Source: https://www.sunandsoul.de/en/retreats-en/accounting-bookkeeping-retreats-sales-tax-difficulties-problems-solutions/
Timestamp: 2020-01-23 09:34:56
Document Index: 679251957

Matched Legal Cases: ['§25', '§25', '§25', '§ 3', '§ 15', '§ 13', '§ 15', '§25', '§25', '§13', '§13', '§19', '§19']

Difficulties and solutions in the bookkeeping of retreats | sun & soul
Accounting for Retreats – Difficulties, Problems, Solutions
You are a coach, teacher or trainer and want to organize a retreat? That’s wonderful. After all, retreats are a great way to expand your customer base, offer something new to your existing customer base, run an intensive program in an inspiring atmosphere, or just broaden your horizons.
There are, however, a few things to keep in mind. In addition to planning considerations and legal requirements, such as the existence of appropriate insurance for the retreat, these are mainly accounting challenges. Because travel services are subject to their own, complex rules in accounting.
These are the issues that are discussed in this article. Of course we also show you the solutions.
The article deals with the VAT treatment of travel services. Retreats are travel and are therefore subject to special sales tax treatments.
There are some pitfalls and peculiarities. Knowing and observing these is not always easy.
sun & soul organizes retreats in the Algarve on behalf of the coaches as a registered tour operator. We free you from all the difficulties described here.
Instead of getting bills, you put an invoice to us after the retreat. Because the costs of the retreat are borne by us. You can post this bill according to the general and known VAT rules. The difficulties described here are then absolutely irrelevant for you.
sun & soul is therefore your simple and uncomplicated way to do retreats.
If you organize and run a retreat, you are a tour operator. For tour operators there are special accounting rules. In Germany, where sun & soul is based, these are defined §25 UStG.
With a few minor differences, the rules are the same in all EU countries, because they are based on european laws, that must be converted into national laws in every EU country. In this article, we refer to §25 UStG. Just have in mind, that in your country, the paragraph itself has another name, but it has basically the same rules.
Sales Tax Act (UStG)
§25 Taxation of travel services
(1) The following provisions shall apply to travel services of an entrepreneur that are not intended for the business of the recipient of the service, provided that the entrepreneur acts in his own name vis-à-vis the service recipient and makes use of travel pre-services. The performance of the entrepreneur is to be regarded as "other achievement". If the entrepreneur provides a service recipient with several services of this kind in the context of a journey, they are considered to be a uniform other service. The place of the other service is determined according to § 3a para. 1. Travel services are deliveries and other services of third parties that directly benefit the traveler.
(3) The other benefit is calculated by the difference between the amount paid by the beneficiary to receive the benefit and the amount that the entrepreneur pays for the travel benefit. The sales tax is not part of the assessment basis. The entrepreneur may determine the basis of assessment for each individual service either for groups of services or for the entire services provided within the taxable period.
(4) By way of derogation from § 15 (1), the entrepreneur is not entitled to him separately charged for the travel expenses as well as deduct the tax amounts owed according to § 13b as input tax. in the Otherwise, § 15 remains unaffected.
Behind this text are the pitfalls of the taxation of travel services.
Essentially, the §25UStG says. that travel services, e.g. the offering of a retreat, in its own name may not be treated according to the otherwise applicable rules on value added tax.
You may not claim any input tax for the services you have “purchased”. This means that the accommodation, the catering or even trips must be calculated to grossprices. Normally you would calculate net prices as a B2B customer. The services you book, so-called “travel services”, are therefore more expensive than they would normally be.
In return, you do not have to charge the full sales tax on the sales prices, but you can offset the travel expenses.
This procedure is called “differential taxation” or “margin taxation”. There is a good reason why in EU legislation is defined that travel services are taxed under the differential taxation scheme: Travel services are actually provided to a very high proportion in the country where the journey is made. It is therefore fair that at least part of the sales tax on travel services is also paid in the holiday destination. This is exactly what margins taxation achieves. Because the input tax on the services booked by the tour operator is paid by the supplying company in the travel destination. Margin taxation thus provides a fair distribution of VAT.
