Introduction
Under Article 68(C) of the VAT Executive Regulations, the supply of goods and services directly or indirectly associated with the supply of international transportation of passengers and goods is zero-rated for VAT purposes.
Charges for ticketing services for international travel
With effect from 1 August 2019, where a travel agent provides ticketing services that are directly related to the international transportation of passengers, any commission charges, service charges or administration fees charged by the travel agent, whether to the airline, shipping company etc or to the person travelling will be zero-rated for VAT purposes if the place of supply of the ticketing services is Bahrain.
Where the travel agent buys and sells international transport services (either as a principal or as an undisclosed agent), the entire supply (including any profit realized by the travel agent) will either be zerorated or out of scope of VAT, depending on the place of supply rules. Hence, no VAT will arise on any profit realized by the travel agent on the buy/sell arrangement.
Where a travel agent acts as a disclosed agent for a passenger and books an international transportation service for that passenger, the cost of the ticket (as charged by the airline), when passed on to the travel agent's customer, will be a disbursement for VAT purposes. As such, it will be outside the scope of Bahrain VAT.
Invoicing and VAT return
By way of concession, when a travel agent passes on the cost of the ticket charged by the airline to its customer plus a booking commission, service charge and/or administration fee, the travel agent may show the total amount payable by the customer (i.e. the cost of the ticket plus fees charged by the travel agent) as one charge on the VAT invoice. There is no requirement to identify or separately show the travel agent's fees on the VAT invoice. The VAT invoice must, however, clearly state that the amount being charged includes a zero-rated supply. Where the VAT invoice includes supplies subject to VAT at the standard rate, the VAT invoice must specify which line items include supplies subject to the zero-rate.
Where a travel agent avails of this concession, the supplies subject to zero-rate VAT reported on its VAT return should only be the amount of its fees/commission relating to international transportation services.