The German VAT Act provides special rules for the treatment of travel services. At the beginning of 2021, the German tax authorities had already taken the view that these special regulations do not apply to travel services provided by tour operators based outside the European Union (EU). The application of this administrative opinion is now being extended for the fourth time, now until December 31, 2026.
Special regulation for travel services
Travel services are subject to special treatment for VAT purposes. Travel services that a company provides to its customers and for which it makes use of so-called pre-travel services, e.g. accommodation, catering, transport and event services, are regarded as a single supply of service for VAT purposes. The place of this service is determined by the registered office of the travel company providing the service. The supply of services is tax exempt, if the pre-travel services attributable to it are procured outside the European Union. For taxable services, the tour operators margin scheme (TOMS) applies.
No application for tour operators outside the European Union
The place-of-supply rule means that travel services provided by companies based outside the European Union are not subject to VAT either in Germany or in any other member state of the European Union. For example, the place of supply for a three-week trip to Europe performed by a US-tour operator is in the USA. On the other hand, the travel company cannot deduct the VAT it is charged in Europe for pre-travel services as input VAT.
In 2021 the German Federal Ministry of Finance expressed the view for the first time that this special rule does not apply to travel services provided by tour operators based outside the EU and without a fixed establishment in the EU territory. Instead, the taxation of travel services would be based on general principles. The consequence of this view would be that tour operators from third countries would have to register and pay VAT in Germany and, if applicable, in other member states of the European Union.
Renewed extension of the non-objection rule
Originally, the tax authorities wanted to apply this regulation in all open cases as early as 2021. However, the non-objection rule was subsequently extended several times, each time by one year. In a letter dated June 27, 2023, the Federal Ministry of Finance has now extended this deadline to December 31, 2026. Until then, the general VAT conditions for foreign tour operators will thus remain unchanged. It is expected that by the end of this period, a new regulation for the taxation of travel services will be found at European level.