The margin taxation basically means that you have to pay sales tax only on the profit of the trip. In return, you may not claim input tax.
The result is basically the same as you would have with the application of the standard taxation. An example makes this clear:
You book a trip for a retreat in Germany for 100 € net per person, plus 19% VAT. You sell this excursion to the participants of your retreat for 150 € gross.
For the sake of simplicity, we assume in this example that the entire retreat consists of a trip only and no other services are offered.
If you were allowed to apply the standard taxation, you would claim pre-tax of € 19 in your accounting for the “purchase” of the service and have it reimbursed by the state on your next sales tax declaration.
You would register for the € 150 sales price € 23.95 sales tax and pay it to the tax office.
As a result, you would have paid 4,95 € VAT after the standard tax.
In terms of margin taxation, this now behaves a little differently.
You can not claim the 19 € input tax. However, you do not have to declare a turnover of € 23.95 for your VAT tax return. Instead, calculate the gross margin of the retreat as follows: 150 € Gross selling price less 119 € Gross purchase price. The result is a gross margin of € 31. You report this margin as your sales. Accordingly, net sales amount to € 26.05 and the resulting sales tax on margin tax is € 4.95.
So far so good. Is the margin taxation merely a matter of packing the same rules into a different method of calculation?
Unfortunately, no! The differences, difficulties and pitfalls lie in the different VAT rates in the EU, in the treatment of possible losses from individual trips and in the practical calculation of the margin.
Difficulty with different VAT rates in the EU
The example above assumes a pre-tax of 19%. But what if you offer your trip in another European country and then purchase travel there?
In this case, marginal taxation creates a disadvantage for you. Because you can not claim the input tax. A trip that you can take, for example for 100 € plus 21% VAT, costs you gross 121 €. If the selling price is kept at 150 €, your gross margin is therefore lower, namely only 29 €, resulting in a net margin of 24.37 € after the margin tax. Because your margin is still provided with 19% VAT. That comes from the small sentence The performance of the entrepreneur is to be regarded as “other achievement.” from §25 UStG. So-called. “other achievement” are taxed at the standard rate, which is 19% in Germany.
If you organize a whole retreat, such differences can lead to a large decrease in your margin.
There is a way around this problem. If you as a retreat leader receive net bills according to §13b UStG. from the providers of the services, you must deduct VAT from travel expenses in the country where you are based as tour operator. You are not allowed to claim the input tax. However, it is possible to save a few percentage points on the gross price. Whether this makes sense depends on the amount of sales tax you incur on your travel destination and whether this service is taxed at a higher or lower VAT rate in the country where you are registered as a tour operator.
In addition, the operating company must be prepared to issue a net bill. That is not always the case. Since it requires that the company is willing to accept the extra work and that you, as a retreat leader in function of the tour operator, are ready to enforce this, beside the requirements that are defined in §13b UStG (see your national legislative for laws regarding the possibility to receiv net-invoices from cross-border B2B service providers in the EU.)
By cleverly choosing the place where the sales tax is deducted on travel expenses, one can thus easily optimize the net margin for a retreat by several hundred euros.
At sun & soul we work together with well-known service providers. We receive net invoices where it makes sense, and we know which services are better taxed in Germany and which services are better taxed in Portugal.
This allows us to fully exploit the potential for optimization and thus achieve a cost advantage for coaches and traners who have their retreat organized by us.
By the way: The standart VAT rate in Germany is lower, than in most other EU countries. That means, that with us you can offer lower participation-fees to the participants of your retreat, than you could do, if the standard VAT rate in your country is above 19%. If you are based for example in France, Spain or the Netherlands, you can offer 2% lower participation fees on your margin to your customers, than you could do, if you would organize the retreat on your own. If you are based in Italy, you lower the price by 3% of the margin, without losing a single cent of money and in many other countries the savings are even higher. Up to 6% in Denmark and Sweden and 8% in Hungary! In Austria, the standard VAT rate is 20%. According to this, trips organized by sun & soul have an advantage of 1% relative to the margin of the journey. This advantage can be used to make a higher profit for you or to offer the retreat cheaper for your participants.
