Value added tax (VAT) is tax on exchanges. It is levied on the value added that results from each exchange. It differs from a sales tax because a sales tax is levied on the total value of the exchange. For this reason, a VAT is neutral with respect to the number of passages that there are between the producer and the final consumer. A VAT is an indirect tax, in that the tax is collected from someone other than the person who actually bears the cost of the tax (namely the seller rather than the consumer). To avoid double taxation on final consumption, exports (which by definition, are consumed abroad) are usually not subject to VAT and VAT charged under such circumstances is usually refundable.
The VAT was invented by a French economist in 1954. Maurice Lauré, joint director of the French tax authority, the Direction générale des impôts, as taxe sur la valeur ajoutée (TVA in French) was first to introduce VAT with effect from 10 April 1954 for large businesses, and extended over time to all business sectors. In France, it is the most important source of state finance, accounting for approximately 45% of state revenues.
Personal end-consumers of products, consumers and services cannot recover VAT on purchases, but businesses are able to recover VAT on the materials and services that they buy to make further supplies or services directly or indirectly sold to end-users. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state. VAT was invented because very high sales taxes and tariffs encourage cheating and smuggling. It has been criticized on the grounds that it is a regressive tax.
What are VAT/GST?
Value Added Tax (VAT) is a form of indirect tax applied to the value added at each stage of production (primary, manufacturing, wholesale and retail). This tax is much like the sales tax paid in the United States. VAT may be calculated by the subtraction method or credit method. The subtraction method applies the tax to the difference between the value of the purchases and the value of outputs. The credit method applies the tax rate to total sales and then gives each member of the distribution channel a rate adjusted credit on purchases. The European Union, Japan and some South American countries assess VAT at a rate of 15-25 percent. The GST, or Goods and Services Tax, is a 7 percent tax charged on most goods and services sold or provided in Canada; it is similar to VAT.
Why are taxes refunded?
The main principle of VAT is that governments do not charge the tax on exports of goods to other countries. They extend this principle to include purchases made by foreign visitors when they take goods back to their country. This, in theory, is supposed to stimulate trade and economic development.
What countries allow VAT refunds?
The EC countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Monaco, Netherlands, Portugal, Spain, Sweden, and the United Kingdom), Canada, Croatia, Czech Republic, Estonia, Hungary, Iceland, Japan, Liechtenstein, Luxembourg, Norway, Slovenia, South Africa, South Korea, Turkey, and Switzerland all refund VAT/GST to varying degrees.
Who can recover VAT- businesses or tourists?
While both business travelers and tourists are entitled to VAT refunds, the refund opportunities differ greatly. Tourists can apply for VAT refunds on merchandise, but not services. Custom officials must validate this merchandise to prove that the merchandise is indeed leaving the country. Business refunds, however, also include a wide range of services and do not require customs validation. The individual business traveler's employer files for refunds on their behalf.
What VAT expenses can be recovered?
Business travel costs (car rentals, hotel accommodation, meals, gas expenses, telephone expenses), business operating costs (jet fuel, maintenance costs), marketing/advertising services, and trade show/conference expenses are the most typical business expense categories that qualify for a VAT refund.
What are the procedures involved in recovering VAT?
For the tourist, reclaiming a VAT is a fairy straightforward process. The typical scenario is to get some form of documentation when you make a purchase, stipulating the amount of refund due. You then show these documents to customs officials upon leaving the country to claim your refund. Most countries specify a minimum amount you must spend in a particular shop to claim a refund. The minimum amount ranges from US$ 25 in Sweden to US$ 340 in Switzerland.
Another way for tourists to reclaim VAT is by purchasing items at stores participating in the Europe Tax-free Shopping program. When your buy from these merchants you simply show your passport and get a Tax-Free Shopping Cheque showing the amount of refund owed to you. When you leave the country, you show your purchases to an appropriate customs official, who stamps your checks. You then claim your refund from a Europe Tax-free shopping desk on site, or have the refund mailed to you.
For the business traveler, the easiest way to reclaim taxes is to have a company specializing in VAT refunds do the work for you. You save your receipts from all your purchases and send them to one of these service providers. They will then identify which receipts are eligible for a refund, fill out all necessary paperwork, file the claim with the appropriate authorities, and send you a check once the refund has been issued. As a fee, the company will claim a percentage of the refund; the fee is waived in the event a refund is not issued.
Birkner, would you please be so kind as to break this down into what exactly it means for the average Med cruiser and, as a result, what we need to do? Thanks! 
...... at the moment you have such a poor exchange rate plus the VAT that I don't think you will be finding any bargains ! Enjoy the sights and the food and take lots of photos home . 
