Recent updates confirm that non-EU operators don’t have to play by the new rules (yet). We’re talking TOMS, and German Tax authorities have again confirmed that their decision to remove non-EU tour operators from the Tour Operator Margin Scheme (TOMS) is delayed until 2024.
Here’s what non-EU tour operators need to know about the current state of VAT on travel services in Germany in light of the latest postponement.
A brief overview of TOMS in Germany
In 2021, Germany decided that under its revised interpretation of VAT law, non-EU tour operators should not be able to rely on the TOMS rules. Removing them from the scope would mean that non-EU suppliers of travel services within Germany would have to register and account for German VAT to the extent that their travel services are “used and enjoyed” in Germany.
This removal of access to the TOMS rules was expected to start January 2023, but annual deferments have led to the most recent implementation date set for 1 January 2024.
TOMS for non-EU tour operators
Currently, non-EU companies selling travel to Germany are exempt from paying VAT in Germany under TOMS. Instead, VAT is due on a margin in the country in which the supplier is established. Although this is a VAT simplification rule, it can have severe implications on input VAT recovery. Businesses under TOMS cannot recover input VAT on direct costs. Output VAT is also payable on a margin made on EU sales.
Therefore, it can pose a challenge for non-EU suppliers, as they are required to gross up their fees as input tax will not be recoverable. This irrecoverable input VAT can have a significant impact on purchases, budgets, and considering the structure of their supplies.
How will removing TOMS affect non-EU operators?
Whilst TOMS is implemented, VAT is due on a margin in the country in which the supplier is established (if the non-EU country has such a system). If removed from the scope, non-EU tour operators will be required to register and account for VAT in Germany. It is expected that they will then be subject to normal VAT rules on place of supply, valuation, liabilities, and input tax deductions. If this is the case, the new rule would compel businesses to pay taxes twice: once in the country where they are based when they've made a sale on vacation products to Germany and again on the travel eventually carried out in Germany.
There is still a significant amount of uncertainty regarding the basis under which non-EU tour operators will be required to register for VAT in Germany. Moreso, additional clarity is expected regarding which specific sales the new rules would apply to. In the meantime, non-EU tour operators can rest assured that no new significant changes have been imposed. However, that does not mean that change isn’t up ahead.
In the meantime, businesses can prepare as follows;
- Adjust your budget and pricing to include any possible German VAT for trips that may take place on or after 1 January 2024. Businesses are advised to quote prices as “excl VAT” where possible.
- Request VAT invoices from German suppliers regarding all purchases relating to trips occurring on or after 1 January 2024.
- Consider adopting procedures to allow for possible future requirements for accounting for German VAT. This includes collecting and retaining all German purchase invoices from 1 January 2024.
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