VAT Refunds
The VAT reclaim process reimagined: onerous paperwork and long queues at the airport coming to an end
December, 2020
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Industry Overview
The VAT refund industry has been around for more than 20 years now. Recent technological development and government digitisation initiatives are pushing the industry to evolve and new entrants are emerging. Key trend shaping the industry is the proliferation of technology at customers' fingertips. Many VAT Refund companies are looking to fully digitise the VAT refund process, however the level of digitisation per country depends on country regulations and technology adoption rates. To be able to process VAT refunds, a company needs local expertise as it needs to be under the supervision of local tax authorities.
With the increase of disposable income in Asia and in particular China (which is surpassing even the US for international tourist spending), VAT refund companies are expected to see a constant increase in revenues.
The "traditional" VAT process in most countries is the following:
Customers and Partners
Customers
With international travel continuing to grow (excluding 2020 and 2021 due to Covid-19), and development in SE Asia and China, VAT Refund services are expected to flourish. Only for China, outbound tourism in 2019 was 170 million according to China Outbound Research Institute (https://china-outbound.com/).
Partners
Most companies are working exclusively with some retailers, however that limits their potential for growth. There are still some that give travellers the flexibility to buy products from every retailer (assuming that VAT legal requirements are fulfilled).
The New Business Model
VAT Refund companies are looking to digitise and simplify the VAT refund process. Predominately, the new process looks something like this:
Revenue, Costs and Margins
Digital-first companies
Intuitively, operational costs for VAT Refunds companies are quite low. When the VAT Refund process is streamlined and the company has all the needed assets (contracts, app, etc.), the highest costs would be for digital marketing.
Incumbents
Traditional players have higher operational costs than the digital-first companies as there are costs associated with distribution of pre-paid envelopes, manual processing, signing up and training retailers.
Figure 1: Investments in VAT Refunds companies
Notes:
The Parrot collects information from a variety of sources. The chart is based on public data for tracked companies for the period 2016-2020. Last updated Nov 2020. Most companies reviewed by Insight Parrot are not considered startups as some of them have already been acquired by much bigger financial companies and some of them have been founded more than 20 years ago and have an old-fashioned operational process. Nevertheless, we have included those companies as a reference point.
Investments
The investments in the chart below are based on the few "true" startups (with digitised product offering) with available investment information - Refundit, Refundme and WeVAT. Investor interest in this industry seems to be reserved for companies looking to digitise the VAT refund process and decrease fees.
Risks
Regulations
As the VAT refund industry is heavily regulated, changes to regulation could be good (e.g. digitisation of government services) or bad (Brexit-like events could bring uncertainty for the industry some companies (e.g. WeVat) are moving their focus from the UK to other European countries). Heightened regulatory complexity could also prove to be a challenge.
Fee structure
Decreasing customer fees is essential for VAT refund incumbents. At the moment fees are quite high (in the range of 30%-70% of the VAT amount for most companies) and the industry is ripe for disruption. By digitising and streamlining the process new entrants in the space can drive down fees and capture market share.
Changes in travel
Currently, Covid-19 is negatively impacting travel and with it retail spend of travellers. Startup companies' survival would depend on the rate and shape of recovery (whether it would be an V-shaped, L-shaped or Tick-shaped recovery), government travel restrictions and appetite for travel. For the moment most companies are in a “wait-and-see” situation.
Companies
Insight Parrot explores thousands of data points and is on the lookout for trends that shape the forward curve of your industry to help you navigate the ever changing travel landscape and harness the potential of unfolding opportunities.
Reviewed companies in this analysis:
| AirVAT | Custom Cash | Detaxe | Easy Tax-free | Evalidation | Innova Tax Free | Planet Payment | Refundit | Refundme | Revenit (RefundGiant) | Solpay | Stampit |
The Parrot collects information from a variety of sources. If you want to tell us about a new company, notice anything missing or any errors, please get in touch.
AirVAT
Coverage
UK
Pricing
20% of VAT amount
Founded
2017 in London, UK
Number of Employees
1
Funding
-
SWOT
Strengths
- Russian and Chinese versions available
- Digitalised solution
- Good digital assets (website and app)
Weaknesses
- Limited coverage (only the UK)
Opportunities
- Expand into other markets
Threats
- Competitive threats
- Changes in regulation
- Covid-19
Custom Cash
Coverage
Denmark, Sweden, Norway
Pricing
Claim to offer 0% fee
Founded
2017 in Copenhagen, Denmark
Number of Employees
6
Funding
-
SWOT
Strengths
- Present in whole Scandinavia
- Highest refund guaranteed
- Digitalised solution
- Chinese version available
Weaknesses
- Present only in specific partner stores
Opportunities
- Expansion into other markets
Threats
- Competitive threats
- Changes in regulation
- Covid-19
Detaxe
Coverage
France with strong presence in Paris, ski resorts and on the Côte d’Azur
