Internal Market, Industry, Entrepreneurship and SMEs

Tourism-related taxes across the EU

Tourism-related taxes across the EU

This chapter presents an overview of the main tourism-related taxes, fees and levies applicable in EU countries.

The tourism sector comprises a broad range of economic activities, meaning that most taxes are likely to have an impact in some way.

This section focuses only on the taxes which are likely to have the most direct impact on tourism companies – including general and tourism-specific taxes.

Direct taxes – corporate and personal income taxes

Neither corporate income tax (CIT) nor personal income tax (PIT) are tourism-specific taxes – but they both have a significant impact on the profitability and competitiveness of businesses and individuals in the sector.

Corporate income tax (CIT)

CIT, also called company tax, is a tax on the income of the company. It is generally applied to operating earnings after expenses and depreciation have been deducted from revenues.

The rate depends on the country where the business is located.

In the EU, rates vary between 9% (in Hungary) to 35.53% (in Belgium), with the average around 21%. Rates in Eastern European countries are typically lower – between 9% and 21%. CIT is comparatively higher in most countries in south-eastern and Western Europe.

CIT schemes involve a mix of flat rates and progressive taxation.

CIT rates can also depend on the following:

  • revenue thresholds
  • types of income (e.g. passive vs. trading income)
  • size of the company
  • how long the business has been active
  • location of the business (e.g. coastal vs. inland)

Although CIT rates are nationally standardised in most countries, there are a number of cases where a surtax is applied locally.

Personal income tax (PIT)

PIT varies depending on the income level of the individual. While there are differences between European countries, the calculation is generally as follows:

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Diagram: Total income minus expenses and other deductions equals taxable income

 

Impact of PIT and CIT on business

The CIT rate affects a company’s net income and can have implications for the attractiveness of investments, while PIT can impact the supply of labour.

CIT is generally more relevant to larger businesses in the tourism industry, since countries usually apply PIT rates on business income received by individuals.

Individuals offering tourism-related goods or services – such as those providing small-scale accommodation services – are directly affected by the PIT rate.

As tourism-related services tend to be labour intensive, the PIT rates on wages, self-employed income and private businesses are particularly relevant.

Double taxation

The business owner is likely to face the problem of double taxation – being taxed as an individual and as an entrepreneur.

This occurs when a company’s income is taxed initially at a corporate level, while the owners are taxed on the income received as dividends from the company.

Due to the complexity and diversity of the different tax systems, it is important that you seek expert advice on this tax issue from a professional.

Social charges, such as those commonly applied to personal income, are not considered taxes and are therefore not included here. Nonetheless, it is worth noting that they may be similar to income taxes – in some cases these may add a significant cost burden to individuals and businesses in the tourism sector.

More

See a complete comparison of taxation trends in the European Union.

See more on tax legislations and rates in each EU country. You must keep in mind that some taxes are applied at national level and others at regional or local levels, depending on the country.

Indirect taxes - VAT

The most important indirect tax for the business owner is value-added tax (VAT). This is the tax that has the highest level of harmonisation at a European level.

VAT is applied to the sale of most products and services across the EU, including in the tourism sector. The directive on VAT broadly sets out how EU countries apply VAT.

VAT is not the same as a general sales tax. Registered businesses charge output VAT to their customers on the relevant goods and services that they provide. They are then able to offset this against the input VAT they themselves have paid to their suppliers.

VAT is often used to reduce the tax burden on certain parts of the sector. Most EU countries apply some form of reduced rate to the key goods and services relating to tourism, as outlined in the graph below.

Overview of the average rates and range for all tourism-related VAT rates in the EU

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A graph showing average rates and range for all tourism-related VAT rates in the EU. Averages are as follows: standard rate 21%; Admission to amusement parks 17%; restaurant and catering services 15%; admission to sporting events 15%; admission to cultural services 14%; domestic travel 13%; renting hotel accommodation 11%; international travel 3%; international travel by air and sea 0%

Luxembourg applies the lowest rate at 17%, while Hungary has the highest at 27%. There are 20 countries which apply rates within 2 percentage points of the average standard rate.

