LETTER OF STATE TAX ADMINISTRATION OF UKRAINE

of April 10, 1997 No. 16-1321/10-2719

About the value added tax on tourist services

Due to the receipt of requests concerning correctness of application of the current legislation on the value added tax in the field of foreign tourism, the State Tax Administration of Ukraine explains.

The general and specific principles of realization of state policy of Ukraine in the field of tourism are regulated by the Law of Ukraine of September 15, 1995 N 324/95-BP "About tourism".

According to article 1 of this Law tourist services - the services of subjects of tourist activities (the company, organization, the organization irrespective of their patterns of ownership, which activities is connected with provision of tourist services) concerning placement, food, transport, information and advertizing servicing, and also service of institutions of culture, sport, life, entertainments directed to requirements satisfaction of tourists.

According to Art. 32 of the above-stated Law subjects of tourist activities realize interests of Ukraine in the field of tourism in the relations with other countries both at the interdepartmental level, and in the international tourist organizations by the conclusion of agreements.

According to Art. 9 of the Instruction "About conditions and rules of implementation of the business activity connected with provision of tourist services, and control of their observance", approved by the order of Licensed chamber under the Ministry of Economics of Ukraine, State committee of Ukraine on tourism of 17.05.96 N LP-12/26, which is registered in the Ministry of Justice of Ukraine 07.08.96 for N 429/1454, the organization of trips of tourists abroad it is performed based on agreements, intentions and agreements (contracts) signed by them with foreign partners who according to Item 11.1 shall conform to requirements of the Regulations on form of the external economic agreements (contracts) approved by the order of the Ministry of Foreign Economic Relations and trade of Ukraine of 05.10.95 N 75 and registered in the Ministry of Justice of Ukraine 09.10.95 for N 367/903.

According to this Provision agreements of sale and purchase of goods (provision of services, performance of works) and goods exchange agreements between the Ukrainian subjects of business activity and foreign subjects of business activity irrespective of patterns of ownership and types of activity are applied.

Considering that subjects of tourist activities realize in the territory of Ukraine to residents the tourist product (the tourist voucher, the permit) acquired at the foreign subject of business activity according to agency agreements (agreements) which according to Item 11.1 of the above-stated Instruction are signed on purchases and sale terms (other conditions, except barter, are not determined by the Provision), that the total sales from such realization shall be increased by tax amount on value added.

At the same time, the tax amount on value added which is subject to payment in the budget is determined as difference between tax amount, received from buyers for the realized tourist services, organizational services, and tax amounts which are paid or are subject to payment to suppliers for the performed works, services, the acquired material resources, fuel which cost belongs on the cost of tourist and organizational services. What it was reported to the State committee of Ukraine on tourism by the letter of 30.10.96 N 10-218-26/11-507 about.

Along with it, subjects of tourist activities according to article 17 of the above-stated Law on the basis of agreements with the insurance companies having the right to carrying out such activities shall perform without fail travel insurance (medical and from accidents).

If the cost of the insurance policy increases the size of cost of the permit, then such cost is excluded from taxable turnover of cost of the permit as according to letter of "l" of item 1 of Art. 5 of the Decree of the Cabinet of Ministers of Ukraine of 26.12.92 N 14-92 "About the value added tax" transactions on insurance and reinsurance (except the insurance fees connected with transportation of goods, performance of works, provision of services) are not subject to taxation on value added.

In case the subject of tourist activities receives the allowance (markup) for organizational services in document creation in insurance company and to receipt of the insurance policy by the tourist, such allowance joins in taxable turnover for calculation and the tax discharge on value added in generally established procedure.

The above-stated Law does not provide compulsory insurance of baggage, however if the subject of tourist activities on the basis of the agreement with insurance companies which have the right to carrying out such activities performs baggage insurance, then revenue equivalent to baggage insurance cost, is also excluded from taxable turnover for calculation of the value added tax (except insurance fees). The gross income (allowance) for organizational services in carrying out baggage insurance is object for taxation on value added.

If the subject of tourist activities independently incurs warranty obligations for safety of baggage and receives for such guarantee the additional charge, such insurance fee according to article 3 of the Decree of the Cabinet of Ministers of Ukraine of 26.12.92 N 14-92 "About the value added tax" is subject to taxation on value added.

Besides, if the subject of tourist activities provides to tourists additional organizational services in ensuring transport servicing, booking and acquisition of tickets, provision of information and consulting services, ensuring transportation in the territory of Ukraine to the place of transport international delivery (the airport, railway or sea stations), etc., then the received revenue from provision of such services is assessed with the value added tax in accordance with general practice, except for costs of international shipping services.

According to items "and" item 1 of Art. 5 of the Decree of the Cabinet of Ministers of Ukraine of 26.12.92 N 14-92 "About the value added tax" and items "in" item 63 of the instruction of the Main state tax authorities of Ukraine of 31.05.94 N 44 commodity export (works, services), including the international shipping services performed according to the transportation contract or with the broker agreement on transportation of both goods, and passengers from Item in the national territory of Ukraine to Item abroad from Item abroad to Item in the national territory and transit through the national territory of Ukraine, and also between two Items within the country as parts of the international airborne and water hauls, is not assessed with the value added tax.

The above-stated privileges concern only those companies which independently vehicles perform international shipping services, irrespective of form of carrying out calculations for such transportations.

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