• Applicable VAT regime for insurances offered by travel agencies

Applicable VAT regime for insurances offered by travel agencies

Pascal Dauw, Partner |

06 July 2017

The Belgian VAT authorities have published a Circular Letter 2017/C/43 outlining the VAT treatment of insurance costs charged by travel agencies to travelers when selling a holiday trip.

Travel agencies are legally required to offer their clients the possibility to take travel insurances (e.g. personal assistance, cancellation, luggage, disputes,…. insurance) typically in package form when booking a trip.

In anticipation to the publication of a consolidated text regarding the “Tour Operator Margin Scheme” the Circular Letter also provides an overview of frequently asked questions (FAQ).

3 possible situations:

Holiday package (insurance included)

The travel agency charges the traveler one global price for a holiday package including insurance coverage. The traveler cannot waive this insurance.

According to the VAT authorities the journey and the insurance have to be regarded as a single service. Consequently there is no need to split up the price charged to the traveler as was the case before. VAT is due on the profit margin included in the full brochure price of the journey (insurance included).

Insurance is not included in the journey, but offered through an individual policy in the name of the traveler:

In this second situation the insurance is offered as a separate option by the travel agency. It allows the traveler to conclude an insurance either through his own broker or though the travel agency.

If the traveler opts to obtain travel insurance via the travel agency, the risks are covered by an individual policy in the name of the traveler. The travel agency collects the passenger’s insurance premium and, after deducting a commission fee, passes on the net premium (periodically) to the insurance company involved.

In this context the VAT authorities have decided that the insurance premium qualifies as a disbursement (i.e. a premium paid in the name and for the account of the insured traveler) which is to be stated separately on the invoice to the traveler and falls outside scope of VAT.

The commission fee charged by the travel agency to the insurance company is regarded as a remuneration for an insurance brokerage service and is therefore exempt from VAT.

Insurance is not included in the journey, but offered through a collective policy in the name of the travel agency:

As in the second case the traveler chooses to insure himself through the travel agency. In this particular case, however, the insurance is concluded on the basis of a collective policy in the name of the travel agency.

In this case the commissionaire principle will apply whereby the travel agency will be deemed to receive the insurance services itself from the insurance company and in its turn to provide insurance services to the traveler. Consequently the premium charged by the travel agency to the traveler is not a disbursement but the remuneration for an insurance service which must be mentioned separately on the invoice and exempt from VAT.

No impact on the right to deduct VAT of the travel agency

In principle only the second and the third situation have an impact on the travel agency’s VAT status. In these cases the travel agency qualifies as a “mixed taxpayer” with a limited right to deduct VAT.

However the VAT authorities accept, on a trial basis, that the provision of insurance services  in the above-mentioned situations does not affect the travel agency’s VAT status.

In practice it appears that the turnover from these insurance activities barely accounts for 3% of the total turnover realized by a travel agency.

 

Contact

Questions regarding this subject can be addressed to your regular BDO contact or you can send an e-mail to [email protected] for the attention of one of the members of our VAT team:

  • Erwin Boumans, 02/778.01.00
  • Brigitte Braeckmans, 03/230.58.40
  • Pascal Dauw, 09/210.54.10
  • Emmanuel Rivera, 08/120.87.87