Distinguishing Between Manpower and Visa Facilitation Services: VAT Clarifications for UAE Businesses
The UAE Federal Tax Authority (FTA) has issued a comprehensive public clarification addressing the VAT implications of manpower services versus visa facilitation services. The primary objective is to provide clarification regarding the VAT treatment of services related to the provision of manpower and visa facilitation. This guidance is very relevant to business practices in the UAE and is crucial for businesses to ensure proper VAT compliance and avoid potential penalties.
Definition and Distinctions:
1) Manpower Services:
- Scope: Manpower services involve the recruitment, hiring, and provision of employees to another entity. This includes scenarios where the supplier of the manpower services makes employees available to work for another company.
- VAT Implications: The full consideration received for manpower services is subject to VAT. This includes:
- Salaries and wages paid directly to employees.
- Any benefits provided to the employees.
- Any other associated costs recharged to the customer.
2) Visa Facilitation Services:
- Scope: Visa facilitation services are administrative services that assist in obtaining employment visas for employees. These services do not involve making employees available to work for another entity.
- VAT Implications: Only the service fee charged for processing the visas is subject to VAT. This fee is distinct from any amounts related to the provision of manpower.
Key Criteria for Classification:
The clarification outlines specific criteria to determine whether a service should be classified as manpower or visa facilitation:
- Within the Same Corporate Group: The entities involved must be part of the same corporate group for commercial purposes, though they do not need to be part of the same tax group.
- Nature of Services: The facilitator should only provide visa-related administrative services and not manpower.
- Employee Obligations: The entity facilitating the visa should not have any employment obligations towards the employees. These responsibilities lie with the customer (the entity that will employ the individuals).
- Supervision and Control: Employees must be under the exclusive supervision and control of the customer and not the entity facilitating the visas.
Implications of Misclassification:
Misclassification of services can lead to significant VAT compliance issues, including:
- Incorrect VAT treatment and reporting.
- Pricing implication in line with fair market values and deemed supply (potentially Transfer Pricing issue for Corporate Tax purposes between Corporate Group Companies).
- Potential penalties from the FTA.
- Financial and operational inefficiencies due to improper tax treatment.
Practical Examples and Scenarios
The clarification provides practical examples to illustrate the distinction between the two services:
- Example 1: Manpower Services: A company hires staff and provides them to another company to perform specific tasks. The total payment, including salaries and any benefits, is subject to VAT.
- Example 2: Visa Facilitation Services: A company processes visas for employees that will work for another entity. Only the service fee charged for processing these visas is subject to VAT.
