In terms of VAT, travel agencies residing in France benefit from a special regime called “profit margin”. However, while the rule seems simple (the tour operator only pays VAT on the margin during a service), in reality, this tax regime is much more complex to manage in a profession that is constantly evolving... And a legal and fiscal world that is often lagging behind.
In short, a “travel agency” is a company that acts as an intermediary between service providers (third parties subject to VAT: hotels, carriers, restaurants, etc. or non-taxable persons such as museums) and an end customer.
In order to simplify the management of VAT, the Tax Administration has created a special regime. Otherwise, when a trip includes more than a dozen providers, the travel agent would spend their time calculating VAT in each country (collecting it, remitting it, etc.) rather than satisfying its customers.
Travel operators therefore benefit from a special VAT regime called the “profit margin regime” subject to the VAT of the country in which they are established.
The VAT to be paid is calculated on the TTC margin that the operator makes for the entire service, according to the rate in force. That is the difference between the final price paid by the customer and the sum of all expenses directly related to the trip: catering, accommodation, transport, show, etc.
So the service provider is a winner: he does not pay the VAT of his country of establishment on the final total price but just on his “profit”. Excluded from this exemption are general expenses (rent, electricity, etc.) which are not taken into account in travel packages and which are therefore eligible for deduction.
However, as value added tax cannot be deducted from travel-related goods and services, the impact on final turnover can be significant. The gain by opting for VAT therefore depends on several criteria that should be understood.
this special regime therefore has some flaws that do not make things any easier.
Tourism players are more and more numerous and different. Of course, we think above all of tour operators and traditional travel agencies. However, at present, there are many other companies or structures that can claim the VAT regime for the profit margin...
Indeed, it is not the quality of the service provider that comes into play in this tax regime but the nature of the provision of services.
In fact, you do not need to hold a travel agency license to be eligible for the profit margin regime. A hotel offering transport services, an organizer of sports competitions using a coach operator taking the club to a stadium, a company specializing in events and the organization of fairs, a tourist office, etc.: the list of companies or organizations that can qualify for this regime is long.
If the company offering tourist services is based outside the European Union, it does not charge European VAT or if its headquarters is in the EU but it only offers services outside the Union or Overseas, it is directly exempt from VAT.
The opposite is also true when a foreign travel agency operates in France: hence competition denounced by tour operators. This type of services has increased since the democratization of the Internet and the multiplication of travel platforms “domiciled” outside the European Union.
The VAT regime on the profit margin is not an obligation. Any company in the sector can choose to apply the normal VAT rules by being a transparent intermediary.
The Tax Administration thus distinguishes between:
The regime depends above all on the very definition of travel benefit. And it evolves over time, decrees and case law.
At present, a travel arrangement must include at least transport and/or accommodation...
Yes, a simple transport service becomes a trip, at least if the agent is not acting under his own responsibility or with his own means.
If the travel agent has chosen this tax regime, he must be very careful about what he offers in his packages. It cannot include in travel services services provided using resources that it owns or even provides under certain conditions. A hotel cannot declare transport under the travel agency regime if the bus belongs to it, nor is the regime applicable for a campsite rental company who offers a catering service on its property.
Some services are automatically excluded, in particular those not included in the overall and fixed price of a stay, such as insurance contracts and other assistance contracts.
Services performed outside the European Union are invoiced without VAT and are therefore not included in the system.
Obviously, the diversity of travel offers complicate matters, especially if they include internal company services, services in France and elsewhere, stops in and out of the EU with restaurants, visits and accommodations, etc.
However, the Tax Administration is clear: it is up to the travel agency to “to make appropriate breakdowns, under one's own responsibility, and to maintain the means of evidence capable of justifying the distributions made.”
They must therefore clearly identify the direct costs and the location of all services and transactions, taxable or not.
It is extremely important for travel agencies, whether opaque or transparent, to check carefully:
The complexity of the trips themselves, the tax rules, the multitude of services to be provided, etc., and especially the competition from agencies not subject to the margin regime, make VAT management all the more difficult.
However, agencies are subject to more and more fiscal controls and a single mistake can be costly.
Whether you are a tour operator who wants to change your regime, an operator wanting to offer trips outside France, an operator undergoing a tax audit or you want to optimize internal VAT management while meeting tax compliance, call on the help of our experts!
Our law firm focuses only on VAT, to offer a fast and efficient service.
We offer audits, to ensure fiscal compliance but also to identify opportunities; Indeed, the choice of a service or operator outside the European Union, the opportunity to buy accommodation rather than be a hotel customer, offer tourist excursions internally or to outsource them, etc.: the world of tourism is vast and complex: the possibilities of taking advantage of the profit margin or precisely of getting rid of it must be anticipated. And this is the core of our work: to make VAT a lever for success rather than a fiscal barrier.
Our “agency” of lawyers specialized in VAT matters was built around the implementation of a set of IT support solutions for business managers or their accounting department.
The difficulty of managing VAT on the various operators in the context of a trip, and of this margin on profits, is the very example where our solutions can work wonders.
Our tools simplify the daily management of value added tax and tax processes in general, through automation calibrated to your needs, while ensuring the legal compliance of your declarations.
If you are subject to a tax audit, the auditor will have access to all the documents in a few moments, a reliable, clear and precise audit trail (see our dedicated page).
Make an appointment now with one of our expert VAT lawyers to discover the excellence of our high-end services and the opportunities inherent in your travel agency business.
We are only a few minutes away from meeting each other!
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