New EU VAT rules for accommodation rentals and passenger transport

Important VAT developments – targeted at Airbnb and travel sector. Be aware and get ready!

If you are an intermediary/agent and operate a platform through which individuals or businesses can book accommodation or passenger transport in the EU, then you need to start getting ready for new rules that are expected to require you to pay VAT on the underlying supplies of accommodation or transport in the EU. These changes won’t just apply to the likes of Airbnb, booking.com and Uber but also to for example, businesses that act as agent for villa owners in Spain and operate an online booking system.

Background

As part of its ‘VAT in the Digital Age’ program which aims to keep the VAT system relevant for our digital and electronic world, the European Commission has published legal proposals regarding the VAT treatment of short-term accommodation rentals and passenger transport sold via a digital platform.

The EC’s study of the platform economy shows that up to 70% of underlying suppliers using a platform are not registered for VAT. Accommodation platforms like Airbnb compete directly with the hotel sector, and passenger transportation platforms like Uber compete directly with private taxi firms. The Commission is concerned that in these two areas, VAT is not being collected on the underlying rentals and transport and this creates an unequal playing field for hotels and taxi firms and a loss of VAT for member states.

How will this impact UK businesses?

Although the UK is no longer part of the EU, UK businesses, arranging sales via platforms, will have to follow the EU’s rules. Where the underlying accommodation or transport is in the EU, these rules will apply.

The proposed change to the law is that the operator of the platform will be the deemed supplier for the underlying supply of accommodation or transport. This means that if the accommodation owner or transport supplier is not VAT registered in the country where the property is or where the transport is provided, then the platform must pay the VAT on the supply direct to the tax authorities.

In the proposals, short term rental accommodation is confirmed as a VATable supply, not covered by any VAT exemption so there is no doubt that VAT is payable.

The property owner will make a deemed supply of the property to the platform/intermediary and the intermediary will make a deemed supply of services to the consumer/traveller. The intermediary must pay the VAT collected on the transaction to the tax authorities of the member state where the property is situated. The intermediary may need to be VAT registered in the country or may be able to use the One Stop Shop to account for VAT to the tax authorities.

If the underlying property owner is VAT registered, then the intermediary is not off the hook – they must still provide the supplier’s details and details of the supplies to the tax authorities.

The same treatment is expected for supplies of transport via a platform.

When will the new rules come into operation?

All member states must agree to adopt these new rules, but the Commission hopes to introduce the changes from 1 January 2025.

What should I do to prepare?

Check whether you are covered by these new rules and if you are, then find out if your property owners or transport suppliers are VAT registered. Collect their VAT registration numbers. If they are not VAT registered, then make sure that your contracts and pricing allow you to add the VAT that you will have to pay on the accommodation and transport to the local tax authorities. Make sure you know the VAT rates applicable in each country. Consider where you will need to register for VAT or whether you will use the One Stop Shop. Note that it will be preferable to act as agent in collecting the money from the consumer so that you are not waiting for the property owner to send the VAT to you.

If you would like any advice regarding the changes, please contact our Travel VAT Partner Sue Rathmell on 03330 100 221 or complete our online enquiry form.