HOTREC | The benefits of low VAT

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European VAT levels are often higher than in other destinations therefore affecting
Europe’s competitiveness
As Value Added Tax is directly affecting the price of the tourism services, it is one of the key factors in global
competitiveness. For example, the countries with the highest numbers of arrivals in the ASEAN countries,
Malaysia and Thailand, apply a VAT rate of 6 and 7% respectively to hotel accommodation These 2 countries
counted over 50 million tourist arrivals in 2014 15, which is more than 11% of the similar figure for the EU 28.
The VAT rate to hotel accommodation in China, the biggest Asian tourist destination (accounting for 56,9 million
international tourist arrivals in 2015, being ranked 4th in the world) 16, is 6%, which is also below the average rate
of 11% (arithmetic mean) applied in the EU.
Tourism is a growing market all over the world, with tourism arrivals increasing steadily year by year. In 2016 this
growth amounted to 3,9% compared to 2015. Although Europe is still the first tourist destination in the world, its
market share is decreasing.
Therefore, it is of utmost importance to keep applying low VAT rates for hospitality services in Europe, thus
keeping up its competitiveness in the global tourism market. In Ireland, having experienced a very difficult
downturn, Irish tourism has seen significant recovery in recent years. This has been underpinned by a number of
important Government policy initiatives such as decreasing the 13,5% tourism VAT rate to 9%, which has made
Ireland more attractive as a tourism destination.17 The value for money rate of Irish tourism products increased
significantly. While in 2009 only 60% of tourists found that value for money of such products was very good,
good or fair, this share increased to 95% in 2016.18
Tourism as an export product, however consumed on the spot
Services related to tourism are important exports in most European
countries, to the extent that they are sold to foreign visitors. Moreover,
tourists do not only spend in hotels and restaurants but also in
shops, for cultural activities, tourist attractions and for various other
goods and services. In fact, around 42% of their spending is related
to hospitality services, while the rest of their expenditure is for other
purchases related to their travel. 19 As expenditure for accommodation
has the highest shares in the overall expenditure of tourists,
representing around 36% of spending 20, lower VAT and lower prices
have a big influence on the number of incoming tourists and their
potential further spendings.
Contrary to most export products, hospitality services sold to foreign
visitors are consumed on the spot. Consequently, the tourism industry
can not benefit from the usual export promotion instruments, like VAT
exemption. On the other hand, these services provide the Member
States and the EU itself with VAT income both on VAT paid directly
on the tourism services, as well as VAT paid on other products and
services being made use of by tourists.
As the World Economic Forum stated, “Taxes such as the value-added tax (VAT) or goods and services tax (GST) are
typically levied on goods and services sold at home, but not on exports. When the rate of these taxes is increased,
it will not affect most export industries – but tourism is the exception. Thus the ways taxes are levied will be a
significant determinant of tourism competitiveness. Countries that rely heavily on taxes such as the VAT / GST will
be less tourism competitive than other countries with similar per capita incomes and industry structures.“ 21
36%
Share of expenses of tourists in the EU
■ Accomodation ■ Transport ■ Other
32% 36%
32%
Source : Eurostat
14 | HOTREC - Report on the benefits of low VAT on job creation and competitiveness in the European Union