Value-added tax on tourist services in Bulgaria
In European legislation there exists a special procedure for the taxation of tourist packages offered by tour operators and travel agents, designed to avoid unfair competition between tour operators within the European Union and to implement a VAT taxation of the traveler for all elements of the package, applicable where these elements are actually used by the said traveler.
This article will introduce you to the special procedure of taxation of travel services under our domestic legislation. It removes some supplements that do not exist in European legislation (such as the right of tax credit deduction) and introduces a new procedure for documenting the supplies.
Taxation of tourist services is governed by Chapter Sixteen of the Value Added Tax Act (VATA). The provisions thereunder do not apply in respect of:
- the supplies of travel agents when they act on behalf and for the account of another person;
- a supply by a tour operator to another tour operator.
The provision by a tour operator , acting in his own name, of goods or services in connection with the journey of a traveler, for the carrying out of which goods or services for the direct benefit of the traveller are used, is treated as a supply of a single service to tourists - Art. 136 (1) VATA.
The goods and services benefiting the traveler directly are the goods and services which the tour operator has received from other taxable persons and has provided to the traveller without alteration - Art. 136 (2) VATA.
It should be noted that pursuant to § 1, idem 37 VATA, the terms "tour operator", "travel agent" and "basic tourist services" are given the meaning of the same terms under the Tourism Act (TA), regardless of whether the tour operator or travel agent has been registered in accordance with the procedure provided for by the TA.
The term "basic tourist services" has been introduced so as to define the term "accommodation" and its proper definition is important because of the existence of a preferential rate in terms of accommodation - 9%, as per Art. 66 (2) VATA. "Basic tourist services" under § 1, item 69 AT are accommodation, catering and transport.
A "traveler" is any person - recipient of a basic touristic service for a purpose other than subsequent sale thereof. The term "accommodation" is different. Under § 1, item 45 VATA "accommodation" means basic tourist services within the meaning of sub-paragraph 12 from the supplementary provisions of the TA with the exception of the supply of a single service by a tour operator to a traveler.
Place of transaction
The place of transaction of the single service under Art. 137 VATA is the place where the tour operator has established the economic activity thereof or has a fixed establishment from which the said operator or agent effects the transaction.
Where the place of transaction is within the territory of the country, the tax rate of the single service to tourists is 20%. However, it should be borne in mind that according to Art. 140, if all or part of the supply of goods or services, from which the traveler will benefit directly, have a place of transaction outside the European Union, the tax rate of the overall tourist service will amount to 0% (if only part of the said goods or services have a place of transaction within the territory of third countries and territories, only that part is taxable at a zero rate).
Determination of the basis of taxation
The basis of taxation of the supply of a single service to tourists is, as before and in accordance with Art. 26 of the Sixth VAT Directive (respectively Art. 308 Directive 2006/112/EC), the margin which represents the difference between the total amount (less the amount of tax payable) which the tour operator has received or will receive from the traveler or the third person for the supply (including any subsidies and investment grants directly linked to such supply, the taxes and fees, as well as the incidental expenses such as commission and insurance charged by the supplier to the recipient but exclusive of any trade discounts allowed) and the amount which has been paid or will be paid for supplies of goods and services received by the tour operator from other taxable persons for the direct benefit of the traveler including the tax under this Act (Art. 139 VATA).
The legislator explicitly stipulates that the basis of taxation of the single service to tourists may not be a negative quantity.
Charging the tax
The date of occurrence of the chargeable event for the supply of a single service to tourists shall be the date on which the traveler benefits from the supply for the first time (Art. 138 VATA).
Art. 85 RAVATA contains the formula used to determine the tax on the supply of single service to tourists.
Right to tax credit
According to Art. 141 VATA, the tour operator does not have the right to deduct tax credit in respect of the supplies of goods and services received from other taxable persons for the direct benefit of the traveler.
Documenting of supply of single service to tourists
Tour operators and travel agents must document the supplies of single service to tourists provided thereby, including advance payments received on such supplies, by issuing invoices and advices to invoices wherein no tax needs to be stated (Art. 86 RAVATA). Invoices must be issued within 5 days from the date of payment (full or partial advance payment) or from the date of occurrence of the chargeable event for the supply, and advices to invoices - within 5 days from the alteration of the total amount which the tour operator or the travel agent has received or will receive from the customer or the third party for the supply.
Pursuant to Art. 142 VATA, the tax for the supply of single tourist service is charged by issuing a protocol.
According to Art. 87a RAVATA, where the recipient is a taxable person, the supplier must have a written declaration from the said recipient that the supply is not intended for subsequent sale.