Austria: VAT rate reduced to 10% for accomodation

6. November 2018 | Reading Time: 3 Min

The Austrian tourist sector is breathing a sigh of relief: the VAT rate on accommodation is going to be restored to 10%. This will make life significantly easier for businesses and make them more competitive.

1. Increased VAT rate in Austria

The 2015/2016 tax reform act increased the rate of VAT for accommodation from 10% to 13%, resulting in complex calculations, high administrative costs and a substantial amount of insecurity for the entire sector. Now, with effect from 1/11/2018, things will become easier again and the VAT rate will be reduced to 10%.

Romania: In Romania they recently also increased the VAT rate für restaurant and hotel

2. VAT in Austria: What is going to change exactly?

For the following services, the VAT rate will be restored from 13% to 10% as of 1/11/2018:

The provision of accommodation in furnished living rooms and bedrooms, and the ancillary services
egularly associated therewith (including heating). The preparation of breakfast in line with local standards is considered an ancillary service as well, if the price of the same is included in the accommodation fee.
The letting (surrender of use) of plots of land for camping purposes and the ancillary services regularly associated therewith, provided that a uniform rent is paid.

In any event, this simplification should be welcomed. For there will be no more need now to allocate a flat fee for bed and board, e.g. in case of booking half-board, to the different tax rates, which can be highly complex at times. By way of this tax cut, Austria also approaches the reduced tax rates of neighbouring countries, e.g. Germany, where the tax rate for accommodation amounts to 7%. In this way, the competitiveness of the sector is enhanced by international comparison.

3. How are businesses dealing with down payments and prepayments?

One particular challenge in case of changes in the VAT rate is the treatment of down payments and prepayments for subsequent services. Basically, the down payment received must be taxed at the tax rate applicable at the time the payment is received. Upon the tax change taking effect, subsequent taxation or adjustment must be effected.

However, the VAT guidelines provide for simplification. Accordingly, the invoice for down payments relating to services after 31/10/2018 may already be issued in line with the future legal situation.

4. Example of usage of the new VAT rate during transition time

A hotel keeper books a room for January 2019 already in September 2018, requiring a down payment in the amount of EUR 113.00 including VAT.

Alternative 1: Taxation of the down payment according to the current legal situation

The hotel keeper charges the customer for VAT at a rate of 13%, issuing an invoice for EUR 113.00 including 13% VAT. Payment is effected in September 2018. The hotel keeper must pay EUR 13.00 (113/1.13*0.13) to the tax office, and the customer is entitled to deduct input tax in the same amount, provided that all other requirements are met.

In the first advance return period after the change of the legal situation, accordingly in November 2018, an adjustment must be effected. In the advance turnover tax return – UVA 11/2018 – this will result in a tax credit of EUR 2.73 (13 – 113/1.1*0.1). In any event, the invoice needs to be corrected, as otherwise the hotel keeper would owe the higher amount of VAT due to invoicing. The customer must adjust their input tax in November as well.

Alternative 2: Invoicing of the down payment according to the future legal situation

The hotel keeper invoices the customer for EUR 113.00 including 10% VAT. The customer pays in September 2018.

Solution as in alternative 1. If all other prerequisites are met, the customer is entitled to deduct input tax in the amount of the 10% shown, accordingly in the amount of EUR 10.27. No adjustment of the invoice is required or possible.