UAE VAT Public Clarification (VATP038)
Manpower vs. Visa Facilitation Services: UAE VAT Public Clarification (VATP038)
On May 31, 2024, the Federal Tax Authority released the eagerly anticipated Public Clarification, which provided guidelines regarding the taxability of services related to labor supply and visa facilitation. The explanation offers guidelines regarding the differences between services for manpower supply and services for facilitating visas.
What are Manpower Services?
If a supply satisfies each of the following requirements, it is considered a manpower supply service:
• The supplier is in charge of employee identification, employment, recruitment, and availability.
• The supplier is always in charge of overseeing and controlling the employee.
• The supplier is responsible for the employee’s performance at the customer’s site.
• The supplier has total authority over what the employee’s job entails and how long they work.
• The provider can instruct and mentor the worker to carry out their responsibilities with diligence.
VAT Handling:
The provision of labor services will be regarded as a taxable supply.
Value of Supply
Regardless of whether the supplier or the employer pays the employees’ salaries and benefits, the consideration will take into account their benefits and salaries as well as any additional fees and recharges associated with the provision of labor services.
What are Visa Facilitation Services
As an exception to the aforementioned, if all of the following conditions are satisfied, a supply shall be regarded as visa facilitation services rather than manpower supply services.
• The customer determines employee availability, hiring, recruitment, and identification.
• The customer and the employment visa holder (referred to as the “Facilitator”) belong to the same corporate group (see below).
• The facilitator does not provide services for the supply of labor.
• The facilitator has no responsibility for any employee-related obligations.
• The customer is solely responsible for overseeing and controlling the employee.
Business Group:
If two or more individuals are connected to one another through the following practices, they will be regarded as belonging to the same business group:
Financial, economic, and regulatory practices
Corporate Group should not be associated with either Corporate Tax Group or VAT Tax Group.
VAT Handling:
The service cost that the facilitator charges the client is subject to VAT by the provider of visa facilitation services.
Value of Supply
The reimbursement of costs for things like typing fees, medical examinations, and the issuance of employee Emirates IDs is taken into account while providing visa facilitation services. The employee’s pay, yearly flight allowance, and any other financial benefits are not included in the consideration because they are the customer’s responsibility.
Conclusion
For UAE VAT purposes, VATP038 distinguishes between personnel supply services and visa facilitation services, bringing much-needed clarity to a long-standing gray area. Who actually oversees, supervises, and is accountable for the personnel is what matters, not the name used in agreements.
The agreement is regarded as a taxable manpower supply when the supplier maintains control over hiring, supervision, performance, and job scope. VAT is applied to the entire consideration, including salary, benefits, and associated costs. On the other hand, if the supplier simply helps with visa-related procedures inside the same business group and the customer has complete control over the personnel, the service is considered visa facilitation, and VAT is only applied to the facilitation fee and reimbursed administrative expenses.
To guarantee proper VAT treatment and prevent future conflicts or fines, businesses must thoroughly examine their contractual agreements, operational procedures, and intercompany structures. To stay in compliance with the FTA’s revised position, proper classification backed by unambiguous documentation will be crucial.