london tax refund tourist 2022

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• Money and tax

Tax on shopping and services

Tax-free shopping.

You can only buy tax-free goods from shops:

• in Great Britain (England, Wales and Scotland) if they’re delivered straight to an address outside the UK
• in Northern Ireland if they’re delivered straight to an address outside the UK and the EU

Check with the retailer if they offer this service.

If you’re visiting Northern Ireland, you may also be able to claim tax back on goods you buy from certain shops. You claim this as a VAT refund when you leave Northern Ireland or the EU.

When you may be able to get a VAT refund

You can sometimes get VAT refunds on goods you buy in Northern Ireland if you:

• visit Northern Ireland and live outside Northern Ireland and the EU
• work or study in Northern Ireland but normally live outside Northern Ireland and the EU
• live in Northern Ireland but are leaving Northern Ireland and the EU for at least 12 months

You can only get a VAT refund if you take the goods out of Northern Ireland and the EU within 3 months of buying them. Not all retailers offer VAT refunds.

Taking goods from Northern Ireland to Great Britain

You will not get a VAT refund if you travel from Northern Ireland straight to Great Britain or to Great Britain through any EU country , including the Republic of Ireland.

If you travel from Northern Ireland to Great Britain through any other country you can get a refund. But any goods you buy in Northern Ireland will count towards your tax-free personal allowances when you enter Great Britain. If you go over your personal allowances, you’ll have to:

• declare them along with other goods you’re carrying when you enter Great Britain
• pay any import VAT due on the total goods

This may mean you have to pay VAT again on the goods you bought in Northern Ireland. But you can get a refund from the retailer if when you bought the goods you got a VAT 407(NI) form.

You may be able to get a VAT refund if you’re only travelling to Great Britain in order to change planes. You must be travelling to a non EU country and the goods must be in your hold luggage at all times.

Check the rules on bringing goods into Great Britain .

How to get a VAT refund

Get a VAT 407(NI) form from the retailer. They will ask for proof that you’re eligible, for example your passport and travel documents.

Complete the VAT 407(NI) form. Only include the goods you’re taking out of the country. Do not include any goods you’re leaving behind, any goods you’ve used or or any goods you’ve returned.

Show the goods, the completed form and your receipts to customs at the point when you leave Northern Ireland or the EU.

Customs will approve your form if everything is in order.

To get paid, either take your approved form to the VAT refund desk at the airport, or send it to the retailer or refund provider with evidence of where you’re travelling to.

If you’re changing planes in an EU country and checking in your goods with your luggage, you must do step 3 in Northern Ireland when you check in.

If you lose your VAT 407(NI) form, you can ask the retailer for a replacement.

Getting paid

You can either get paid immediately at a refund booth, for example at the airport, or send the approved form to the retailer or their refund company. The retailer will tell you how you’ll get paid.

If you’re travelling to Great Britain the retailer will tell you if you need to send them copies of your travel documents.

Some retailers charge a fee for handling your form. This money will be deducted from your refund.

If there are no customs officials available, you can leave your form in a customs post box. Customs will check it and contact your retailer to arrange the refund if everything is in order.

Goods you cannot get a refund for

You cannot get a VAT refund for:

• most mail order goods, including internet sales, delivered outside of Northern Ireland
• goods you’ve already used in Northern Ireland or the EU, such as perfume
• service charges, such as hotel bills
• new or used cars
• goods exported for business purposes where you need to make a customs declaration
• goods to be exported as freight
• goods that need an export licence (except antiques)
• unmounted gemstones
• gold or silver over 125g, 2.75 troy ounces or 10 tolas
• a boat you plan to sail to a destination outside the UK or the EU

Find out more about claiming VAT back on tax-free shopping in Northern Ireland , including travelling to Great Britain and problems like losing your form.

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News | London

What is the tourism tax? Jeremy Hunt could scrap controversial measure affecting London

Jeremy Hunt faced renewed calls on Monday to scrap the controversial “ tourist tax ” within weeks and give London a significant economic boost.

The chancellor has asked the Office for Budget Responsibility (OBR) to look at the benefits and disadvantages of the levy and report back before the budget on March 6.

