As a follow up to a previous invoicing blog, this article will explore the reasons why hotels and agencies should be mindful of proper VAT invoicing.
The Cost of Invoicing Non-Compliance
With the travel and tourism market expected to surpass $1 trillion by 2029, hotels and travel agencies are on track to have significant growth. These new bookings are great for business, but the increase comes with its own set of challenges. In many areas around the globe, specific invoicing is required at various stages of each transaction to ensure reimbursement. This means that managing bookings can get complex very quickly for organizations operating across geographies, but by understanding these requirements, hospitality companies can set themselves up for future regulatory success.
Why Proper Invoicing Is Important
Simply put, proper value added tax (VAT) invoicing is important because it’s the law.
Hotels apply these taxes to guest bookings on behalf of government entities, who in turn use the funds to support various public works and improvements. In addition, any commissions received by travel agents are subject to VAT.
Before any commissions can be paid out, the agency is responsible for submitting an invoice to the hotel, which outlines the stay information along with the appropriate VAT levied against the commission.
Historically, the process of managing these invoices was very labor intensive, particularly for small and mid-sized companies. There was a great deal of back-and-forth and, in some instances, many entities decided to just ignore the invoicing requirements altogether. If a company missed some invoices during a fiscal year and it was discovered, they could say they were unlucky. However, with more and more jurisdictions shifting to electronic invoicing, the tax reporting process has become much less labor intensive and thus much more rigorous for businesses. This means avoidance is no longer a viable option for travel companies.
What Happens When You’re Non-Compliant
The absence of proper invoices can lead to a host of unintended consequences for both hotels and travel agencies.
Regulatory Issues
Government entities deal with non-compliance in a variety of ways, from issuing warnings to levying fines. As ignorance of the law is not a defense against missing mandates and deadlines, these penalties can often take companies by surprise.
As of August 2024, some of the penalties include:
- France will issue a fine of €15 for every invoice that violates e-invoicing rules (up to €15,000 per calendar year)
- Hungary may impose a fine of up to HUF 500,000 for every invoice that a taxpayer fails to report to the government
- Spain will generally levy a penalty of €150 for the incorrect filing of a VAT return
In addition to the fines and penalties, some jurisdictions will also take non-compliance into consideration when deciding who to grant government contracts, which could further impact future business for agents and hoteliers.
Unexpected Over-taxation
On the flip side, undocumented revenues – for example, missing invoices corresponding to your revenues — can lead to incorrect application of taxes. For example, cross-border or international supplies are typically exempt from VAT. If these cross-border supplies are not documented with the correct supplier and buyer, say a US based hotel to a Norwegian agent, there would be no proof of the revenue being tax exempt and thus might be considered taxable by the relevant authorities. Avoid paying taxes on inflated taxable revenue by making sure all supplies are properly documented. Even the ones exempt from VAT.
Reputational Hits
Public perception and trust are key in the hospitality industry, so multiple penalties from the government can leave customers with a negative impression of a company. If a hotel or agency receives multiple violations with invoicing, potential and current customers may believe that they are cutting corners in other ways as well.
In addition, if an agency refuses to issue proper invoices to a hotel, the hotelier will have trouble paying out commissions and reporting transactions, which can also lead to strained partner relationships.
How Hospitality Companies Can Stay Compliant
Now that the consequences of non-compliance are known, what can travel companies do to ensure that they are aligned with regulatory authorities? There are two main ways to accomplish this:
Outline a Clear, Step-by-Step Process with Business Partners
As many agents and hoteliers can attest, the hardest part of the invoicing process is getting to the invoice itself. Once both parties agree on the elements of the invoice, issuance and payments are generally streamlined. So by outlining a clear and concise invoicing process, inconsistencies and issues can be addressed quickly, leading to more agreement between parties and fewer issues with regulatory agencies.
Enlist the Help of a Trusted Partner
If keeping up with all of the government changes is a challenge, it can help to work with an invoicing partner to manage that aspect of your commission process. Onyx’s invoicing solution (powered by RecoverPro), for example, issues compliant invoices to hotels on behalf of agencies, cutting out much of the back-and-forth and ensuring that both parties have the proper documentation needed to facilitate commission payments. Plus, Onyx keeps up-to-date with regulatory changes so clients don’t have to.
What’s Next
As part of Onyx’s commitment to clients, the invoicing team regularly monitors changes in invoicing requirements for jurisdictions across the globe. The following countries have plans to shift to electronic invoicing requirements in the near future, so if your business has bookings in any of these areas, be sure you’re aware of the upcoming changes.
