VAT Public Clarification on Manpower Vs Visa Facilitation Services

The Federal Tax Authority (FTA) issues public clarifications to provide guidance on specific VAT treatments. These clarifications help businesses understand how to apply VAT rules correctly to different types of services. Here, we will go through the key points from the recent clarification VATP038 issued by the FTA regarding manpower services and visa facilitation services – nature of these supplies as well as the application of relevant valuation rules.

Key points from FTA clarification

Manpower Services:

Hiring candidates and making them available to work for any other entity is considered as the supply of manpower services, unless certain conditions are met. In these services, the supplier is generally considered responsible for the employment obligations, including the payment of salaries and other benefits. The Supplier is also responsible for agreeing terms of employment and for ensuring that the employees perform their duties for the customer.

For VAT purposes, the consideration for such a supply is the total amount paid by the customer to the supplier. This includes not only the service fee or administrative charges but also the salaries and any payments made to the employee, regardless of whether these are paid by the supplier or the seconding entity.

A company providing manpower services must calculate output tax based on the total value of the supply, which is determined as the consideration minus VAT.

Visa Facilitation Services:

Visa facilitation services are often treated as an exception, wherein a supply would not be treated as a supply of manpower services, if all the requirements set out below are met:

1. The employment visa holder (facilitator) and the customer are part of the same corporate group.
2. The facilitator’s business activities do not include the supply of manpower.
3. The facilitator is not responsible for any of the obligations related to the employee.
4. The Facilitator sponsors these employees to exclusively work for, and under the supervision and control, of the Customer.

Corporate group requirement, for this purpose, refers to companies operating within the same corporate structure, which includes common ownership of the companies in line with Article 9(2) of the Executive Regulation. If the facilitator and customer are not part of the same corporate group, supply in such a case is treated as supply of manpower services. And if the facilitator and customer are part of the same VAT group, the supply would fall outside the scope of VAT in such cases, considering them as same person.

The customer is responsible for fulfilling all contractual obligation to the employees. The facilitator’s obligation to the employee is limited to covering the costs associated with obtaining the employment visa. Meeting this requirement is essential to qualify as a visa facilitation service for VAT purposes.

If an employee performs work duties for the customer in addition to other companies in the corporate group, then this condition would not be met, and the supply would be treated as a supply of manpower services.

The consideration for the supply of visa facilitation services is the amount charged for the services which could include the recharge of expenses such as typing fees, medical tests and issuance of employee Emirates IDs. The value of supply in this case excludes the employee’s salary, annual flight allowance and any other monetary benefits, as these are the obligation of the customer.

Due to the requirement that the supply must be provided within the same corporate group, a special valuation rule applies if the facilitator does not charge a market related fee:

1. If the facilitator charges the customer a fee that is less than the market value and the customer is not entitled to full input tax recovery, then the value of supply is the market value of the supply. VAT must be charged on the market value of the supply regardless of the actual consideration.
2. If the facilitator does not charge any fee, then the supply would be considered as a deemed supply unless one of the relevant exceptions applies.
  - If the facilitator does not recover any input tax incurred to make the supply, then it is not considered as a deemed supply and falls outside the scope of VAT.
3. If the facilitator recovers the input tax incurred to make the supply, then the output tax due has to be accounted for, based on the total cost incurred to make the supply, including direct and indirect costs.

Understanding the distinction between manpower services and visa facilitation services, as well as their respective VAT treatments, is crucial for businesses that engage in these activities.

*For more details, refer to the official public clarification issued by the Federal Tax Authority.

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