It gives hope that London could again appeal to wealthy tourists although it remains to be seen what will come next.

The Treasury has argued that axing the levy now could cost up to £2bn a year in lost taxes.

But campaigners have insisted that the analysis did not take fully into account the broader boost to the wider economy , beyond the revenue for shops selling to high-spending tourists .

Mr Hunt has previously said it is unlikely he will have “the kind of room that I had for those very big tax cuts” in the autumn statement.

What is tourism tax and how is it affecting London?

As chancellor, Rishi Sunak abolished tax-free shopping for tourists in 2020.

The perk allowed tourists from outside the EU to claim back their VAT on goods bought in the UK, making them 20 per cent cheaper.

The tourist tax is seen as putting London at a disadvantage to other European cities such as Paris and Milan in attracting wealthy visitors, with campaigners against it claiming it is costing the UK billions. The government has been under pressure to reinstate duty free shopping, which has had an impact on London Fashion Week , making purchases 20 per cent more expensive for international shoppers.

The loss of duty-free shopping, according to independent designer Edeline Lee, who established her namesake brand in 2013 and creates all of her clothing in the UK, makes it more challenging for small British businesses to compete with their European competitors.

Laboni Saha, the founder of womenswear brand L Saha, is finding it “increasingly challenging to remain profitable from sales in the UK” as the cost of running a business increases with “Brexit-related costs and inflation”.

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A recent study by the Centre for Economics and Business Research (CEBR) has revealed that the “tourist tax” is costing the UK £10.7 billion in lost GDP and putting off two million tourists from visiting each year.

The research also showed that extra sales generated by reinstating VAT-free shopping for tourists would outweigh these losses.

Around 350 businesses previously sent an open letter to the Mr Hunt, asking for the situation to be addressed , highlighting the fact that tourists are choosing to travel to and spend their money in cities that don’t have the indirect tax.

Mr Sunak said last year had said he would listen to calls to scrap the “tourism tax” that critics say is damaging London’s economy.

The PM’s official spokesman said at the time: “We are always happy to listen to the sector about their concerns and obviously we will respond accordingly.”

A debate on tax-free shopping for international visitors was held in Westminster Hall on September 7 but no decision has been made yet.

Mr Hunt has asked the independent watchdog OBR to review it, giving the clearest message yet that it could be set for modification.

How did the VAT refund for overseas visitors work?

Until January 2021, visitors to the UK from outside the EU were able to get a VAT refund on their shopping. VAT, which stands for value-added tax, is a 20 per cent sales tax charged on items in the UK.

Non-EU visitors used to be able to present a VAT receipt at the airport to claim their refund. This scheme has since ended, though customers are still able to buy items VAT-free in-store if they send them directly to their homes overseas.

The VAT paid by visitors to the UK is different from how tourist tax works in other cities. For example, Manchester introduced a tourist tax in April, which charges visitors to the city £1 per night for hotels and similar accommodation. The hope is that this tourist tax could raise millions of pounds for the council, and that the money could be used to boost the tourism economy.

Why did the VAT refund scheme end?

The VAT refund scheme ended in 2021 after the UK left the EU, as part of a post-Brexit consultation about taxing items transported across borders for personal use.

Kwasi Kwarteng reintroduced the tax-free shopping scheme as part of his mini-budget, but Jeremy Hunt reversed the decision when he became chancellor, claiming it was unaffordable.

At the time, retail bosses described Hunt’s decision as a “ hammer blow to UK tourism and the British high street”.

Mr Hunt argued that by not introducing a new VAT-free shopping scheme, the UK could generate more than £1 billion in 2024, and more in subsequent years, as reported by Forbes .

However, a report by the luxury trade association Walpole found that tax-free shopping generated more than £3 billion a year for the UK as well as wider economic benefits.

Paul Scully, MP for Sutton and Cheam, also welcomed the review into the levy.

“I hope that this will lead to it being scrapped, if possible at the Budget,” he said, stressing that the move would benefit “ordinary Londoners” including those who work in the hospitality sector and taxi drivers.

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The impact of ending tax-free shopping on the UK and London economies

Introduction.