Pricing
-
Founded
Founded in 2001 in France by Philippe Guerin (currently owner)
Number of Employees
6
Funding
Share capital €40,000
SWOT
Strengths
- 19 years of experience
- Local knowledge
Weaknesses
- Limited coverage
- Does not seem that the company is growing
- Not a digitalised solution. Customers have to send Detax documents by post
- Digital assets not great. Website is clunky and they don't have an app
- Unclear pricing
Opportunities
- Expansion into other markets
Threats
- Competitive threats
- Changes in regulation
- Covid-19
Easy Tax-free
Coverage
Netherlands, Belgium, Germany
Pricing
~50% of VAT amount
Founded
Founded in 1999 in Amsterdam, The Netherlands by Peter Hooft
Number of Employees
3
Funding
-
SWOT
Strengths
- Present in 3 countries (Netherlands, Belgium, Germany)
- More than 20 years of experience
Weaknesses
- Limited coverage as service is available only in partner shops
- Not a digitalised solution
- Don't have an app
- High fees
Opportunities
- Growth opportunities in other markets
- Develop an app and digitise the process
Threats
- Competitive threats
- Changes in regulation
- Covid-19
Evalidation
Coverage
Austria
Pricing
-
Founded
Founded in 2017 in Vienna, Austria
Number of Employees
10
Funding
-
SWOT
Strengths
- 100% digital
Weaknesses
- Limited coverage
- Unclear pricing
Opportunities
- Growth opportunities in other markets
Threats
- Competitive threats
- Changes in regulation
- Covid-19
Innova Tax Free
Coverage
Belgium, France, Germany, Ireland, Italy, Japan, Portugal, Spain, The, Netherlands, Singapore, Turkey, United Kingdom
Pricing
>50% of VAT amount
Founded
Founded 2003 in Madrid, Spain with Luciano Ochoa de Abreu as current CEO
Number of Employees
28
Funding
A subsidiary of Euronet Worldwide group
SWOT
Strengths
- Good coverage - present in 12 countries
- More than 17 years of experience
Weaknesses
- High fees
- Not a digitalised solution
Opportunities
- Develop an app and digitise the process
Threats
- Competitive threats
- Changes in regulation
- Covid-19
Planet Payment
Coverage
Austria, Bahrain, Belgium, Cyprus, Czech Republic, Denmark, Faroe Islands, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Russia, Slovakia, South Korea, Spain, Sweden, Switzerland, UAE, United Kingdom, Turkey
Pricing
up to 70% of VAT amount
Founded
Founded 1985 in Galway, Ireland with Patrick Waldron as current CEO
Number of Employees
1000
Funding
In 2017 Fintrax acquired Planet Payment for €219M
Source: https://www.globenewswire.com/news-release/2017/12/20/1267174/0/en/Fintrax-Group-Acquires-Planet-Payment.html#:~:text=20%2C%202017%20(GLOBE%20NEWSWIRE),worth%20%E2%82%AC219M%20(%24257M).
SWOT
Strengths
- Present in 30 countries
- Big company capable of large scale projects
- More than 35 years of experience
Weaknesses
- High fees
- Not a digitalised solution
Opportunities
- Develop an app and digitise the process
Threats
- Competitive threats
- Changes in regulation
- Covid-19
Refundit
Coverage
Belgium
Pricing
9% of VAT amount
Founded
Founded in 2017 in Tel Aviv, Israel by Ziv Tirosh and Uri Levine
Number of Employees
30
Funding
On 14 November 2019 raised $9,800,000 from Amadeus IT Group and Portugal Ventures
On 1 January 2018
Refundit competed a $2,500,000 seeding round
Source: https://www.crunchbase.com/
SWOT
Strengths
- 100% digital solution
- Low fees
- Completed several funding rounds
Weaknesses
- Limited coverage
Opportunities
- Growth opportunities in other markets
Threats
- Competitive threats
- Changes in regulation
- Covid-19
Refundme
Coverage
Most of Europe
Pricing
-
Founded
Founded in 2018 in Amsterdam, The Netherlands by Csaba Szabo and Jerome Ibanez
Number of Employees
2
Funding
On 1 December 2018 raised €67,500 of angel funding from Leapfunder
On 5 November 2018 raised €15,000 pre-seed from Startupbootcamp
Source: https://www.crunchbase.com/
SWOT
Strengths
- Good coverage in Europe
- Completed several seed rounds
Weaknesses
- Unclear pricing
- Although the website shows screenshots from the app, the app does not show in the App Store
Opportunities
- Product development
Threats
- Competitive threats
- Changes in regulation
- Covid-19
Revenir (RefundGiant)
Coverage
UK
Pricing
25-30% of VAT amount
Founded
Founded in 2019
in London, UK by Alexander Zhou and Shawn Du
Number of Employees
5
Funding
On March 2020 a seed round was completed with Creator Fund and Y Combinator participating
Source: https://www.crunchbase.com/
SWOT
Strengths
- 100% digital
- Recently, completed a seed funding round
Weaknesses
- Limited coverage
Opportunities
- Expansion into other markets
Threats
- Competitive threats
- Changes in regulation
- Covid-19
Solpay
Coverage
France, Monaco and limited coverage for UK and Switzerland
Pricing
50%-60%
Founded
Founded in 2008 in Le Cannet, France with Grégory Briand as general director and Julien Balazun
as president
Number of Employees
25
Funding
-
SWOT
Strengths
- Good coverage for France
- 12 year of experience
Weaknesses
- Limited coverage for other markets
- High fees
Opportunities
- Expansion into other markets
- Digitise product offering
Threats
- Competitive threats
- Changes in regulation
- Covid-19
Stampit
Coverage
Italy and Austria
Pricing
Free for purchases below €500
€9.99 flat fee for purchases between €500 and €5000
€19.99 flat fee for purchases between €5000 and €20000
Founded
Founded in 2017 in San Vittore, Italy by Federico Degrandis, Wagner Eleuteri, Michele Fontolan, Stefano Fontolan
Number of Employees
20
Funding
-
SWOT
Strengths
- Low fees
- Digitalised solution
- Great digital assets (webpage and app)
Weaknesses
- The solution is available only at partner stores
- They could be cash-strapped
Opportunities
- Grow the network of partner stores
- Grow internationally
Threats
- Competitive threats
- Changes in regulation
- Covid-19
