Tax shock hits the Dutch hotel sector

The accommodation sector in the Netherlands is trying to come to terms with the effects of an increase in Value Added Tax (BTW) from 9% to 21%. The impact of this change is even sharper because neighbouring Germany (7%) and Belgium (6%) have kept their tax rates for hotels at a low level.

Estimates of the impact of the tax increase suggest an increase in hotel prices of over 8%, leading to decreased demand, and an 8% drop in turnover for hotels. There are already early signs of a downturn in bookings. The  platform Hotelspecials reported that domestic hotel bookings were down by more than 20%, with even sharper falls for bookings from neighbouring countries. It seems that Dutch travellers are now more likely to choose German hotels (bookings up 20%).

Dutch hotels are now searching for ways of earning extra income, or reducing the impact of the tax hike. Recent research suggests that hotels could do more to increase their revenue, for example by renting out rooms during the day, or moving to a hybrid model. For example, the Social Hub, which started life in 2012 as the Student Hotel, has expanded its operations across Europe to cater for a wide range of segments, including “digital nomads, travellers, students, coworkers and everyone in between.” It now has 21 locations across Europe, with Turin, Lisbon and Edinburgh due to be added soon. The planned Edinburgh operation is linked to a major redevelopment project for a former brewery, including new homes, office and retail space.

Hotels are also trying to shift their earning potential from renting rooms, which are now taxed at the 21% rate, to extras such as meals and services, which still attract the 9% rate. Some hotels are now bundling rooms with other services such as breakfast in order to lower the overall price.

The expectations are that the effects of the tax increase will have a differential effect on hotels, depending on the type of operation and location. Middle category hotels and those that are located in border regions, or compete for international conferences, are expected to be hardest hit. Probably these operations will have to become more creative with their operations and pricing strategies in future.