The European Union is moving forward with a significant change for the European tourism market, as Brussels has adopted the first part of the proposed VAT in the Digital Age (ViDA) reform. Under the new rules, from mid-2028, Member States will be required to impose Value Added Tax (VAT) on short-term tourist accommodation rentals of up to 30 consecutive overnight stays.
This development marks the end of the VAT exemption for privately rented holiday accommodation when it is not accompanied by hospitality services, such as cleaning during the stay or the replacement of bed linen and towels.
A shift in the market balance
Until now, owners of tourist apartments and holiday homes that offered limited hospitality services, such as breakfast or cleaning, were in many cases not required to charge VAT, as they were covered by the exemption regime.
Hotels, however, were treated differently. As they provide a broader range of services, they were able to apply reduced VAT rates, which in most European countries were set at around 10%. At the same time, hotel businesses were entitled to deduct the VAT paid on their business expenses as input VAT.
From 2028, this picture will change. The VAT exemption for private short-term rentals will be abolished, with the aim of creating a more level playing field between hotels and privately operated accommodation.
The trade-off for property owners
The new regulation, however, will not bring only additional obligations. Owners of private accommodation will also gain the right to deduct the VAT they pay on business-related expenses.
Until now, those operating their properties under the VAT exemption regime have not been able to deduct VAT on expenses such as renovations, the purchase of furniture and equipment, or the commissions they pay to platforms and intermediaries such as Booking.com and Airbnb.
The ability to offset input VAT is expected to act as a balancing mechanism, reducing part of the additional tax burden resulting from the abolition of the exemption.
Different speeds across Europe
The tax landscape in European tourism nevertheless remains highly uneven. According to data from HOTREC, the European association representing hotels, restaurants and cafés, the majority of Member States apply reduced VAT rates to tourism services, recognising the sector’s crucial role in the economy and employment.
However, there are also countries that have already abolished reduced VAT rates for hotels and tourist accommodation. In Denmark, for example, hotel accommodation is subject to the standard VAT rate of 25%. In the Netherlands, the reduced VAT rate was also abolished in January 2022, with VAT on hotel accommodation now standing at 21%.
Outside the European Union, the United Kingdom applies the standard 20% VAT rate to hotel accommodation and other related tourism services.
Concerns over further tax increases and their impact on tourism
Although the majority of European countries continue to apply more favourable tax treatment to the tourism sector, pressure to increase tax revenues is intensifying.
In recent years, countries such as Ireland, Romania, the Czech Republic, Estonia, and Finland have increased VAT on accommodation in an effort to generate additional revenue to cover fiscal gaps.
Experts warn, however, that higher taxation on tourism could have broader consequences. More expensive accommodation may make certain European destinations less competitive compared with countries outside Europe, such as Switzerland, the United States, and Thailand, where tourists may face a different tax burden.
At the same time, an increase in VAT could lead to a decline in tourism demand or influence travelers’ choices, prompting them to opt for destinations with lower taxation.
According to the same estimates, the impact will not be limited to accommodation providers. Lower tourism spending could affect the local economy as a whole, from transport and retail businesses to restaurants and small enterprises that depend on tourist activity.
The big challenge from 2028
The new European regulation gives Member States the necessary time to adapt to the new tax environment. For thousands of property owners operating in the short-term rental market, however, 2028 is expected to become a turning point.
The new framework will, for the first time, introduce the obligation to charge VAT on a significant part of the private tourist accommodation market, while at the same time opening the way for property owners to deduct the VAT paid on their business-related expenses.
The final impact will depend to a large extent on the way each country implements the new rules, as well as on the reduced VAT rates it chooses to maintain for tourism services.
In any case, Europe appears to be entering a new tax era for tourism, with short-term rentals moving from a VAT exemption regime to a new regulatory framework in which the key objective will be to strike a balance between public revenues, fair competition, and maintaining the competitiveness of the European tourism industry.
