Over the past 40 years, the subject has been the subject of much ink and sweat.
In the Tourism sector, travel agencies are subject to a specific regime known as the profit margin regime.
How do you know if your activity is exempt or taxable? Which regime should you apply and on what amount?
No need to panic! The Ezus team shares its synthesis with you in order to better understand the subject, which has then enabled us to integrate it into our travel production and management software for DMCs, tour operators and organisers at all levels.
(Well ... We must admit that we were a bit scared at the beginning with our first customers on the subject).
Synthesis of the subject 🔦
All operators offering a travel service are legally called "travel agencies".
Indeed, the application of the specific tax regime depends on the nature of the service provision and not on the quality of the provider 🤔.
The latter tour operators cannot deduct the tax on invoices issued by transport contractors, hoteliers, restaurateurs, entertainment contractors and other service providers providing the final service to the B2B or B2C customer.
💎 Conditions for VAT exemptions :
- Company based outside the EU.
- Company based in the EU selling services outside the EU or Overseas, Services not carried out (cancellations, no show, modification fees, insurance).
🔎 Operation of the 2 VAT regimes for EU supplies:
1. COMMON PLAN (known as transparent) if the agency
✅ does not sell transportation or accommodation;
✅ or directly operates its own vehicles, accommodation, restaurants (see list*)
➡ VAT on purchases is recoverable on all expenses, such as catering or room hire. On the other hand, VAT on transport, hotels and car hire is generally not recoverable in France.
➡ The sales invoice displays the VAT.
➡. The one-off service provided by a travel agency is taxable at the standard rate.
➡. The other activities carried out by travel agencies and tour operators are subject to their own rate (rental of tickets for shows, sale of guides, provision of transport, accommodation, etc.).
2. SPECIFIC PLAN (or profit margin) if
✅ this is a travel package: Selling Accommodation and/or Transport.
If it is only Accommodation or Transport there must be a notion of advice. (Air not included).
➡ VAT on expenses directly related to the trip is not recoverable.
Only the VAT incurred on the agency's overheads (such as electricity or advertising costs for example) is recoverable.
➡ VAT on sales is not (necessarily) displayed.
➡ The VAT to be paid corresponds to 20% from the margin including VAT (unlike under ordinary European law, where VAT is applied to the sales price invoiced to clients).
3. VAT REGIME NOT APPLICABLE if
✅ it is air travel.
✅ the services are rendered to customers using operating means owned or leased by the agency. (e.g. provision of transport, accommodation, sales for consumption on the premises, rental of camping sites, where the travel agent directly operates the vehicles, hotels, restaurants or grounds).
Please note that the 3 plans can be applied simultaneously on the same file depending on the benefits. There may even be exempt expenses 😰
Calculations 📊
In order to obtain the calculation of the VAT on Margin to be paid, here are the formulas:
- Gross margin = Total Selling Price including VAT - Total Purchase including VAT
- VAT on Margin = Gross Margin * (1-(1/(1 + VAT rate)))
- Net Margin = Gross Margin - VAT on Margin
Example of calculations (with a VAT regime at 20% in France):
Selling price incl. VAT = 100
Buying price incl. VAT = 90
Gross Margin = 10
VAT on Margin = 10*(1-(1 /(1 + 0.2))) = 10*(1 - 0.83) = 10*0.167 = 1.67 €
Net Margin = 8.33
Good to know🌟
#reduction rates
1. In France, certain sectors benefit from a reduced VAT rate of 10%, such as rail, air transport and hotels.
2. Partner commissions are not taxable and are therefore added to the travel operator's net margin.
3. Margin VAT invoiced by one travel agent to another travel agent is not deductible.
#invoicing
1. Travel agents are not required to show the VAT amount on their invoices (so as not to show their margin).
2. Since there is no obligation to indicate VAT, the agency may, for a:
French customer indicate the VAT (on margin) so that this customer can recover the VAT.
European foreign customer make an invoice excluding VAT so that this customer only pays the VAT. It is the responsibility of the French agency to register this invoice on the tax site with the foreign client's intra-community VAT number. The foreign customer is liable for VAT in his country.
Either the French agency makes an invoice without VAT + VAT and the foreign customer pays the VAT. It is up to the foreign client to ask for a VAT refund from the French tax authorities.
Customer outside the EU make an invoice including all taxes. Here, no VAT recovery on French services (territoriality of services consumed in France).
Of course, if the French agency carries out its services outside France, then invoice excluding VAT = including all taxes because it is not subject to VAT on the margin. The French agency is responsible for paying VAT in France if it buys HT from its European suppliers ...
3. In BtoB, agencies are obliged to issue an invoice. In BtoC, a note containing the details of the agency, those of the customer, the amount including tax and the details of the trip is sufficient.
4. The mention: "Special regime - Travel agency" must appear on each invoice (CGI, annexe II, art. 242 nonies A, 12°) (fine of 15€/invoice if omission).
#accounting
1. For the European Court of Justice, VAT on margins must be calculated case by case whereas French law allows a choice between a piecemeal or monthly calculation.