International travel via air and sea is subjected to VAT relief in the EU. There are also a large number of zero-rates and exemptions to VAT on domestic passenger transport.

25 EU countries apply discounted VAT rates to hotel accommodation and cultural services. Admission to amusement parks is the least discounted category, with reduced rates in only 11 countries.

The impact of VAT can differ depending on whether or not a ‘tourist’ is registered for VAT. For example, a business traveller whose employer is registered for VAT should be able to deduct the VAT they pay on accommodation in some places. This means that a change in rates should not affect them.

In some cases where reduced rates apply on their outputs, businesses may find that input VAT exceeds output VAT.  

This is unlikely to apply to travel agents and tour operators subject to the travel agents margin scheme (TAMS). Under TAMS, VAT is currently due at the standard rate on the margins relating to EU travel services, and input tax on the underlying travel supplies cannot be recovered.

Specific taxes for tourism

There are a few taxes either solely or primarily focused on the tourism sector.

Occupancy tax

Occupancy taxes are levied on short-term (sometimes referred to as transient) residencies in paid accommodation. They are typically charged per person, per night, or sometimes charged as a percentage of the room rate.

In general, occupancy taxes make up a small proportion of the overall cost of accommodation compared with the cost of the accommodation itself and even the VAT that applies.

In many cases occupancy taxes are payable in person, and cannot be included in the pre-paid price of the accommodation. This makes them relatively hard to see in published accommodation prices but particularly visible to the end consumer - which may have a bearing on their impact on tourist activity (especially in cases of repeat business).

Apart from Malta, all 18 member states applying this tax levy it at local government level (i.e. city, municipality or province). There can be significant municipal discretion over the rates applied. The rate typically varies by the standard of accommodation (e.g. star rating of the hotel or resort), location and local authority. Children often pay reduced rates or are exempt entirely.

The full adult rates listed range from a minimum of €0.10 (the lowest rate in Bulgaria) to a maximum of €7.50 (the highest rate in Belgium) per person each night. The average range is between €0.40 and €2.50. Most of this variation is due to the type of accommodation, with hostels and campsites attracting very low rates compared to 5-star hotels and palaces.

Comparatively low rates are charged in the eastern EU countries, with much higher rates in Western and South-eastern Europe. The difference in percentage terms is reduced, however, because room prices tend to be higher in the latter regions.

The tax is hypothecated in:

  • Croatia
  • France
  • Lithuania
  • Malta
  • Poland
  • parts of Spain

In these cases, the revenues are directed towards the tourism sector, showing the sector-specific nature of occupancy taxes.

Paying the local occupancy tax in some resort towns in Germany gives access to certain public facilities otherwise shut off to the public. This may include spa facilities, the use of some public transport and entry to local attractions.

Just over a third of EU countries do not levy any occupancy tax at all – including almost all countries in the Nordic and Baltic regions and some in Western and south-eastern Europe.

The customer is responsible for paying these types of taxes, while the accommodation facility is responsible for collecting these taxes.

Tourist taxes to improve the sector

These taxes go towards improving the sector and/or the destination, such as through:

  • promotional activities
  • projects and plans for tourism development
  • measures and plans to improve infrastructure and tourism services
  • improvement and implementation of public services that affect the destination: cleaning, waste management, etc.

Tourist taxes earmarked for specific purposes

These taxes are earmarked for specific areas or resources in the destination, such as:

  • environment
  • cultural heritage
  • social purposes

Green taxes - taxes for environmental purposes - arise from the desire to conserve resources and to offset the possible negative effects of tourism. They create an incentive to protect and restore the environment and its resources, compensating for the tourist activity in each area.

These taxes help to:

  • create funds so that destinations can invest in improvements such as environmental protection or resource recovery
  • encourage environmental awareness amongst tourists about their use of the destination’s resources
  • promote a positive image of the destination and the companies based there by demonstrating their environmental concern

See also the 2017 study on taxes and the competitiveness of European tourism.