VAT on travel agency commission and packages in the UAE: what to charge and why

If you arrange a supply between a customer and an airline or hotel, and the contract is between them, you are acting as an agent. Your income is the commission or service fee, and that fee is your supply. If you buy hotel rooms, transfers and tours in your own name and resell them as a bundle at your own price, you are the principal and the whole package price is your supply.

This choice drives revenue too. An agent reports AED 600 of commission on a AED 8,000 booking; a principal reports AED 8,000 of revenue and AED 7,400 of cost. Our view: document the position in your supplier contracts and booking terms, because the FTA will look at the paperwork, not at what you call yourself.

A service fee you charge a UAE customer for booking a flight or hotel is generally standard-rated at 5%. A booking fee of AED 150 becomes AED 157.50 with VAT. Commission paid to you by a foreign hotel or tour operator is a supply to a business outside the UAE, and whether it can be zero-rated as an export of services depends on the conditions in the law and the facts of the arrangement.

Keep commission income in its own revenue account, separate from customer service fees, so each line on the return has a clean source.

The Executive Regulation to the VAT Decree-Law gives specific treatment to the facilitation of outbound tour packages: under Article 31, that part of the service is zero-rated, where the package covers services provided outside the UAE such as accommodation, meals and transport. International passenger transport that starts or ends in the UAE is zero-rated under Article 45 of the Decree-Law.

Inbound and local tourism is different. A desert safari, a Dubai hotel stay or a city tour consumed in the UAE is generally standard-rated. A mixed package that includes a night in a Dubai hotel before a Seychelles trip needs splitting, and the split must be reasonable and documented.

• Outbound package facilitation: zero-rated under the Executive Regulation conditions
• International flight sold as principal: zero-rated transport
• Local hotel, safari, theme park: standard-rated
• Booking fee to a UAE customer: standard-rated

A family books through an Al Barsha agency: return flights to Baku AED 6,200 (sold as agent, airline invoices the passenger), an outbound package arranged by the agency in Azerbaijan AED 9,800, and an airport transfer in Dubai AED 250. The agency also charges a AED 200 service fee.

The flight is not the agency’s supply at all, so it passes through a customer funds clearing account and the agency books only its commission when the airline pays it. The outbound package facilitation is zero-rated, the Dubai transfer is standard-rated (AED 12.50 VAT) and the service fee is standard-rated (AED 10 VAT). Total VAT due on this booking: AED 22.50, not 5% of everything.

Give each product type its own item with a default VAT treatment, and keep customer funds held for airlines and hotels in a clearing account rather than in revenue. That clearing account should reach zero once suppliers are paid; anything left is either margin you have not recognised or a refund you owe.

HelloBooks lets you set per-line VAT treatment (standard, zero-rated, exempt, out-of-scope) on each invoice line, and the AI agent suggests the treatment from the item and the destination. It flags a mixed booking where a local component is marked zero-rated, so you can review it before the VAT 201 draft is built. If your agency wants its own item list and approval rule for zero-rated lines, the team can configure that after a call through /book-a-demo.