How should I distinguish between the manpower services and visa facilitation services under UAE VAT and the treatment thereof?

UAE has been known for the tax-friendly policies that it has been devising for the public and businesses there. These tax-friendly policies have resulted in a rise in the business setup and migration of people from all over the world. The UAE, on the other hand, has been making all the efforts to ease the complexities of the businesses, organizations, and the public by providing all the required amenities to enable them to lead a peaceful life. Recently, the UAE FTA has released a public clarification pertaining to the manpower and the visa facilitation services under the VAT. The taxable entities have been finding it difficult to classify the services that they provide and to determine the values of the taxable supplies.

Hence, in this blog we will simplify the clarification by VAT and will help you to distinguish between the manpower and the visa facilitation services.

Manpower services under VAT

Under the VAT regulation, the manpower services include the identification of candidates, recruitment and hiring of candidates, and then providing the selected candidates to any of the customers; hence, these will be considered the taxable supplies of the manpower services.

If you are a manpower service provider, then being a supplier of the services, you will be held responsible for any or all of the employment obligations, which would include the payment of the wages and salaries to the employees, their performance towards the customer, and also the control over each of the employees hired and provided to the customers. Hence these are the parts of the supervision and control, which also include the setting up of the work for each employee and the determination of the working hours duration.

How is the valuation of the supplies under Manpower Services?

For the purpose of the valuation of the supplies under the Manpower Services, then it includes the whole amount of the consideration that is either received by you or expected to be received from the customer or either reimbursed from the customer; it might also include any of the salaries or wages that are directly paid to the employees.

Example:

Consider there to be a company X who is the supplier of the manpower services, holds the employment visa of the employees, and is also responsible for making these employees available for work for the customer, say company Z.

In this instance, Company X is considered to be the supplier of the manpower services, ignoring the fact whether the salaries or wages are paid by Company X or Company Z.

The consideration for these supplies would include the amount that is incurred by Company Z, which might include the salaries of the employees and the expenses related to the services that are provided by Company X to Company Z.

Hence, Company X will have to account for the output tax on the whole value of the taxable supply, and the value of the supply would be consideration less VAT.

Visa Facilitation Services under VAT

If you, as a supplier, meet the certain requirements listed below, then you will be considered a supplier of the Visa Facilitation Services:

• The facilitator and the customer must be of the same corporate group and not of same tax group.

This requirement is considered to be met when both the entities (the facilitator and the customer) are part of the same corporate group from the accounting perspective, where it relates to the companies that are conducting the operations with the same or common corporate structure, including common ownership of the companies.

The breach of this requirement would result in considering the services as manpower services.

• The services or the business activities of the facilitator must not include any supply-manpower services.

As per this requirement, if the facilitator supplies the manpower services to any other person, then it would lead to the breach of the said condition; hence, the service will not qualify for the visa facilitation services.

• The facilitator must not be responsible for any of the employee-related obligations.

Under the Visa Facilitation Services, the customer is considered to be responsible for the obligations related to the employees, reducing the obligation of the facilitator to incurring the expenses related to the employment visa only.

• The facilitator must sponsor the employees to be under the supervision, control, and to work for the customer.

The employees, even though sponsored by the facilitator, are required to work for the customer, who might supervise and control them. If the employee additionally works for any other company along with working for the customer, it would lead to the breach of this requirement and would result in the determination of the services as manpower services.

How is the valuation of the supplies of the Visa Facilitation Services?

If the services that are provided by you are eligible for being considered as the Visa Facilitation Services, then the supplies will be considered as the taxable supply if the place of the supply is in the UAE.

The consideration for the supply of the services will be the amount that is charged by you as facilitator, which might include the reimbursement of expenses like typing fees, medical tests, issuance of Emirates ID, etc.

The value of supply of the visa facilitation services excludes the salaries, monetary benefits, or any flight allowances that are paid to the employees, as these come under the obligation of the customer.

Special valuation rules

There are some of the special valuation rules that are applicable in the following circumstances:

Related Parties: If the facilitator doesn’t charge the market fee from the customer for the services, which might be less than the market value, and if the customer is not to get the full input recovery of the VAT, then the value of the supply would be the market value of the supply.

In these circumstances, the facilitator is instructed to charge the VAT on the market value of the supply, irrespective of the actual amount that is imposed for the services provided.

No Fee charged: When the services are provided by the facilitator and no fee is charged in return, then in these circumstances the supply would be considered as the deemed supply, unless any of the exceptions are applicable.

But if the facilitator did not recover the input VAT incurred to make the supply, then it wouldn’t be considered as the deemed supply.

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