to them.
To get their money, tourists have to ask for a special receipt at the store, find the customs counter at the airport (one that was open at the time of their flight), get the invoice stamped and stand in long lines while coping with delays and stress. In addition, the brokers who manage the process take fees which can add up to 50% of the total refund leaving tourists to wonder if the whole process is worth the effort. After getting the invoice stamped at the airport, the tourist could either get their refund in cash (minus additional fee charged) or request a bank transfer/credit card charge back by leaving the forms in a service box. This leaves the tourist with no paper trail making the request almost impossible to trace if it’s not processed for any reason.
Business travelers face similar obstacles with the main differences being that they’re entitled to refunds on services and the amounts are usually much larger. Business travel represents a big chunk of the global tourism industry totaling some 1.3 trillion dollars annually. Companies spend about 5% of its annual budget on travel and are entitled to a refund of 4%-10% for travel expenses.
While small companies send just a few employees on business trips, large firms often fly big delegations overseas and need to make sure they get all of the necessary receipts for business expenses including car rentals, hotel bills, public transportation, meals and more. This is a complicated process both technically and legally as each country has its own regulations as to what warrants a business expense. This can be a great burden on accounting departments and many aren’t geared for this kind of work. As a result, many receipts are lost and the VAT refund with them. Even when all the forms are filled out properly, the process can take months. As a result, some 20 billion Euros in VAT refunds are never claimed by businesses.
Start Up Nation Answers the Call
Several Israeli companies have identified the problem and the need to digitize the process. They are providing cutting edge solutions for both tourists and business travelers alike. Here are the major start-ups in the field:
For tourists travelling overseas but not on business – Refundit offers tourists VAT refunds through a digital process which is conducted completely over a smart phone application. No paperwork or lines at customs.
The entire process is short and simple and includes taking a picture of receipts while still in the store and later on uploading passport and boarding pass photos to the app. The authorities get your request and approve it digitally. In some cases, the tourist will be asked to present the goods at the airport, but that request will come in advance. The refund is paid digitally, of course. Besides skipping lines, saving time and avoiding the paperwork, there are two other key advantages, tourists can use invoices from any store and the fee is minimal (9%) as compared to other agents in the field. The service is now operational in Belgium and will be available in other countries soon.
VATBox has developed technology which helps business travelers. Their solution uses an automatic verification process which ensures each receipt and charge has the relevant information needed to get the maximum refund while meeting the criteria set by the tax authorities. The result is simple and more effective practice for companies. The entire process is transparent with an interactive display which updates in real time and shows an overall picture of all of the financial activity in a clear, informative and secure manner, with no cost or inconvenience from the clients’ side.
WAY2VAT also offers an automatic VAT solution for business clients. All the traveler needs to do is take a picture of the receipt with a cell phone camera. The technology can decipher any receipt or invoice even if it’s torn, wrinkled, stained or hand written without relying on a specific format or structure of standard receipts. The process only takes around 5 seconds. The VAT refund form is send automatically to the proper authorities and the VAT refund is processed automatically as well.
Itai Green is the founder and CEO of Innovate Israel, and one of Israel's top practitioner of corporate open innovation, leading innovation processes by connecting global corporations with the Israeli startup community. Itai focuses on IT, consumer products, pharma, finance, travel, e-commerce, retail, banking, insurance, energy, construction-tech and IoT.
(photo credit: Gideon Markowitz).