UAE VAT: Manpower vs Visa Facilitation Services (VATP038)

The companies which are outsourcing staff are recruiting employees and assigning them to work at client locations. These companies paying salaries and benefits to the employees, as well as monitoring their performance, work assignments, and even their work sites. They also manage various aspects of the employees' work, such as their tasks, hours, and offer guidance and supervision. These types of services are called the manpower services, and the payments made by the client for such services is subject to tax based on the services place of supply principles.

Some companies are assisting other companies to have their employee’s visa under their name. They solely facilitate the visa acquisition process for employees. Their service fee covers the support in visa typing, employee medical, and Emirates ID arrangement. The company that hires the employee is responsible for the employee’s obligations like salary, air ticket, medical etc; and that company manages and supervises the employees. Such types of services provided by the companies is called visa facilitation services, and these companies charge their fee for the visa facilitation services to client based on the general place of supply rules of services.

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The above arrangement is suitable to everyone unless the services are extended to other companies that are member of same corporate group. When manpower services are provided to another corporate group member company, a familiar question resurfaces, echoing concerns raised during the VAT implementation in 2018: "If one corporate group member employs individuals and assigns them to another group member, will it be taxable?" We consistently clarified that these services were between separate legal personalities and outsourcing of staff is subject to tax. The Federal Tax Authority (FTA) has recently issued Public Clarification No. VATP038 (the clarification) to grant a specific exemption for situations where staff are being hired one corporate group member and assigned to other corporate group members.

In the clarification, a special exemption has been granted in cases where companies are part of the same corporate group (i.e., under common ownership). If one company within the group hires individuals and assigns them to another entity within the same corporate group, it will be treated visa facilitation services instead of manpower supply provided the hiring company's business activity is not manpower supply, and the employee’s responsibilities such as salary payments, medical, air ticket etc. are transferred to the company where the employees are assigned through a formal agreement.

To categorize the hiring and deputation of employees to another corporate group member as visa facilitation services rather than manpower supply, certain conditions must be met. Firstly, the employment visa holder (facilitator) and the customer must belong to the same corporate group. The facilitator's business operations and license activity should not involve the provision of manpower services, and the facilitator should not bear any employee-related obligations, having transferred these responsibilities to the group member for whom the employee was recruited. Additionally, the facilitator must sponsor these employees exclusively for work under the direct supervision and control of the customer (another corporate group member). Compliance with all these requirements is essential; failure to meet any of these criteria would lead to the assumption that the group member engaging in the hiring and deputation of employees is engaged in manpower supply rather than visa facilitation services.

Where, the fee charged by the facilitator is below market value and the customer cannot fully recover input VAT, the supply's value is deemed to be the market value, and VAT must be imposed on this market value, regardless of the actual fee charged. If the fee charged equals the market value, it is considered the taxable supply's consideration.

If the facilitator provides visa facilitation services to its customer for no charge, this is considered a deemed supply unless certain exceptions apply. The Facilitator must account for output tax based on the total cost incurred, covering both direct and indirect costs. When a facilitator cannot determine the cost of providing visa facilitation services, they can look at the market value of similar services as a guide for pricing their service.

The companies that are part of the same corporate group; and engaged in the hiring of employees for other corporate group member, should comply the above compulsory compliance requirements to treat the services as visa facilitation services instead of manpower supply.

The writer, Mahar Afzal, is a managing partner at Kress Cooper Management Consultants. The above is not an official opinion of Khaleej Times but an opinion of the writer. For any queries/clarifications, please feel free to contact him at?[email protected] .