VAT on Travel Agents and Tour Operators| Clarifications for Travel Agents in Bahrain

VAT on Travel Agents and Tour Operators

VAT in Bahrain took its course from 1^st January 2019 as the third GCC member state after UAE and KSA to implement VAT. The standard rate of VAT in Bahrain is 5% and is levied on all taxable supplies. It has been ten good months of Implementation for VAT in Bahrain with proper VAT compliance in most of the business industry in the Kingdom of Bahrain.

A recent public clarification published by the National Bureau for Revenue (NBR) on the applicability of VAT on services provided by the Travel Agents in Bahrain has specifically clarified on the below:

• Charges for ticketing services for international travel
• Invoicing and VAT Return

The Public Clarification that has been issued by the NBR is to clarify the matter related to the implementation of the Decree-Law No. 48 for the year 2018 Regarding Value Added Tax and its Executive Regulations for VAT in the Kingdom of Bahrain

Now let us understand the above-mentioned clarifications in a broader way:

Are you providing ticketing services for international travel from Bahrain?

Let us observe three instances based on the charges by travel agents for ticketing services for international travel from the Kingdom of Bahrain.

1^st Instance: In case a travel agent is involved in providing ticketing services which are directly related to the international transportation of passengers or any sort of commission/services charges or a running fee is charged by the travel agent. Whether the travel agent is involved in an airline or a shipping company or a person traveling will be Zero – Rated for VAT purposes in case the Place of Supply of the ticketing services is inside the Kingdom of Bahrain.

2^nd Instance: In scenarios where a travel agent buys and sells international transport services, whether the travel agent is the primary or a secondary agent, the entire supply which also includes profit earned by the travel agent shall be Zero – Rated or Out of Scope for VAT purposes, which would also depend on Place of Supply Rules. Therefore, there will be no VAT on any profits earned by the travel agents when they buy or sell International Travel Tickets.

3^rd Instance: In scenarios where a travel agent acts secondary for a passenger and books an international flight ticket for them. The price of the ticket that has been charged by the airline and when it is passed to the travel agents passenger will be a Disbursement for VAT Purposes which means that it will be out of the scope of for Bahrain VAT.  

Scenario 1: If a Travel Agent takes concession from an airline and when a Travel Agents sends the ticket to the customers with the fee charged by the airline as well as his commission charges / service fee. In such instances the travel agent will have to show the total amount that a passenger has to pay, which is the ticket price and service fee of the travel agent as one payment on the TAX Invoice. Two different segregation or description in the TAX Invoice to show the ticket price and travel agents fee is not required. Please note that the TAX Invoice should distinctly state that “the amount being charged includes a zero-rated supply”.

Scenario 2: When a travel agent avails concession from the airlines, the supplies that are subject to VAT at Zero-Rate and which are reported in the VAT Return should only bear the commission / service fee with regard to the international ticketing service. The amount that has been charged to the travel agents passenger as a whole of ticket fee along with service fee should nowhere be reported while filing for VAT Return.

Scenario 3: When the recipient who is availing the service of ticketing for international travel from Bahrain is Registered for VAT in Bahrain. In such cases, the total amount which also includes disbursement that has been charged by the travel agent should be included in the section of its “VAT return dealing with purchases from non-registered VAT payers, zero-rated/exempt purchases”.

When you provide ticketing services for international travel from Bahrain and act as a disclosed agent the VAT Treatment for invoicing and recording the transaction in the VAT Returns of the supplier and customer should be applicable only to the fee / commission / service charge.

Let us close this understanding of for ticketing services for international travel, Invoicing and VAT Return with a practical example:

Example 1:

ABC HAPPY TRAVELS books an airline international ticket for Ms. Suravi from Bahrain to Paris. ABC HAPPY TRAVELS is here a disclosed travel agent. The price of the ticket is BHD 100/- and ABC HAPPY TRAVELS charges Ms. Suravi a service fee of BHD 10/-.

While issuing a Tax Invoice to Ms. Suravi (the passenger), in the Tax Invoice ABC HAPPY TRAVELS may show one consolidated cost for travel from Bahrain to Paris which is BHD 110/- and should state that “all supplies subject to VAT are at the zero-rate”.

When ABC HAPPY TRAVELS is filing for their VAT Return, it must show BHD 10/- as zero rated. The disbursement that is to be made to the airline company should not be reported in its return.

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