It is widely known that the tourism sector contributes considerably to the UK and London economies. Few events illustrate the extent of this impact better than the COVID-19 pandemic, which led to a series of restrictive lock-down measures that impacted severely on domestic and international tourism to London and the rest of the UK.

In the UK context, the picture is further complicated by a series of challenges related to the 2016 Brexit referendum, such as the ensuing political and economic uncertainty and the depreciation of Sterling. Another issue that is not cited as frequently is the UK’s decision to end its tax-free shopping scheme for international tourists- a decision that took effect on January 1, 2021. The UK ended a scheme (known as ‘VAT-RES’) that allowed international tourists to claim the value-added tax on items purchased during their stay in the country.

This supplement provides the context behind the UK government’s decision, before discussing its potential implications for both the UK and London economies.

Background Information

Tax-free shopping (TFS) is an arrangement whereby products bought but not consumed in the country of purchase are VAT-free. This can happen either via the product being tax-free at the point of purchase, or via the buyer having to obtain a VAT refund after buying it [1] . There are also restrictions on the types of goods that qualify for the relief [2] . The sales tax may be in the form of a goods and services tax (GST), value added tax (VAT), or consumption tax.

Unlike duty-free shopping (which allows consumers to buy products that would normally have excise tax on them tax-free and is usually found only at international terminals such as airports), TFS applies to the GST/VAT/consumption tax component only, and can apply to purchases made in high streets within a jurisdiction as well as at international travel points.

Several countries implement TFS schemes. A 2021 study by the Australian National University found that 63 countries globally, including the 27 EU member states, apply a TFS scheme [3] . EU member states are required to implement a TFS scheme under Article 147 of Council Directive 2006/112/EC (the EU VAT Directive) [4] .

The UK was governed by this obligation until 31 December 2020. Under this arrangement, if a person lived outside the EU and travelled to the UK for leisure or business, they were eligible for a VAT refund on items purchased in the UK. The VAT-refund scheme was called the Retail Export Scheme (VAT RES), or tax-free shopping in colloquial terms. Under the UK’s VAT RES scheme, international visitors to the UK could reclaim the VAT they paid on goods that have been purchased but not consumed in the UK.

Why VAT RES was terminated by the UK government

In a move that coincided with the end of the Brexit transition period, the UK government ended VAT RES effective 1 st January 2021. In September 2020, it explained its rationale for ending the scheme as follows [5] :

• VAT RES was not the only scheme through which WTO rules and OECD guidelines on paying tax in the country of consumption could be fulfilled. In other words, the officials did not see any risk in ending the scheme when it comes to international guidelines and rules on payment of consumption-related taxes.
• The impact of the scheme across the UK was unclear, and data suggested that a majority of purchases under the scheme happened in London and in Bicester Village. According to the officials, this would indicate that the scheme did not benefit the whole of the UK equally. The Government argued VAT RES was “a costly system to maintain with unclear economic benefits, and […] burdensome for exit points” [6] .
• Concerns were raised about the administrative difficulties of VAT RES.
• It was argued that there was a risk that fraud and non-compliance would increase if VAT RES was extended to passengers travelling to the EU [7] .

That being said, it is worth noting that VAT-free shopping is still available where a retailer ships goods out of the country at the time of purchase [8] . However, this raises questions about whether such an option would inconvenience tourists.

Government estimates of economic impacts of terminating VAT RES

When forecasting the impact of terminating VAT RES, the OBR said that VAT refunds worth about £500 million had been given via the scheme in 2019 [9] . It did also note, however, that while terminating the scheme would generate revenue for the Treasury, it could also lead to reduced shopping by international tourists, especially for luxury items. The OBR forecast that terminating VAT RES would generate a £1.8b saving to the Treasury by the 2025/26 fiscal year, whilst adding the caveat that the figures are highly uncertain [10] .

Ascertaining economic impacts of terminating VAT RES

A key challenge to the OBR analysis (typically highlighted by opponents of the government’s decision as well as other economic forecasters (e.g., Oxford Economics)) is that the work did not examine the impact of TFS schemes on retail expenditure and its broad multiplier effects (e.g., increased economic activity in other sectors beyond retail – for example tourism, and more job retention and creation). For instance, Oxford Economics’ modelling of the decision’s impacts suggests that the re-introduction of VAT RES will have a significant positive effect in terms of GDP, tax yield, and job creation [11] .

