Serviced apartments are a great idea for those travelling on business or leisure wanting a bit of privacy, extra space, and to save themselves the risk of fire drills at 2am because someone down the corridor just had to have that last cigarette! So I'm not surprised that serviced apartments are becoming ever-popular and I have been increasingly asked about the correct (and best) VAT treatment for these type of services. Often, perhaps surprisingly, the best outcome is TOMS.
"Normal" VAT treatment of serviced apartments
The default VAT rule for the supply of residential property is that it is exempt from VAT. One of the exceptions to this default rule is the supply of sleeping accommodation in a hotel, inn, boarding house or "similar establishment", which is why most hotels charge VAT at the standard rate on accommodation. Normally, serviced apartments qualify here as "similar establishments" under VAT law, and so would be subject to the standard rate of VAT too,
The issue here is that where the providers of serviced accommodation purchase these apartments from landlords, this purchase will often be exempt as a long term residential let. This means that there is often no input VAT to recover, but VAT to pay in full on the sale of the services.
How can VAT be minimised?
1. The Tour Operators Marin Scheme (TOMS):
Believe it or not, I am about to give you a great example of where TOMS can be of benefit. The TOMS rules only apply in certain circumstances, namely where travel services (such as accommodation) are bought in and sold on in the supplier's own name to the end user of the services without material alteration. The effect of TOMS is that:
- The supplier is unable to recover any input VAT on direct costs of sales;
- The supplier charges VAT in its own EU member state on the direct margin made, at the standard VAT rate for EU travel and the zero VAT rate for non EU travel; and
- The customer cannot recover any VAT even if it is a VAT registered business using the services in its taxable business.
Where these services (or any other services) meet the criteria for TOMS, the scheme applies on a compulsory basis. The key question for serviced apartments is whether the sale does indeed qualify under TOMS...
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