Understanding VAT Treatment is essential when distinguishing between manpower services and visa facilitation services to ensure compliance with Value Added Tax (VAT) regulations. This article delves into the specifics of these services, providing a detailed analysis based on VAT Public Clarification VATP038, dated May 30, 2024.
Manpower services
Manpower services include activities such as identification, recruiting, and hiring candidates, and making such employees available to work for another entity.
Supplier’s obligation
- The supplier entity shall be responsible for all the employment obligations, includes salaries and other benefits as well.
- The supplier ensures that employees perform their duties as required by the customer, oversees their work, and may also decide their work location and tasks.
Value of Supply
Value of Supply shall be the consideration received by the supplier from the customers, either recharge to the customer or directly paid to the employees. It includes:
- Salaries and benefits paid to employees
- Any other charges related to providing the manpower services.
Visa Facilitation Services
Visa facilitation services are administrative services aimed at facilitating the employment visa process for employees hired by another entity. These services do not include making employees available to another entity but focus solely on the administrative aspects of visa processing.
To classify a service as visa facilitation rather than manpower, the following conditions must be met:
- The facilitator and the customer must be part of the same corporate group but not the same tax group. If the Facilitator and Customer are not in the same corporate group, the supply would be considered manpower services.
- The facilitator’s business activities should not include the provision of manpower services.
- The facilitator should not assume any employment obligations, such as salaries, other monetary benefits and providing medical insurance and accommodation.
- The employees must work exclusively for the customer and should be under their direct supervision and control.
Value of Supply
If a Facilitator’s services qualify as visa facilitation services, this supply will be considered as taxable supply if the place of supply is in the UAE. The value of the supply for visa facilitation services is the amount charged for providing such services; which could include costs like:
- typing fees;
- medical tests; and
- The issuance of employee Emirates IDs.
However, it does not include:
- The employee’s salary,
- annual flight allowance, or
- Any other monetary benefits, as these are the responsibility of the customer.
Special Valuation Rules
Following special valuation rules apply for supplies between related parties and supplies made for no consideration.
- Supply between the Related Parties: When Facilitator charges a fee that is less than market value and the Customer is not entitled to full input recovery, the value of supply is the market value of the supply, regardless of the actual amount charged for the visa facilitation services.
- Supply where no fees is charged: If the Facilitator provides visa facilitation services to a customer for free, it would be considered a deemed supply unless an exception applies. However, if the Facilitator doesn’t recover any input tax incurred in making the supply, including both direct (e.g., VAT on typing fees) and indirect costs (e.g., overhead costs), it is not a deemed supply and falls outside the scope of VAT.
However, if the Facilitator did recover any input tax for providing these services, it must account for the output tax based on the total costs incurred, including both direct and indirect costs.
Corporate Group
This “corporate group” reference is different from the tax group concept used for VAT or Corporate tax purposes. Understanding VAT Treatment in this context is important, as it refers to companies within the same corporate structure, with common ownership as per Article 9(2) of the Executive Regulation. If the Facilitator and Customer are not in the same corporate group, the supply would be considered manpower services. However, if they are part of a VAT group, they are considered the same entity and thus do not make a supply, placing the activity outside the scope of VAT.
Conclusion
Understanding VAT Treatment regarding Manpower services and Visa Facilitation services is crucial for businesses to comply with tax regulations effectively. By differentiating between these services and applying relevant valuation rules, companies can navigate VAT complexities with confidence.