Economic theory suggests that tax-free schemes boost retail spending by tourists [12] . By extension, the increase in consumer spending would increase a country’s GDP and stimulate job creation. Various studies suggest that these effects extend beyond the directly-affected sectors (e.g., tourism and hospitality) to include other sectors (which would form part of the supply chains for items tourists purchase) and regions (as supply chains tend to be dispersed).

As the UK ended the scheme relatively recently, data on the effects is limited. Moreover, the COVID-19 pandemic’s impact on global tourism complicates the picture. Nevertheless, there is recent data that would suggest that the UK is losing out economically to rival jurisdictions as a result of the decision to end VAT RES. The case for the detrimental impact of this decision (and thus, to reinstate tax-free shopping) can be divided into several categories (see table below):

Summary of recent data findings

• According to Global Blue, the world’s largest strategic technology and payments partner within the Tax-Free Shopping, Payment and RetailTech ecosystems, the recovery in tourist spending during 2022 vs pre-pandemic trends has been much lower in the UK than France, Italy, and Spain. Moreover, GCC (Gulf Cooperation Council) tourist spending in these EU countries is at least 1.5x pre-pandemic levels , but is less than 0.7x for the UK .   
• Global Blue data also shows that almost 10% of UK spending in 2019 has already been relocated to the EU27 by international shoppers . Meanwhile, Non-EU/UK shoppers who used to shop in the UK and EU27 in 2019 have increased their tax-free spending in the EU27 in 2022 by 30%.
• Chinese tourists typically represent 22% of tourist spending in the UK annually . In a recent Global Blue survey, the UK was shown to be the least favoured destination for Chinese tourists among the large five European countries for their future trips. Moreover, only 42% of Chinese people planning to visit Europe in the next 12 months are planning to visit Britain , down from over 70% in 2019 .
• Approximately €500M was spent by UK shoppers in Continental Europe in 2022, representing an increase of about 200% vs. 2021 (£160M).
• According to Value Retail, The Dorchester Group has just announced that its London hotel is underperforming its Paris hotel , which they attribute purely to the end of VAT RES. Meanwhile, Mulberry has just announced the closure of its Bond Street store due to the ending of tax-free shopping.
• According to the New West End Company, 57% of all West End spend was international in 2019, compared to 44% in 2023. 71% of their international visitors said they would spend more if they could claim back VAT on their purchases. This proportion increases to 93% for the highest-spending customers .
• The Canadian government is considering its own TFS scheme , and commissioned a study by CEBR to forecast potential economic impacts. The study revealed that a TFS scheme could have increased 2019 GDP by CAD 810 million . In terms of labour market benefits, the boost to visitor spending would support an additional 32,100 jobs in the travel and tourism industry and its supply chains . This would bring a potential net gain of CAD 127 million in overall tax revenue . Equivalently, for each dollar lost through lack of VAT, CAD 1.90 would be recouped in other taxes . The estimate of total additional tourist spending due to TFS is CAD 407 million .

Final considerations

During 2023, several media and retail-led campaigns were started to reinstate VAT RES. For example, in August, the Mail on Sunday stated that 350 brands, including Harrods, Marks & Spencer, Burberry, and Harvey Nichols, had backed its campaign, alongside 40 Conservative MPs [13] . It’s also worth noting that should the UK reinstate VAT RES, it would become the only major European country where EU residents could shop tax-free, opening-up a whole new market for regional airports and the areas they serve.

Therefore, it is safe to suggest that the impact of terminating VAT RES extends beyond a few London-based luxury retailers: it will negatively affect a broad range of London’s business population and workforce, in addition to suppliers and manufacturers across the whole of the UK – with long-term economic costs that would far outweigh any short-term accrued savings.

[1] Wang T and Stewart M. The law and policy of VAT tourist tax refund schemes: A comparative analysis (PDF; Working Paper 19/2021), Tax and Transfer Policy Institute, November 2021

[4] EUR-Lex – 02006L0112-20200101 – EN – EUR-Lex (europa.eu)

[5] HM Treasury and HMRC, A consultation on the potential approach to duty- and tax-free goods arising from the UK’s new relationship with the EU: Summary of responses (PDF), GOV.UK, September 2020.

