Israelis Leave Billions Abroad Due to Unclaimed VAT Refunds

High living costs in Israel are prompting many Israelis to shop abroad, but a significant amount of money is being left unclaimed due to a lack of awareness and fear of bureaucracy surrounding Value Added Tax (VAT) refunds. Israelis are estimated to leave approximately 1.3 billion shekels (around $350 million USD) annually in potential VAT refunds unclaimed, according to PassportCard Pay. This occurs despite the process becoming more digitalized in recent years.

The VAT refund system allows tourists to reclaim the VAT included in the price of physical goods purchased in many countries, particularly within the European Union, Switzerland, Japan, South Korea, and the UAE. This refund applies to items like clothing, electronics, and cosmetics, but not to services such as accommodation or car rentals. The refund is generally not available in countries like the UK, the US, Canada, and New Zealand.

To be eligible for a refund, shoppers must meet a minimum purchase amount at a single store on the same day, though this threshold varies by country. For example, Spain has no minimum, while Switzerland requires at least 317 euros. The goods must also be new and exported within a limited timeframe, typically three months from the purchase date. Residency, not citizenship, determines eligibility; Israelis residing in their home country are considered tourists eligible for refunds in the EU.

The process typically involves presenting a passport at the point of sale to receive a Tax Free form, which is then processed at customs at the airport before departure. Refunds can be received in cash or credited to a credit card within weeks. Major players in the refund processing market include Global Blue and Planet, which charge handling fees that can reduce the refund amount by 30% to 50%. New services, like PassportCard Pay, aim to simplify the process, offering guidance and in some cases, allowing refunds based on receipt photos, bypassing the in-store form requirement.

Online purchases shipped directly to Israel are usually exempt from the origin country's VAT at checkout. However, upon arrival in Israel, packages are subject to Israeli tax laws, including VAT on items exceeding $75. Refunds are generally not possible for items purchased online and shipped to a foreign hotel address, as the Tax Free mechanism requires physical presence and specific documentation obtained at the store.