The value added tax (VAT) applies to the advance payment for a nonrefundable hotel stay when the client does not show.

In Ruling No. 5,904 (dated March 9, 2016), the Uruguayan tax authorities ruled that when a hotel receives an advance payment for a nonrefundable stay and the client does not show, the sale should be taxed for VAT purposes.

According to local regulations, VAT is levied on the sale of goods and the provision of services in Uruguay. As stated in local regulations, a service is anything that is not a disposal of goods, including an advantage or benefit received in exchange for a payment.

It is the tax authorities' understanding that the guaranteed bookings provide certain advantages to the hotel and to the hotel guest: (1) the conditions of the future hosting service are established; (2) the characteristics of the room are set; and (3) the hotel is committed to have the room available for the guest on the date set.

Therefore, it is understood that if the guest does not arrive, the non-refundable price would be for the service that provided the guest with an advantage that constituted the cause of the payment.

The tax authorities ruled that the service plus VAT would be equivalent to the non-refundable amount. The service would be considered provided upon the confirmation of the no show. Therefore, the hotel should issue a receipt when receiving the advance sale. Once the hotel confirms the no show, it should issue the invoice, which would be taxed at a basic rate of 22%.

The corporate income tax also would apply to these services.

Additionally, the tax authorities clarified that this ruling applies regardless of whether the taxpayers are included in the electronic invoices system or in the traditional one.

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