[8] Tax on shopping and services: Tax-free shopping – GOV.UK (www.gov.uk)

[9] https://obr.uk/docs/dlm_uploads/CCS1020397650-001_OBR-November2020-EFO-v2-Web-accessible.pdf

[11] Oxford Economics, Assessing the impact of tax-free shopping in the UK – a report for the Association of International Retail (AIR), November 2022.

[12] Dimanche (2003).

[13] https://www.dailymail.co.uk/news/article-12005245/Business-leaders-call-Chancellor-Jeremy-Hunt-reinstate-tax-free-shopping-overseas-visitors.html

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Growth Plan 2022: VAT-free shopping re-introduced to Great Britain

Published: 27 Sep 2022 Update History

17 October update

On 17 October, the new Chancellor of The Exchequer, Jeremy Hunt, brought forward a number of measures from the late October Medium-Term Fiscal Plan. These reversed most of the changes that had been announced by his predecessor, Kwasi Kwarteng, on 23 September.

• Read more about the changes
• Find out more about the tax cuts reversals

Since the UK left the EU at the end of 2020, VAT-free shopping has only been available in Northern Ireland.

As part of its plan for growth, the government has committed to reintroducing a VAT-free shopping scheme to Great Britain. This would enable non-UK visitors to Great Britain to obtain a VAT refund on goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage. The proposal is intended to provide a boost to the high street and create jobs in the retail and tourism sectors.

The scheme currently operating in Northern Ireland is largely paper based. The new scheme for Great Britain will be digital and the Northern Ireland scheme will be modernised. A consultation will gather views on the approach and design of the scheme, which the government says will be delivered “as soon as possible”.

It remains to be seen whether HMRC will be given additional resource to urgently build another new digital system while also working on projects such as MTD ITSA and the Single Trade Window.

This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.

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Duty-free shopping to be reinstated for overseas visitors to the UK

Tourists used to be able to reclaim the taxes until former chancellor rishi sunak scrapped the rebate in late 2020.

Britain has reintroduced VAT-free shopping for overseas visitors. EPA

Duty-free shopping in the UK will be reintroduced for overseas visitors, the country’s new chancellor announced on Friday.

Tourists will soon be able to claim all value-added tax paid on goods in plans unveiled by the government.

Shoppers used to be able to reclaim the taxes before they left the country at airports and refund agencies.

But former chancellor Rishi Sunak scrapped the rebate in December 31, 2020, despite fears it would cost 40,000 British jobs and £1 billion ($1.12bn) of investment.

Speaking in the House of Commons to announce the new government’s mini-budget , Kwasi Kwarteng said the move would benefit British retailers.

“Britain welcomes millions of tourists every year and I want our high streets and airports, our ports and our shopping centres to feel the economic benefit,” he said.

“So we have decided to introduce VAT-free shopping for overseas visitors.

“We will replace the old paper-based system with a modern, digital one.

“This will be in place as soon as possible. This is a priority for our great British retailers, so it is our priority too.”

Industry experts welcomed the move, saying British retailers have been lobbying for a reinstatement of the rebate for two years.

"The government's reversal on tax-free shopping in today's mini-budget is a huge relief after nearly two years of lobbying with the retail sector for this," said Hugh Seaborn, chief executive of Cadogan, a property manager, investor and developer based in Chelsea.

"International visitors are fundamental to London and the UK's recovery, and we now have a level-playing field alongside other European cities that never ceased to offer this incentive.

"We are firmly back on the map as an extremely attractive destination and unbeatable once more in terms of a heady mix of culture, heritage and fantastic shopping."

The rebate is among a series of measures announced on Friday, designed to break the “cycle of stagnation” in the British economy.

They include a cut in the basic rate of income tax to 19p from April 2023 and the abolishment of the top rate of tax for higher earners.

The government also lifted the cap on bankers’ bonuses, raised the threshold for stamp duty to £250,000 and reversed an increase in National Insurance.

"We need global banks to create jobs here, invest here and pay taxes here in London — not in Paris, not in Frankfurt and not in New York," Mr Kwarteng said.

