Introduction: What is Tax Free? #

Tax Free (also called VAT Refund for Tourists) is a government scheme that allows non-resident tourists to reclaim Value Added Tax (VAT) on goods purchased during their stay and exported from the country. The scheme is designed to promote tourism and retail spending by removing the tax burden on goods that will be consumed outside the jurisdiction.

From the retailer’s perspective, Tax Free is not a tax, not an income, and not an expense. It is a pass-through transaction. The retailer sells goods to a tourist at the full price including VAT, issues the required Tax Free documentation, and the tourist later claims the VAT refund directly from the government (through an authorized operator such as Planet or Global Blue). The retailer’s accounting remains unchanged – it records a normal sale with VAT.

The key distinction from regular sales: the retailer never refunds the VAT to the tourist. The refund is processed by the government or its designated operator, not by the seller. The seller simply collects the full amount and reports the sale normally.

Registration: Joining the Tax Free Scheme #

To participate in the Tax Free scheme, a retailer must register with the Tax Authority and the designated operator. In the UAE, for example, retailers register through Planet Tax Free LLC, the exclusive operator appointed by the Federal Tax Authority (FTA).

Registration requirements typically include:

Requirement	Details
VAT Registration	Valid Tax Registration Number (TRN) with at least one filed VAT return
Trade License	Valid commercial license
Credit Check	Satisfactory credit rating
Collateral	Security cheque or bank guarantee in favor of the operator (amount determined by operator)
Services Agreement	Signed contract with the operator

The registration process involves online application, document submission, collateral provision, and completion of operator-provided training.

Preparation: Setting Up a Tax Free Invoice Template #

In AccountingSuite, you can create a dedicated invoice template for Tax Free transactions. The system supports logo placement in the header and fixed footer text through print template settings.

A Tax Free invoice should include:

Element	Purpose
Tax Free Logo	Identifies the transaction as eligible for refund
Retailer TRN	Tax registration number of the seller
Tourist Passport Details	Name and passport number as per travel document
Invoice Number and Date	For tracking and validation
Goods Description	Itemized list of purchased goods
VAT Amount	Separately stated VAT charged
Tax Free Tag Reference	Linked to the operator’s system

Note: The exact format and required fields vary by country and operator. In the UAE, the Tax Free Tag is affixed to the back of the original tax invoice. For paperless transactions, a digital invoice is issued and no physical tag is required.

Journal Entries: Standard Sale, No Special Treatment #

The accounting for a Tax Free sale is identical to a regular sale. The retailer receives the full amount including VAT and records it normally.

Sale to Tourist (Tax Free Eligible)

Tourist VAT refunds (Tax Free) allow foreign visitors to recover part of the VAT paid on goods. For sellers, this mechanism does not reduce revenue or create an expense, instead, it affects VAT payable through a deduction based on the Tax Free cheque.

Under the Tax Free scheme:

• The seller charges VAT on the sale in the normal way.
• When a Tax Free cheque is issued and the refund is processed, the seller deducts the VAT shown on that cheque.
• The refund paid to the tourist (or via an operator) is recorded as a liability settlement, not as a reduction of revenue.
• Revenue remains equal to the original sale amount; only VAT payable is adjusted.

Document	Debit	Credit
Cash Sales	10000 Bank Accounts (or 11000 Undeposited funds)
		40000 Sales (net amount)
		25010 VAT on Sales (VAT collected)

The tourist pays the full price including VAT. The retailer’s obligation to remit VAT to the tax authority remains unchanged. The refund is a separate transaction between the tourist and the government/operator.

In the system, Tax Free sales are supported as Cash Sales. To enable Tax Free processing, the “Tax refunds for tourist scheme” toggle must be activated on the Additional tab of the Cash sale document. VAT adjustments are then recorded using the VAT Adjustment document.

Use “Tax refunds for tourist scheme” toggle in the VAT Details Report filter to find and control such sales.

Operator Registration Collateral (if applicable)

If the registration requires a security cheque or bank guarantee, no accounting entry is needed for a bank guarantee. If a cash deposit is required:

Document	Debit	Credit
Journal Entry	17900 Other Non-current Assets
		10000 Bank Accounts

Tourist Actions: Outside the System #

The following actions are performed by the tourist and do not involve the retailer’s accounting system:

Step	Action	Location
1	Request Tax Free documentation at point of purchase	Retail store
2	Present passport for identity verification	Retail store
3	Receive Tax Free Form / Tag and original invoice	Retail store
4	Present goods, passport, and Tax Free documents for validation	Airport customs/validation desk
5	Submit validated documents for refund	VAT Refund Office (after immigration)

Key requirements for tourists:

• Original passport (copies not accepted)
• Goods must be presented before check-in and luggage drop
• Validation must occur within a specified period (e.g., 90 days from purchase in UAE)
• Minimum purchase threshold applies (e.g., AED 250 in UAE)

The refund amount is typically less than the full VAT due to operator fees (e.g., 13% deduction plus a fixed fee per transaction in the UAE).