I got a question last week from a travel agent whose clients were surprised to see an added charge on their cruise bill whenever they went to the bar. It was an 8% fee for a Value Added Tax, a common feature of taxation in Europe that doesn’t exist in the U.S.
The tax comes on top of the 18% gratuity affixed to bar bills on most cruise ships, meaning the two charges together add nearly a quarter of the cost of the drink or bottle of wine to the price.
How was this possible? the agent asked.
It is a good reminder that European cruises can bring exposure to VAT. It is a tax that members of the European Union are expected to charge, but each country has its own way of doing so.
The cruise in question was an Oceania Cruises voyage from Spain, which of all the European countries seems to enforce its version of VAT on cruise ships most vigorously.
Different purchases are taxed at different rates. The VAT on bar sales and specialty restaurant cover charges is 8%, while the tax on items bought from retail shops on the ship is 18% and spa treatments can be taxed at either 8% or 18%, depending on the item.
Cruises that do a roundtrip itinerary from a Spanish port must charge the tax. Ships making a port of call in Spain are supposed to charge the tax while they are in port or in Spanish waters.
There is a further wrinkle. If the cruise visits a non-EU destination, such as Gibraltar or Tangier, the tax no longer applies.
Upon leaving the EU, guests from non-EU countries can apply for a refund of the VAT under certain conditions. Be sure to have clients ask for a pamphlet from the cruise line outlining the refund procedure.
Receipts from a single store that add up to more than 90.16 euros, or about $130, are eligible for a refund. Receipts from different vendors (i.e. the spa, the photo concession, shops) can’t be combined.
Alas, spirits and other goods that have already been consumed aren’t eligible for a VAT refund.