On Friday night our German VAT contacts shared the news that the German Ministry of Finance does not consider the EU TOMS rules to apply to businesses established outside the EU. This means that non-EU businesses (including those in the UK) would be required to register for German VAT and pay German output VAT when supplying travel taking place in Germany (i.e. those services which were previously subject to the standard rate of UK VAT on the margin under TOMS). We understand that German input VAT recovery would be permitted accordingly, subject to the normal input VAT recovery rules leaving the exposure essentially as VAT on the margin. This has now been confirmed to commence with effect from 31 December 2021. UPDATE on 2 December 2021 - we now understand this requirement for Germany to be postponed until 1 January 2023.
We have no real information yet on how other member states may react, and whether they may follow suit. However, clearly this is an important development and gives a very real risk of VAT registrations in multiple EU member states for UK tour operators.
This is the one TOMS risk we all were aware of following Brexit, but one which we hoped would not happen at least for some time. At the moment there is still a great deal of uncertainty and so we are not yet advising businesses to spend what I imagine may be considerable resources in confirming their position EU-wide. However, I would advise some prudence and planning, and taking steps to estimate the possible exposure.
What can we do now?
With this in mind, for those of you who sell travel services in the EU under TOMS, I would advise you to consider for each EU country in which your travel services take place:
- The likely VAT risk in those countries should such a requirement be imposed - we would expect this to include confirming the likely VAT treatment and rates for sales, and the possibility of VAT recovery for purchases. Outside of TOMS, many EU countries have reduced rates for tourism services so overall VAT payable may be less than it previously was under UK/EU TOMS rules pre-2021, but a provision is still advisable.
- The likely costs of compliance - this varies widely across the EU. In some countries the costs are similar to that in the UK, but in others can be considerable more, especially where a fiscal representative is required.
- Ensure all purchase invoices you receive from suppliers are proper valid VAT invoices.
I am sure we will hear further over the coming weeks and months from Germany and from other member states as to the possibility and risk of these requirements.
As a separate point, it will also be interesting to see how HMRC react to any confirmed requirements, At present, HMRC have said that they do not require EU tour operators selling travel in the UK to register for UK VAT. However, they would revisit this if requirements for UK businesses were imposed in the EU.
If you would like further advice on this, please do let me know.