"We are securing our place in a fiercely competitive global economy, with lower rates of corporation tax and lower rates of personal tax."

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VAT: How to Claim a Tax Refund When Shopping in London

Dan Kitwood / Getty Images

VAT (value-added tax) is the tax payable on all goods and services in London , and the rest of the United Kingdom. The 2019 standard rate of 20 percent VAT means if you spend 100 pounds at one store, you can claim back 20 pounds at the airport. With store-bought goods, the VAT tax is factored into the sticker price so you don't need to add it to the price displayed when at the cash register. So if a bottle of water is priced at 75 pence, then 75 pence is what you will pay.

As a citizen of a non-EU country, you are not always obligated to pay this tax and can opt for a refund at the airport. If you plan on doing a lot of shopping in the U.K., not taking advantage of the VAT refund means you're leaving money on the table.

VAT Refund Eligibility

If you live outside the EU, if you are an EU citizen living outside the EU with no plans to return in 12 months, or if you are a non-EU resident that works or studies in the U.K. and are leaving the EU for 12 months or longer, you are eligible for a VAT refund upon leaving the U.K. You must be able to show proof that you will be leaving the U.K. to qualify for the refund.

You can claim a VAT refund on anything purchased from participating retailers, which has the VAT included in the price. This does not include services, such as hotel stays, items bought online or through the mail, unmounted gemstones, consumable goods that have been opened, cars, goods you have used or worn, gold weighing over 125 grams, items that need an export license, or goods worth over 600 pounds that are being exported for business purposes. The VAT refund is strictly intended for commercial goods.

Many stores have a minimum amount that you need to spend before qualifying for a VAT refund and some stores don't participate in the refund program at all. If you are planning on spending a lot of money at one particular store, make sure you ask them about their VAT policy when you enter. For example, the VAT minimum at Harrods in London starts at 50 pounds.

How to Claim a VAT Refund at the Airport​

The best time to get your VAT refund is at the airport when you are leaving the U.K., but you really should start thinking about it before you head to the cash register, as you will need to make sure you get the proper forms. It's important that you don't use the items you purchase before you claim the refund. This means you cannot claim a refund for a jacket you are currently wearing—even if you just bought it the day before. Some officials might look the other way, but it's not worth the risk. If you are in the U.K. for more than three months and want to get a VAT refund upon your exit, note that you can only get refunds on items purchased within the last three months.

• When making a purchase, ask the retailer for a VAT Refund Form (also called a VAT 407 form). The retailer might ask for your passport to verify that you're eligible for the refund.
• Complete and sign the VAT Refund Form.
• To claim a VAT refund on goods that will be packed into checked luggage, go to customs before security at the airport, where your VAT Refund Form will be checked and stamped. After it's stamped you can check your luggage.
• To collect your refund go to a VAT refund desk.
• Depending on the VAT form you've been given, the refund will be issued to your credit card, sent as a check, or will be given as cash. Some retailers charge a fee for handling the VAT form and that fee will be deducted from your refund.
• If you're claiming for jewelry or electronics worth over 250 pounds and want the items kept in your hand luggage, you'll need to visit customs after airport security.
• If there are no customs officials available, you can leave your form in a customs mailbox.

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Follow our news, recent searches, tax free shopping: why buying items overseas without tourist vat refunds can lead to 'double taxation', advertisement.

Travellers who shop in destinations with no tourist tax refunds like the UK may have to pay VAT or GST in the country, and again when the same items are brought home.

A tourist uses a tax refund terminal at Roissy Charles-de-Gaulle airport, north of Paris on Mar 17, 2015. (Photo: AFP/Dominique Faget)

SINGAPORE: Imagine standing at the cashier counter, waiting to pay for a new designer bag you have picked out at a boutique along Bond Street - the home of luxury shopping in London.

As you hand your credit card and passport to the staff, she apologetically returns the passport to you and informs you that there is no longer any tourist refund scheme, or Value Added Tax (VAT) refund in the UK.

Would you forgo the potential 20 per cent VAT refund and proceed to buy the item, bearing in mind you would also have to pay the Goods and Services Tax (GST) upon returning to your home country? Or would you walk away?

