UAE VAT Public Clarification by Federal Tax Authority VATP038 on Manpower vs Visa Facilitation Services

UAE-VAT-Public-Clarification-by-Federal-Tax-Authority

On May 31, 2024, the Federal Tax Authority released a much-awaited public clarification with instructions regarding the taxability of services related to facilitating visas and personnel supply. This clarification guides the distinction between services for facilitating visas and workforce supply. According to the clarification, companies are facing tough challenges in determining the nature of supply and the value of these supplies for VAT purposes.

The explanation deals with scenarios in which one organization has employment visas while the workers are managed and supervised by a different organization.

Businesses in these situations must make a distinction between visa facilitation services and personnel services.


Manpower Services

Scope and Evaluation Criteria:

  • The following criteria must be met for the identification, recruitment, hiring, and provision of candidates to any customer for a taxable supply of manpower services:
  • The supplier is responsible for all employment obligations, including paying salaries and other benefits.
  • The supplier is accountable for the employee’s performance of their roles at the customer and may have control over each employee’s placement.
  • The supplier would be responsible for the employee’s performance in terms of supervision. Furthermore, supervision and control include establishing employees’ work and hours spent.
  • An example of manpower services is when Company A holds an employment visa for employees working at Company B. Company A makes the employee available to Company B. Therefore, Company A is regarded as supplying manpower services.

Value of Supply

The complete amount received (or anticipated to be received) by the provider from the client is included in the consideration for the labor supply. This covers wages, benefits, and any other sums incurred in addition to other recharge related to the performance of labor services.


UAE VAT Public Clarification by Federal Tax Authority VATP038 on Manpower vs Visa Facilitation Services

Visa Facilitation Services

Scope and Evaluation Criteria:

  • If all the following conditions are satisfied, a supply shall be regarded as visa facilitation services as opposed to manpower supply services.
  • The customer sets the terms for personnel identification, hiring, recruitment, and availability.
  • The customer and the person in possession of the employment visa (the “Facilitator”) belong to the same company group (see below).
  • The facilitator does not provide services related to the supply of labor.
  • The facilitator bears no liability for the employee’s obligations.
  • The customer is the only entity that may supervise and manage the employee.
  • To meet the above conditions, the facilitator and customer should be part of the same corporate group from a commercial/accounting perspective.

Corporate Group

  • If two or more people engage in the following behaviors together, they will be regarded as members of the same corporate group:
  • Financial methods
  • Monetary procedures
  • Rules and regulations
  • Corporate Group and VAT Tax Group or Corporate Tax Group should not be associated.

Value of Supply

The value of the supply includes the fee for visa facilitation services and additional costs such as typing fees, medical examinations, and employee Emirates IDs. However, it does not include the employee’s salary, annual travel reimbursement, or any other financial benefits, as these are the customer’s responsibilities.


As visa facilitation services are within the same corporate group, a special valuation rule applies if the Facilitator does not charge a market related fee.

If the fee is below market value and then the Customer cannot fully recover input tax, the value of the supply is deemed to be the market value and VAT is imposed on the market value.

If the Facilitator charges the Customer a fee that is equal to the market value of the supply, the fees charged would be regarded as consideration for the taxable supply of services.


No Fees Charged for value supply

A deemed supply would occur if the Facilitator gave its customer visa facilitation services for free unless one of the pertinent exceptions was held. If the Facilitator did not recoup any input taxes paid to create the supply, it would not be considered a deemed supply.

Suppose the facilitator collected any input tax to provide the visa facilitating services. In that case, the Facilitator should account for the output tax owed based on the overall cost paid to produce the supply, including direct and indirect charges.


VAT Treatment

The supplier of visa facilitation services applies VAT to the service charge billed to the client. However, if both the facilitator and the customer are members of the same VAT tax group, the supply is considered to be outside the scope of VAT.


Conclusion

In conclusion, the UAE Federal Tax Authority’s Public Clarification VATP038 provides essential guidance on distinguishing between manpower services and visa facilitation services for VAT purposes. Manpower services involve full responsibility for employment roles, including salaries and performance management, whereas visa facilitation services pertain to administrative support within the same corporate group without assuming employment liabilities. Understanding these distinctions is crucial for accurate VAT treatment, ensuring compliance and proper valuation of services provided.


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