Treatment of losses from travel services
One major problem is the treatment of losses from travel services.
Imagine, in the simple example above, when a travel service was purchased and resold to participants as a retreat, not enough tickets were sold to make a profit on the trip.
The example could look like this:
You book a trip for 5 participants to 119 € gross per person. So you have a total cost of 595 €. However, there are only three participants to whom you sell a ticket for 150 €. Your expenses are therefore in the amount of 450 €. With this retreat, unfortunately, you make no profit, but a loss of height of 145 € gross.
You can not claim negative sales for margin taxation. You may not record as your next sales tax advance notice that you have made a gross loss of € 145 and therefore have a negative VAT burden of € -23.15. Instead, you must enter this retreat with a revenue of 0. The 23,15 € you will not get refunded.
When applying the standard taxation this would be different:
Here you would have claimed on your expenses in the amount of 595 € a tax of 95 €. Your income of 450 € would have led to a sales tax payload of 71.85 €. Input tax and sales tax would be offset against each other and you would still get refunded by the tax office for this retreat, in which you have made a tax loss, 23.15 €.
The differential taxation is therefore of very great disadvantage, if it is not ensured that each trip generates an accounting profit.
My personal assessment is that, among other things, this circumstance leads to tour operators being exposed to a higher risk of insolvency than other companies. This could have led to the law, that everyone, who offers trips in its own name, is obligated to have money insurance (insolvency insurance for tour operators). Also this is one of the advantages of working with sun & soul. We have all these legally required insurances. You would have to get them for your retreat. If you work with sun & soul, you do not have to worry about this. Your retreat is legally totally safe.
At sun & soul we encounter this problem in many ways.
1) As part of the planning and organization of the retreat, we ensure that this is an outstanding setting. Through our experience, our network and our local knowledge, we can organize retreats that set themselves apart from the “pabulum” of many other retreats. This reduces the risk of not finding enough participants for a retreat.
2) We assist in determining a reasonable selling price and finding a minimum number of participants. We also recommend that you organize your trip with us only when you are sure that enough people will be available for the retreat in the planned manner and time.
3) Of course, we provide as a tour operator the statutory insurance. You as a coach, who does a retreat, do not have to worry about it.
Margin calculation for down payments
A particular difficulty arises as a result of the problem described above, in advance payments for travel services or when payments are made long before the cost of travel services. The question to aks here is what value is to be specified in the margin calculation.
Imagine receiving a payment for a retreat this month. The retreat will take place in 6 months. You still do not know exactly what the costs are. Moreover, it is not possible to make a margin application as sales before the costs have arisen. Basically, in the month you receive the money, you would need to register the sales tax on it (with actual taxation). But if you do not have any costs that you can offset, you pay VAT on the full turnover, even in terms of margin tax. After the trip you will receive the bills from the service providers. You can not claim the input tax. At this time, you do not have any income from the trip. So you can not offset the income and expenses against each other. As a result, although you have deducted VAT on all receipts in full amount, the sales tax on the purchased travel expenses will not diminish your VAT. Your total load increases enormously. With a retreat in the middle price segment with 5 or more participants this can mean an additional burden of well over 1000 €.
The solution to this problem lies in the registration of an expected margin. When you register your revenue, you may expect to receive an expected margin at the time the payments are received. Of course, you have to be able to plausibly explain how you have calculated this expected margin at any given time, and you must ensure that the correct sales tax for the retreat is paid at the end. Especially the second part can lead to enormous problems and difficulties, if you have indicated an expected margin, that is far from the actual margin, that you have realized with the retreat.
At sun & soul we have a clearly defined calculation scheme and strict rules and guidelines for calculating the expected margin. Because all costs are known to us at an early stage, we can calculate and register an expected margin for each participant of the retreat with high precision.
So, if you have your sun & soul retreat organized, you’ll no longer have a hitch with the margin calculation and expected margin. We solve this problem for you.