With international tourists doubling in 2022 compared to the previous year, will travellers also choose to spend their money in countries that offer maximum tax relief?

CNA takes a closer look at why analysts say tax relief for tourists is a good incentive and why people continue to shop in destinations without such schemes.

WHAT ARE TOURIST TAX REFUNDS?

A tourist refund scheme allows tourists to claw back a percentage of the amount they have paid if the purchase meets the minimum spending requirement.

In Singapore, the scheme allows tourists to claim a refund on the GST paid if they purchase more than S$100 at participating shops.

Other popular tourist destinations like Australia, France, Japan and South Korea also allow tourists to claim a refund on the tax paid on their purchases. 

In Japan, where the standard VAT is 10 per cent, tourists can claim a tax refund at certain shops with a minimum purchase amount of 5,000 yen (S$51.57). 

Countries that have tourist tax refunds take the view that if there is a VAT refund for tourists, it will boost tourism as well as tourist spending, said Professor Sum Yee Loong from the Singapore Management University.  

It thus increases tourist spending in the country as well as the profitability of shop owners, department store operators and the hospitality industry, the professor of accounting added. 

Bringing home a luxury item bought overseas? 5 things you need to take note of

Tax relief "a good incentive".

Tax relief for tourists is a good incentive to elevate purchases and generate tourism revenue, said Associate Professor Lau Kong Cheen from the Singapore University of Social Sciences. 

“To a certain extent, this may make shopping in countries with no (VAT) refund less appealing. Then again, it depends on the shopping intention and the items available to those countries,” he added.

According to a 2021 survey by tax refund company Global Blue, 60 per cent of UK shoppers said they are more likely to spend in shops at the destination if they can claim back the VAT.

Prior to Brexit, the UK had offered tax refunds to tourists when it was a member of the European Union, said Assoc Prof Lau.

Tax-free shopping was abolished at the end of 2020 to increase government revenue, added Prof Sum.

According to the UK’s Association of International Retail (AIR), Britain is now the only European country that does not offer tax-free shopping to international visitors, news site euronews reported. 

Last September, former British finance minister Kwasi Kwarteng announced that Britain will bring back sales tax-free shopping for overseas visitors to boost the country’s retail sector. 

Prior to Kwarteng’s mini-budget in 2022, Bloomberg reported that retail lobby groups were pushing for the tax to be removed to boost footfall in prime parts of London that were still struggling from the impact of Brexit and COVID-19. 

The announcement by the short-lived Liz Truss government to re-introduce tax refunds for tourists received extremely favourable and positive response from the retail and hospitality industry, said Prof Sum. 

The move was later scrapped when Rishi Sunak took office.

It is also a matter of choice whether the tax authorities choose to provide tax relief for tourists, said Associate Professor Simon Poh from NUS Business School. 

“The decision is made after considering and balancing the objective of encouraging tourists to spend more (by giving maximum relief) and measuring it against the objective of maximising tourist revenue (by giving little or no relief).”

Assoc Prof Poh added that from the perspective of the tax authorities, the main costs will be the administration costs when deploying workers to process tourist tax refunds at the airports. 

“The money may be well spent if this scheme can attract more tourists into a country which contributes to its economic growth,” he said.

Visitor arrivals in Singapore creep back to pre-pandemic levels as tourism sector rebounds

Why do people still spend if there’s no vat refund.

While some countries such as UK and the United States do not have tax refunds for tourists, there are multiple factors that appeal to tourists to do their shopping overseas - the novelty of the items, souvenirs for loved ones and affordability. 

“(There) could be certain authentic items that are only available in specific countries, such as KitKats of certain flavours only found in Japan and not in the rest of the world … and souvenirs are often one of the most popular reasons for tourists to make purchases - either as memorabilia for themselves or (as) gifts for their loved ones back home,” said Assoc Prof Lau. 

On Jan 17, the Singapore Tourism Board said the country’s tourism receipts are estimated to reach S$13.8 billion to S$14.3 billion for 2022 - about 50 to 52 per cent of 2019 levels. 

In the first nine months of 2022, receipts came up to an estimated S$8.96 billion, with the top spenders hailing from Indonesia, India and Australia. 

