Special scheme of VAT for travel agencies applies not only to travel agencies, but also to every VAT payer

Many VAT payers are not aware of the possibility that a special scheme for travel agents and travel agencies might apply to them. The name hints at the first that the regulation applies only to entrepreneurs who have a bound trade for the operation as a travel agency.

The CJEU, which provides an interpretation of the provisions of the VAT Directive, has confirmed that in this case, this special scheme can apply to any taxable person (VAT payer).

If these following conditions are met, this special scheme will apply to you as well:

• You are a VAT payer;
• You purchase “travel” services from other taxable persons in your own name and account for the purpose of supplying the “travel” service to the customer and not for your own consumption;
• Purchased services represent only an insignificant part to the total delivery of own services excluding provision of accommodation and/or transport;
• When providing a service, the VAT payer acts towards the customer on their own behalf;
• It does not matter in what capacity your customer acts, whether he is a taxable person, a non-taxable person or a private consumer;
• It does not matter whether it is a regular or an occasional service.

Travel service is a service of accommodation and/or transport procured from third parties. This service may also be supplied in combination with other services, e.g. provided together with the procured accommodation or passenger transport service, e.g. catering, guide, etc. Where services are combined with travel services, the provision of transport and/or accommodation must always be included. These travel services might be treated as a single supply subject to VAT in the country where the taxable person ('the travel agency') has its registered office, place of business or establishment.

If the VAT payer meets the aforementioned criteria, they are obliged to apply the special scheme for travel agencies, in the following ways:

• Tax only the margin, that is, the positive difference between the selling price and the VAT payer's actual costs related to the travel services procured;
• This margin is considered to be the price that includes VAT;
• The amount of VAT on the sales invoice must not be stated separately;
• There is no entitlement to deduct VAT on purchased travel services;
• The sales invoice must state the words 'specialmargin scheme for travel agencies';
• If these tourism services are sourced from outside the EU, the margin is exempt from VAT.

Special scheme for travel agencies applies only to services provided by third party taxable persons, not to the supply of own services. The own services  are subject to normal taxation not by the special scheme.

If the VAT payer also supplies services related to travel, where accommodation and/or transport are usually procured from third parties, and these travel services are additional or immaterial to the entity's own supplies and form an insignificant part of the amount of the total package of services, then the special scheme for travel agencies might not apply to this composite supply.

The special scheme must be applied to all VAT payers supplying travel services. Employers who provide transport for their employees (agency employees, self-employed, in some cases also their own employees) to the workplace should also pay attention to this special scheme, if the transport is procured from third parties. This is particularly typical for the automotive industry sector.

Correctly assessing whether a travel service has not been supplied is essential, even if you do not make a profit from the service. In the case of travel services falling under the special scheme, the VAT payer is not entitled to deduct VAT on the purchased services.

At Grant Thornton we are happy to help you identify whether this particular scheme applies also to you.

Here are a few situations where the special scheme for travel agencies may also apply to a VAT payer who does not have a trade license to operate a travel agency.

1. Advertising agency organizes a promotional event

An advertising agency provides a promotional event for their customer. As part of the promotional event, the advertising agency provides rental space, hosts, hostesses, entertainment, accommodation reservation and transportation of people, catering services, sound system and technical security of the event.

Does the special scheme for travel agencies apply to an advertising agency?

If the advertising agency provides accommodation and transport for all the participants in the event, which it procures from third parties on its behalf, then the special scheme for travel agencies applies to the entire advertising service, since the costs of accommodation and transport are not immaterial compared to the total cost of the advertising service.

The situation would be different if the costs of accommodation and transport were insignificant in relation to the provision of the whole event. For example, accommodation and transportation services would be used by only a few people and would be immaterial in relation to the advertising agency's other costs of providing the event, and the accommodation and transportation services would not represent the final product provided for the customer. The supply of the advertising service would then be subject to normal VAT regime.

2. Subsidiary companies meet at a regular strategy meeting organised by the parent company

The parent company is organising a 2-day strategy meeting for selected employees of the parent company as well as employees of the subsidiaries to discuss strategic plans for the next period. The parent company will arrange accommodation for all employees, room rental, catering and catering services and entertainment in the hotel where the event is being held. Transportation to the event site is provided by the subsidiaries for their individual employees. The costs from third parties (hotel, catering company, etc.) will be invoiced to the parent company, which will then re-invoice these costs 1:1 to the subsidiaries in proportion to the participation of their employees.

Given that the parent company procures travel services (accommodation) from third party taxable persons on its behalf via its own account, together with a combination of other services such as entertainment and catering, which it will then re-charge onwards, this will be a supply of travel services. The parent company shall apply the special scheme for travel agencies for the supply of these services. As the parent company has not made a profit on the above supply, the margin will be zero and therefore it will not have to pay VAT. However, the parent company is not entitled to deduct VAT on travel services recharged to the subsidiaries. The parent company is entitled to deduct VAT on the aliquot part attributable to the parent company's employee expenses, provided that the statutory conditions are met. The special scheme for travel agencies will not apply to this part of the cost.

3. The company provides training for employees from the group

The VAT payer provides international training in Slovakia for employees from the group. The cost of the training includes the cost of speakers, room rental and refreshments. The VAT payer will offer to sister companies the opportunity to provide accommodation and transport for the participants in addition to the training. The above services will be invoiced o topof the participation fee. The VAT payer will provide accommodation and transport services on its behalf from third parties and subsequently invoice them on a 1:1 basis to the sister companies.

The special scheme for travel agencies applies only to costs procured from third parties for travel services, i.e. accommodation and transport, which are invoiced on top of the participation fee. Since the VAT payer has not made a profit on that supply, the margin will be zero and they will not have to pay VAT on it. However, the VAT payer is not entitled to deduct VAT on the accommodation and transport services.  The training service will be subject to normal taxation.

4. Business trips

A company sends its employees on a business trip abroad. As part of the business trip, the company will procure accommodation, transportation, meals, insurance and other related costs from third parties for its employees.

As the company procured these services from third parties for its own consumption, the special scheme for travel agencies does not apply to the company. The company can deduct VAT on the purchased services if the statutory conditions are met.