The special regulation of Section 25 UStG no longer applies to non-EU tour operators.
There will be no objection if the special regulation for travel services of non-EU tour operators is still applied until 31.12.2021.
The general VAT regulations are to be applied to each individual service.
For third-country operators, there is a risk of mandatory domestic registration.
Affected companies should comprehensively review their business structure in the context of the new regulation.
Taxation of travel services according to Section 25 UStG
Special regulations apply to the taxation of travel services according to Section 25 UStG. Travel companies are to be taxed only where they are established. This avoids them having to register in every EU country where they provide services.
According to Section 25 UStG, all services rendered as part of a trip (including transport, catering and accommodation) are considered as a single other service of the tour operator and are subject to taxation at the place where the tour operator operates its business. All entrepreneurs who provide a travel service are considered tour operators, regardless of whether this is the sole purpose of the enterprise. If the other service is performed by a permanent establishment of the tour operator, the place of the permanent establishment is deemed to be the place of performance.
This bundling of services serves to simplify matters, as the taxation of the individual elements of the service often results in different places of taxation and tax rates. The uniform travel service is then subject to margin taxation, i.e. VAT is assessed on the difference between the net purchase price and the net sales price of the travel.
Special regulation for companies based in a third country not applicable
With the decision of the BMF (BMF, Schr. v. 29.1.2021, III C 2 - S 7419/19/10002 :004) not to apply Section 25 UStG to travel services provided by companies whose registered office is in a third country and who do not have a fixed establishment in the Community territory as of 1 January 2021 or, due to the extended non-objection rule, as of 1 January 2022 at the latest, the general VAT regulations apply to each individual service. This regulation is to be applied in all open cases; however, no objection will be raised if third-country traders still apply the special regulation of Section 25 UStG to travel services carried out until 31 December 2020. This non-objection regulation was extended by a further BMF letter (BMF, Schr. v. 29.3.2021 - III C 2 - S 7419/19/10002 :004) by one year until 31 December 2021.
What does this mean for businesses?
Third-country entrepreneurs face the risk of having to register domestically for VAT purposes when providing travel services with a domestic connection. In addition, it should be noted that different standards for determining the place of taxation may apply to the individual services and that different tax rates may also apply. Insofar as the service is taxable and subject to VAT in Germany and no reverse charge procedure is applicable, the entrepreneur from the third country must register for VAT in Germany and issue invoices with German VAT to business customers.
This innovation has been the subject of some heated debate. The amended view of the tax authorities is not reflected in the legal regulation on the taxation of travel services, because the national regulation of Section 25 UStG does not contain any provision according to which the special regulation would only be applicable to tour operators in the EU Community territory.
However, the adaptation of the regulation also offers entrepreneurial end customers an advantage in that they can deduct German input tax from input travel services from third countries purchased in this respect. Especially in the B2B sector, VAT can become a cost factor, because margin taxation does not allow input VAT to be deducted for the purchased travel services. Purchasing travel services from third-country tour operators could therefore be advantageous for business customers from an economic point of view.
Need for action for companies
In all cases, every participant within the trade chain should fundamentally review its business structure in light of the new regulation. In particular, any plans to set up permanent establishments within the EU's scope of application should be reconsidered.