GAZT VAT agents guide - VAT impact on agency arrangements  

The General Authority of Zakat and Tax (GAZT) recently published a Value Added Tax (VAT) guideline on Agents, which explains, amongst other things, the VAT impact on agency arrangements entered into by hotel owners and similar accommodations with a third party hotel operator.

In a hotel business, the owner of a hotel may engage with a third party hotel operator for the rights to use its brands; or for the hotel management services; or for both. There are also cases where an operator is engaged as an agent to supply the hotel services on behalf of the hotel owner.

Regardless of the contractual arrangement between the operator and hotel owner, the hotel operator may be liable to account for VAT in respect of the hotel business if it operates as an “undisclosed” / “own name” agent.  According to the guide (an unofficial translation), the following factors could determine whether this is the case:

1. When the hotel's guest approves and signs the terms and conditions (when checking in), do these terms and conditions refer to the hotel owner? If not, this may mean that the hotel operator acts as an agent in his own name.
2. Who is responsible for contractual obligations towards a hotel guest, is it the hotel owner or the hotel operator? (For example, who should find alternative accommodation or pay compensation if the hotel is fully booked?) If the hotel operator is responsible, it means that he is acting as ‘an owner’ or in his own name.
3. Does the name of the hotel owner appear on the invoices issued .to guests? If not, it means that the hotel operator acts as an owner or in his own name.

Therefore, understanding how the hotel operator holds itself out to customers (through contractual documents and other documents issued to customers) is imperative to understanding the VAT implications for both the owner and the operator, i.e. who accounts for VAT for the hotel business, who issues VAT invoices to guests and who is responsible for record keeping.

In view of the above, Deloitte can assist hotel operators and owners to review their arrangements and if necessary, re-structure them to achieve a VAT position that is in line with the commercial reality.