A Boon for UAE Businesses
The Federal Tax Authority (FTA) of the United Arab Emirates recently issued a much-needed clarification (VATP038) on the distinction between manpower services and visa facilitation services for VAT (Value Added Tax) purposes. This clarification provides significant benefits for businesses operating within the UAE, particularly those utilizing corporate groups.
The Challenge
Previously, there was some ambiguity regarding the VAT treatment of situations where one company sponsors an employee’s visa, while another company supervises and pays the employee. This could be interpreted as either manpower supply (taxable) or visa facilitation (potentially non-taxable). The lack of clear guidelines created uncertainty for businesses.
The Solution: FTA Steps In
The FTA’s public clarification offers clear definitions and criteria to differentiate between manpower services and visa facilitation services. Here’s a breakdown:
- Manpower Services:These involve the entire recruitment process, including identifying, hiring, and making employees available to clients. The supplier (employer) has complete control over the employee, including supervision, salary payments, and benefits. The entire value of the service, including the employee's salary, is subject to VAT.
- Visa Facilitation Services:These are limited to administrative tasks related to obtaining employment visas for employees hired by another company. Crucially, four conditions must be met for a service to be considered visa facilitation:
- Same Corporate Group (Different VAT Group): : The visa facilitator and the recipient company must be part of the same corporate group but not necessarily the same VAT group.
- No Manpower Supply:The facilitator's core business should not involve manpower supply services.
- Limited Responsibility: The facilitator is not responsible for any employee obligations like salary or benefits, only visa-related costs.
- Exclusive Sponsorship: The facilitator sponsors the employee solely for the recipient company's use and control.
Benefits for Businesses:
This clarification offers significant advantages for businesses:
- Reduced VAT Burden: If a service qualifies as visa facilitation, only the facilitator's fees (excluding employee salary) are subject to VAT. This can lead to significant VAT cost savings for companies using such arrangements.
- Improved Clarity:The clear definitions and criteria eliminate ambiguity, allowing businesses to confidently classify their services and ensure proper VAT compliance.
What to Do Now?
Companies utilizing corporate group visa arrangements should review their existing structures and contracts in light of the new clarification. If unsure about the VAT treatment of their services, it’s advisable to consult a qualified tax advisor.
Conclusion:
The FTA’s public clarification on visa facilitation and manpower services is a welcome development for businesses in the UAE. By providing clarity and potentially reducing VAT burdens, this clarification can contribute to a more efficient and transparent business environment.