New VAT rules for tour operators from 2022
Tour operators will encounter significant changes in the VAT area as of 1 January 2022. From that date, tour operators should start declaring VAT on advances received and should not calculate VAT based on aggregated monthly data. Furthermore, according to the GFD, the exemption for air passenger transport for tours outside the European Union should be restricted. This later decision remains questionable, however, since most European countries have already simplified the exemption for all air transport, leaving us wondering why the Czech Republic should be an exception.
According to the updated GFD’s Information on the Application of VAT on Travel Services, three major changes in this area will become effective from 1 January 2022:
- abolition of the possibility to calculate VAT from the aggregate data for the taxable period for travel services provided
- introduction of the duty to declare VAT on advances received for travel services
- restricting the VAT exemption for air transport within the European Union in the case of foreign tours outside the European Union.
The first two changes reflect the VAT principles for travel services as stipulated by the Court of Justice of the European Union (CJEU) in its recent case law. In short, travel service providers will have to calculate VAT on individual travel services (individual margins), i.e., they will no longer be allowed to use a simplification to calculate an aggregate margin for multiple travel services within a single taxable period.
However, the settlement of direct costs for individual travel services, i.e., matching these costs to individual travel services, is quite complicated in practice. The question is to what extent the allocation of actual direct costs is relevant for the calculation of VAT, especially if the aggregate calculation results in identical VAT amounts. In practice, tour operators generally make the final settlement of actual costs on a destination basis.
In addition, tour operators will now also have to follow the general rules regarding the receipt of consideration before the date of supply, and tax such advances.
However, in our opinion, the latter intention to change the VAT exemption for air passenger transport in the case of foreign tours goes beyond the principles that have been established by the courts. Moreover, this is neither in line with the practices in other EU member states nor with the conclusions and recommendations of the EU VAT Committee, which recommended that to simplify the already complicated calculation of VAT on the margin where the special scheme for travel services is involved, all international passenger transport for foreign tours outside the European Union should be exempt from VAT.
The changes to VAT for tour operators are so significant that they will require significant intervention in the VAT calculation methodology, related adjustments to company software, and certainly an increase in administrative capacity, all of which may have dramatic implications for most tour operators, especially in current times.