VAT on overseas tour packages: a guide for UAE travel companies

For a UAE travel company, the VAT on a holiday package is rarely a single answer. Hotels, flights, transfers and activities are taxed under different rules, and the way the company sells — as an agent arranging services or as a principal selling its own package — changes what is taxed. Getting it wrong can mean charging 5% on money that is not taxable, or missing VAT that is.

The building blocks

Agent or principal?

This decision comes first, because it decides what the company's own supply is.

• Agent acting on behalf of the supplier: where the travel company arranges a hotel or tour on behalf of the supplier, the supply of the hotel or tour is made by that supplier. The travel company's own supply is its commission or service fee, and that is what it accounts for VAT on. How that commission is taxed depends on who pays it and what it relates to, so we check it case by case.
• Acting in its own name: where the company buys services and resells them in its own name — as many package sellers do — it is treated as making the supply itself, on the full price.

The contracts, the booking terms and the invoices should all tell the same story. A company that calls itself an agent but sets its own prices, carries the risk and invoices the full amount in its own name is likely to be treated as a principal.

No margin scheme for travel

Some countries let tour operators pay VAT only on their margin. UAE VAT has no such scheme for travel: the profit margin scheme covers only certain used goods, antiques and collectors' items. A UAE travel company acting as principal works out VAT on each element of the package under the normal rules.

Pricing a package correctly

• Break the package down. Keep a cost and price breakdown for each package — hotel abroad, flights, transfers and activities abroad, and anything delivered in the UAE — so that each part can be treated correctly.
• UAE elements stay at 5%. A Dubai airport transfer or a UAE hotel night inside an outbound package is still standard-rated.
• Tours within the GCC raise extra questions, because of how the other GCC states apply VAT. We check these separately.
• Keep the evidence. Supplier invoices and booking confirmations showing where and when the services were provided support the treatment in your VAT return.

Why the zero-rated part still matters

Zero-rated sales count towards the AED 375,000 VAT registration threshold, and they allow VAT on related business costs to be recovered. Treating zero-rated income as if it were outside VAT altogether can mean registering late or missing input VAT.

Corporate Tax

A travel company pays Corporate Tax at 0% on taxable income up to AED 375,000 and 9% above it. If it is set up in a free zone, selling holidays to individual customers is generally not qualifying income for the 0% rate. Supplier commissions, incentives and overrides received from airlines, hotels or tour partners are income and need to be recorded when earned.

How we help

We review how your packages are sold and invoiced, set up the tax codes in your accounting system for each element, and prepare quarterly VAT returns. Packages start from AED 399^* a month for bookkeeping and AED 499^* a quarter for VAT returns. Send us a sample package and invoice and we will check the VAT treatment with you.