Another problem in connection with the bookkeeping of retreats occurs when you are a small business owner according to §19UStG. In this case, no sales tax is payable on your sales. However, you have to pay sales tax from the following year, if you report sales in the amount of more than 17,500 € within a fiscal year. In your country the value may differ from that. But mot likely, it is even lower.
This quickly raises the problem that a retreat usually costs several thousand euros. You can balance these costs by raising a corresponding entry fee that represents your revenue. Therefore, those who perform retreats are often automatically no longer a small business in the following year and must pay VAT from now on.
There is also a solution for this.
If you use sun & soul as a tour operator for your retreat, we’ll cover the costs of your retreat. The participants enter the travel contract with us. Of course, you can collect the money from the participants if you want that. The funds collected cover the costs. We will pay you the profit of the retreat by receiving an invoice from you.
That way, your sales are drastically reduced. Your income is only the profit of the retreat. It is not longer the whole money, that you participants have paid and which are mainly used to cover the costs. You can also offer outstanding retreats as a small business owner, without losing your status as a small business owner according to §19UStG.
In this paper, we looked at some of the difficulties and problems with the accounting treatment of travel services. These are the problems you face when doing a retreat on your own account.
Sun & soul frees you from it. As a tour operator, we not only provide the insurance that is required by law, and you would have to complete by yourself, if you would do the retreat on your own account. We also drastically reduce your accounting effort and ensure that the retreat does not artificially inflate your sales.
We organize your retreat in the Algarve according to your wishes and ensure the smooth running of all booked services. We bear the costs for all services. So you do not get countless bills that you have to settle and post. Instead, after the retreat, you’ll simply bill us for the trip and we will pay you that amount.
It won’t get simpler and easier. Have your sun & soul retreat organized and send bills instead of getting bills.
In addition to reducing the accounting and taxation complexity, as well as providing the statutory insurance, there are many other reasons for outsourcing the organizing process of your retreat to sun & soul.
Why sun & soul?
We live mindfulness.
We organize your retreat as 100% feel good package from A-T according to your wishes.
We assume the liability risk for travel services.
We perform retreats exclusively in private villas that provide the optimal atmosphere.
We are specialists for the Algarve and have excellent local knowledge and local network.
You have less stress, more time and can fully concentrate on your core competency and your clienbts while retaining the full flexibility and planning power over your retreat.
Everything you would otherwise have to put together individually and book piece by piece, we will do for you. In addition, you benefit from our network, experience, tour operator price advantages, reduced accounting complexity, insurance coverage and the fact that we know exactly what’s important when organising your retreat.
Because mindfulness is not a phrase for us. We live it every day.
We organize and coordinate each part of the retreat for you and put it together in one package. So you can concentrate on your coaching / training and focus on your participants. This is an invaluable advantage. Because if you spend your days coordinating and organizing each item during the retreat, your participants will not receive the attention and service they expect and deserve. We are your solution to this problem. Concentrate on your core competencies, we’ll do the rest for you.
We know the Algarve, the people, the beauty of nature and the local language. We have a network and are your guarantee for a perfectly planned and completed retreat. Benefit from us! Your customers will appreciate it.
As a registered tour operator, we handle the entire booking process and the payment process. We will ensure that all the legal requirements for your retreat are met and also free you from the issues of complicated travel tax rules that apply to coaching and retreat travel.
We are the only company that organizes Retreats in private holiday homes. There will be noone else than you and your group present. This ensures that you find the perfect conditions to create exactly the atmosphere and the group feeling that is important to reach the goals of the retreat.
We make sure that your retreat becomes an unforgettable and beautiful experience for you and your party.
Every retreat is unique, just like our packages. We create a retreat that fits your needs, requirements and budget. As a tour operator we have access to better prices for accommodation and services of all kinds. Simply contact us and we will make you a good offer.
You will not see an invoice from us. After the retreat you will give us an invoice for your profit. You have nothing to do with the cost of the services of your retreat. We will pay them.