As an entrepreneur, when you provide services in the travel sector, it is possible that your services come under the travel agency scheme. This scheme also applies for all travel service providers. When you purchase at least one part of a trip from another entrepreneur, and sell this on under your own name to travellers or other trip providers, the provision of travel services comes into the equation: the travel agency scheme for these services then becomes applicable. In brief, this VAT scheme basically means that you are obliged to pay VAT on the profit margin on the services provided, while at the same time not being entitled to deduct VAT on the parts of the trip that you have bought. Thus, this differs from the point of view of a “normal” service, since you calculate VAT on the total price of that.
When is the travel agency scheme applicable?
The travel agency scheme applies where you provide travel services in your own name, provided you have earlier purchased services from other entrepreneurs. A travel service is a service that consists of at least one element of transport or accommodation, regardless of whether additional services are offered or not. The purchased services and goods must accrue directly to travellers.
The travel agency scheme is not only applicable to travel services that are sold to final consumers, given that a travel agency can also purchase a trip (or parts thereof). Consequently, the travel agency scheme is also applicable if the customer is another travel organisation, or an employer travelling to a convention with work personnel that is covering the costs of travel and accommodation.
The travel agency scheme is not applicable to travel services that have been organised by the entrepreneur himself (and that have therefore not been purchased from a third party). In this way, operators of hotels providing accommodation and their own restaurant services do not come under the scheme, but, say, excursions purchased from third parties do.
The travel agency scheme does not usually apply to companies that are recognised as travel agencies. Travel agencies do not usually trade in their own name, but under the name, and on behalf, of other organisers. These companies primarily concern themselves with brokering during the purchase of trips or travel elements. Brokerage services are taxed at the normal of VAT rate of 21%.
How do you calculate VAT when applying the travel agency scheme?First of all, it is important that travel services are taxed in the country where the entrepreneur is based, or where it has a permanent establishment, from where the travel services are provided. Hence, the situation is prevented from occurring whereby entrepreneurs organising trips to different countries would have to register for VAT in all these countries.
The calculation of VAT on the provision of travel services is based on profit margin. Profit margin is always taxed at the normal VAT rate, independent of the rate applicable to parts of the trip purchased. The calculation can be done in two ways. You can choose to calculate the VAT on the profit margin per period or on the profit margin per trip.
With the period system, you calculate VAT by adding up all revenue from travel services (inclusive of VAT), from which you deduct all incurred costs on travel services purchased. The figure that you come to is called the time period margin.
When calculating VAT on profit margin per trip, this is how you operate: you deduct all costs of goods and services (inclusive of VAT) directly accruing to the holiday-maker from that part of the total travel figure (also inclusive of VAT) that is related to the travel service provided. The resultant figure is the profit margin on the trip, on which you subsequently calculate VAT.
The VAT on the parts of the trip purchased is not deductible. You are free to choose which system you apply, and this must be clearly visible in your record-keeping. After making your choice, you are compelled to use this system for five years.
How does the scheme work for trips outside of the EU?
As previously stated, the higher VAT rate is generally applicable to the profit margin. However, when the purchased travel service is provided outside of the EU, you apply the 0% VAT percentage on the profit margin. If you are talking about a travel service that is partly provided outside of the EU, you then apply the 0% rate for that part of the travel service that takes place outside of the EU. For the remaining part of the trip that is made within the EU, 21% VAT must be paid on the profit margin.
There is an important exception to the above-mentioned regulations. Namely, when you sell boat or air journeys where the point of departure or destination is outside of the EU, you apply the 0% rate to the whole of the boat or air trip, provided you comply with the following conditions.
- With respect to the boat or air trip, you have bought at least ONE ticket for the whole trip from another entrepreneur.
- Transport must involve a direct trip from a country within the EU to a non-EU country, and vice versa. This also includes cases where, during the journey, stopovers are made at ports or airports within the EU, where new passengers can embark, but passengers that have already earlier embarked are not allowed to leave the boat or plane.
If an above-mentioned flight is combined in a package with a taxi ride within an EU-country in order to get to the airport, the 21% rate on the profit margin is indeed applicable to the taxi ride. For overnight stays in hotels outside of the EU that have also been included in such a package, you are compelled to bill 0% VAT. The reason for this is that the overnight stay is provided at the location of the property.
There have recently been some developments relevant to the travel agency scheme that can have an impact on the application of the scheme in the Netherlands.
In December 2018, the European Court of Justice decided that if a trip is paid for in advance, and the costs of part, or all, of that trip have not yet been calculated, or are not known, VAT is already due from the moment of receipt of payment, based on the expected profit margin on the trip. If the actual costs later turn out to be different, a correction must first be made to the already calculated VAT.
This is important to entrepreneurs in the Netherlands who determine the profit margin per trip. In such cases, the entrepreneur usually only pays VAT when all costs are known. On the basis of this judgement by the ECJ, VAT must be paid earlier, or even much earlier, and possible corrections must generally be implemented in the time period of the payment of total cost of the trip.
The ECJ has also decided that it is not necessary to propose additional services, when offering an element of accommodation or transport. All that is required is that the service offered is purchased from another entrepreneur.
This means that the travel agency scheme is also applicable to the mere hire or rehiring of holiday residences or hotel rooms, provided this happens in one’s own name. In this way, the travel agency scheme will have a considerably larger reach than was up to recently assumed. This is, in many instances, not beneficial, since up to recently the lower rate was mostly applied to the resale of a single service of transport or accommodation.