UK struggles against Irish and German tourism tax subsidies

Fri 29th Aug 2014

New statistics on Irish tourism job creation and visitor numbers have underlined the benefits from its reduced VAT rate of 9% on tourism services compared to the UK’s 20% rate. Figures issued last week estimate that Ireland’s 2011 reduction in its VAT on hotels, restaurants and entertainment from 23% to 9% (the UK levies 20% on similar services.) has created over 30,000 new jobs. Irish tourist visitors rose 10% in the first half of 2014 compared to a rise in the UK’s of 8%. Ireland cut its tourism VAT to 9% in 2011 in a short term move which has stuck.

The UK rejected a tourism VAT rate cut this year.

Germany, which offers similar tourism tax breaks as Ireland, overtook the UK last year in terms of number of visitor.

UK tourism and entertainment attract high VAT burden

The table below highlights the differences on VAT rates for hotel accommodation, restaurants, theatres and catering services.

Country

Hotel VAT Rate

Restaurant VAT Rate

Theatres, Cinema VAT

Standard VAT Rate

UK

20%

20%

20%

20%

Ireland

9%

9%

9%

23%

France

10%

10%

10%

19.6%

Germany

7%

19%

7%

19%

Italy

10%

10%

10%

22%

All EU member states are obliged to follow the VAT rules set by the European Commission, which usually requires them to have a standard VAT rate above 15%. However, tourism is one of the exceptions where countries may apply locally set reduced VAT rates.

The UK Treasury argument that there is no direct evidence of tax subsidies helping tourism has now debunked. Even cash-strapped France back-tracked on a major hike on hotel accommodation levies with the view that the sector is too important an ‘export’ whilst the rest of its economy struggles.