Breaking the long standing rules of Tax-Free Shopping

Yixin Lee
Yixin Lee
Nov 7 · 4 min read

Breaking rules using technology

Every industry is built around long-standing rules about how to make money aka its business model. These long standing rules are often considered inviolable — until someone comes along to break them. Almost always, it’s a newcomer from outside the industry with a different perspective .

Advancement in mobile internet connectivity and low cost smartphones have removed friction between businesses and billions of consumers. Before the internet era, listening to an album or song meant having to purchase physical CD or cassette with 12–15 songs from a physical retailer. Today, you pay a monthly subscription fee on Spotify, Apple Music etc and instantly, have access to the entire music collection on your mobile devices.

It’s the same story in retail, e-commerce exponentially empowered customers to shop for millions of products online without having to visit a physical shop. Countless other examples have been studied extensively as we ride this wave of mobile technology disruption.

Empowered by mobile technology advancement, UTU is able to break the long standing rules in tax-free shopping; creating more value for everyone in the value chain — Countries, Retailers and Shoppers.

What is Tax-Free Shopping and its long standing rule?

Tax-free shopping started in Europe in the 90s­ as a tool to boost tourism and consequently, tourism spending. Naturally, retailers participate in providing tax-free shopping in hopes that the VAT refund would entice tourists to spend more in stores.

The process of Tax-free shopping is where an eligible tourist qualifies for a refund of the value added tax (VAT) paid when they exit the EU upon having the appropriate documentation.

The “long standing rule” is the eligible shopper fills up paperwork after the in store purchases, lines up at airport counters and then pays a fee to a VAT refund operator (VRO) who claim the refund on behalf of the shopper from the relevant authority.

How was this long standing rule of “Refund my VAT and I pay you a fee” created?

In an ideal world, countries and retailers want 100% of the VAT refunded to be re-spent in their respective countries and stores which maximizes their objective. Shoppers also would like 100% of their VAT back with as little hassle as possible. However, the process of refunding VAT to tourists involves extensive administrative checks, legal and tax understanding, proof of shoppers leaving the EU etc; which is outside the core competencies of retailers and shoppers.

VAT Refund Operators were born to facilitate this process on behalf of tourist shoppers, countries and retailers. VROs cannot perform this service for free because they need to pay their own bills and make a profit hence the logical option is to charge a fee.

Therefore, the ideal world of 100% refund has eluded tourists, countries and retailers until today.

UTU changes it to “Spend your VAT with me, I will reward you”

UTU rewards the tourist when they shop tax-free. VAT is refunded onto the mobile app almost instantly while the tourist is still in the store. Tourists information is captured digitally on the mobile app. Tourists opt for a 100% Refund voucher to be used at partner stores digitally before leaving the country.

What is the disruption?

In the previous “refund for a fee” model, tourists receives the refund less the service fee (service fee today is close to 40% of the VAT amount) and there is no way of tracking if the refund results in additional spending in the country or store.

With rewards as our core proposition and a platform powered by latest payment and mobile technologies, UTU recasts a service fee driven process into a rewarding experience for shoppers.

Shopper receives 100% of the refund, shopper is happy. Shopper re-spends it in stores, store is happy. UTU provides visibility that 100% refund is spent in the country, the country is happy.

Concluding thoughts

Every long-standing rule in each industry is governed by a shared notions about customer preference, cost drivers and basis of competition and differentiation. With advancement in mobile and payment technologies, UTU is able to break all the long standing rules in Tax-Free Shopping and offer maximum value for shoppers, retailers and countries.

UTU Tax Free is available on Google Play store and the Apple App store.

Yixin Lee

Written by

Yixin Lee

Disruption in Fintech & Traveltech

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