2. Travel agents, who simultaneously carry out operations falling under the special scheme for travel agents and operations not falling under that scheme, must constitute separate sectors under the conditions defined by Article 209 of Annex II to the General Tax Code.
3. The services of organised trips and cruises carried out in France or in the EU are taxable in proportion to the expenses incurred.
Thus : Taxable amount = price of the stay x (number of days spent in France and in an EU country / total length of stay).
4. Transport services are taxable only for the part of the journey carried out in France in the case of Rail and Road. (for example, for a flight outside the EU, the part of the flight between two cities in mainland France is not subject to VAT).
Thus: Taxable amount = price of the ticket x (number of kilometres travelled in France / total number of kilometres).
Note that for Corsica, the mainland - island segment is exempt from VAT.
Problems with the margin VAT system 🆘
Since 1977, things have changed. However, this tax system continues to exist despite paradigm shifts (globalisation, Internet, changes in the profession of agents for example).
The travel industry is still wondering: Why is my agency margin shrinking by selling holidays in the EU?
Can a TO recover VAT? Do the receivers pay twice the VAT?
Is it in my interest to have an event activity with my agency?
A Tour Operator cannot deduct VAT from the services paid in the cost price of the stay or trip. On the other hand, it only applies VAT on its margin and not on its total selling price.
Incoming agencies follow the same rules. So many French DMCs (incoming) deplore the fact that they have to pay VAT on the sale and purchase.
In short, this system has its limits because:
- The scheme increases the price of BtoB services by the amount of the applicable VAT and encourages customers to go directly to hotel or transport service providers in order to retain the benefit of the deduction of input VAT.
- Its complexity leads to management problems (one of our agencies had paid €250 000 in excess VAT over five years); some even encourage some to spin off the activities concerned to avoid extending the application of the derogation to all the services making up the package sold to customers (e.g. registration for a congress with one night's hotel accommodation).
¿Qué te parece? ¿Qué recomendaría para aclarar este galimatías?
Influences on the events sector✂️
The scheme also penalises event agencies and PCOs (professional congress organisers) who provide one-off services to taxable customers because it deprives these customers of the right to deduct input VAT.
This derogatory regime penalises BtoB specialists all the more since it is intended to apply not only to the transport and accommodation operations that justify its implementation, but also to all the operations provided at the same time, the whole constituting, as we have seen, a single service provision. It does not matter whether the transport or accommodation constitutes a principal or ancillary component of the supply.
As a reminder, the deduction of VAT in MICE is more flexible, especially during an event or seminar of a French event agency in France:
- Seminars, meetings or events organised by yourself: optimised deductibility.
- Seminars, meetings or events organised by a travel agency: deductible VAT only on the margin made by the agency if it indicates this on its invoice. Deductibility is not optimal.
- Seminars, meetings or events organised by an agency under an agency contract: optimised deductibility.
In addition, expenses for Catering, Room hire, Team-building, Overnight stays for external or technical staff are tax-exempt.
Definitions 💁
- Provision of services is a commercial operation carried out by a travel agency as an intermediary. That is, the transaction of the supply is in the name of the agency while using goods or services from suppliers (VAT taxable persons) outside the agency.
- The margin VAT scheme applies to the margin earned by the travel operator. It applies to the production and distribution of a holiday/circuit to the final consumer, whether a private individual or a business.
- Calculation of the tax base: In the specific scheme for travel agents, thus the pre-tax margin of the agency is equal to the difference between the total amount paid by the traveller (the revenue) and the cost of purchasing the services borne by the agency (the expenditure). The VAT rate is calculated on this amount, unlike the ordinary system, where VAT is applied to the selling price charged to customers.
- Expenditure includes the net amount, after deduction of discounts and rebates granted, of the sums invoiced to the tour operator by the various service providers who perform the services rendered to customers (including: reseller commissions, reimbursement and cost of information and advice services).
🚨 Taxation is on the move every day... If in doubt, the opinion of a tax expert or accountant always prevails!
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Sources :
- Le B.A-BA de la TVA by L'Echo Touristique.
- TVA - Régimes sectoriels - Agences de voyages et organisation de circuits touristiques, article written by the French Government.
- Guide en ligne pour tout savoir sur la TVA, by Tourmag.
- Pour une liberté de choix entre le régime de la TVA sur la marge et le régime de droit commun by UNIMEV.
- Youtube videos about La TVA de l'agence de Voyage.
- Comment optimiser la récupération de TVA dans l’évènementiel / MICE? , article from Ideal Meetings.
* List of examples: supply of transportation, accommodation, sales for consumption on site, rental of campgrounds, where the travel agent directly operates the vehicles, hotels, restaurants or land. The same applies to the rental or subletting of tents, caravans, mobile homes or means of transportation (motor vehicles, boats) owned or leased by the travel agent).
The following are also excluded from the specific scheme: the hire of tickets for shows, exchange transactions, the sale of guides or photographs, the placing of insurance or assistance contracts.
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