Assoc Prof Lau added that the ability to purchase products at a less expensive price due to favourable exchange rates is also part of the appeal. 

According to Nikkei, duty-free sales in Japan to date in December 2022 have exceeded pre-COVID results for the same period at some stores. The country lifted the ban for individual inbound travellers in October.

The weaker yen is also driving up high-priced purchases by foreign tourists, it added.

Nikkei reported that duty-free sales in November 2022 at Takashimaya and four other high-end department stores rebounded to between 50 per cent and 90 per cent of sales in November 2019.

While favourable exchange rates may attract tourists to shop at places that do not offer tax refunds, Assoc Prof Lau said some research has shown that one of the top factors influencing shopping tourism is being able to enjoy value for money. 

“Even if VAT refunds are not available, tourists will still buy if they see value in what they buy. 

“Extending beyond this is the rarity of certain desirable products that cannot be purchased outside of particular countries - such cultural art and craft, luxury items, (and more).” 

For places such as the UK, favourable exchange rates may still appeal to shoppers as the pound has fallen around 13 per cent between 2021 and 2022, said Prof Sum, who also noted that the UK VAT rate is 20 per cent.

A favourable exchange rate may not appeal to shoppers of branded products from Europe, especially in France, Germany and Italy if the countries do not offer VAT refunds, he added.

WHY DO YOU HAVE TO PAY GST ON PRODUCTS BOUGHT OVERSEAS? 

One reason countries make residents pay GST upon returning home is to probably deter residents who purchase items overseas in bulk with the intention of making a profit by selling them at home, thus benefitting from the tax relief from the countries they have visited, said Assoc Prof Lau. 

Travellers shopping for goods overseas may also have to contend with first paying GST or VAT in the country they travel to, and again when the same goods are brought or imported into Singapore, to the extent that the amount is not covered by the GST relief, said Assoc Prof Poh. 

“Any GST refund that they can obtain overseas will alleviate the incidence of double taxation that they potentially face,” he added.

Some consumers may be deterred from shopping in countries with little or no tax refund, particularly for big-ticket items, said Assoc Prof Poh. 

However, the cost of such a tax refund scheme cannot be accounted for in absolute terms, said Assoc Prof Lau. 

“It depends on how much a country benefits from tourism spending versus the loss of VAT tax. It makes sense for countries that depends a lot on shopping tourism that will boost their local retail scenes such as Singapore, Japan and South Korea,” he added. 

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End of tax-free shopping: what is the impact on tourism?

Following Brexit, the UK removed tax-free shopping for tourists which is now having an impact on Britain’s prospects as an international shopping destination, new research reveals.

Formerly, when the UK was part of the EU, tourists from outside the EU were able to reclaim VAT on purchases made during their trip.

However, from 1 January 2021, the duty-free shopping scheme was abolished in the UK meaning that UK goods are now 20 per cent more expensive than countries still offering the VAT refund.

Prior to the end of the VAT refund scheme, the UK was a popular destination for international shoppers, with research from Global Blue (a shopping tax refund company) revealing that in 2019, Gulf state tourists spent an average of 24,000 euros (approximately £19,803) in the UK.

This figure dropped to £0 last year, with tourists opting to spend their money in EU countries (that still offer VAT refunds).

Of course, the past two years have had a major impact on the tourism sector with coronavirus-related travel restrictions limiting travel which is still having repercussions.

How will this affect your business?

Some small and medium sized businesses (SMEs) are heavily reliant on the additional income yielded from tourism and the Government have imposed measures to try and protect those impacted.

The Government outlined The Tourism Recovery Plan in June 2021 which aims to increase tourism levels.

By the end of 2022, the plan aims to boost domestics trips back to 2019 levels as well as increasing inbound visitor numbers to 2019 levels by the end of 2023.

To monitor the situation, the Digital, Culture, Media and Sport Committee are set to investigate how the retail and hospitality sectors can be shaped to do this.

Tomorrow (8 March 2022), a meeting relating to the Promoting Britain abroad agenda is going ahead, which will evaluate post-Brexit tourism and how to use tax freedoms to its advantage.

For support with related matters, contact our expert team today.

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