New VAT Clarification by UAE's FTA : Manpower vs. Visa Facilitation Services

Key Points:

Manpower Services:

• Definition: Involves identifying, recruiting, and hiring candidates and making them available to another entity for work.
• VAT Treatment: The consideration for manpower services includes all amounts received or expected to be received by the supplier (employer) from the recipient of the service (customer). This encompasses salaries, benefits, and any other amounts recharged to the customer or paid directly to the employees by the customer.

Visa Facilitation Services:

• Definition: Refers to administrative services facilitating the employment visa process for employees who are hired by another entity without providing those employees to the entity.
• VAT Treatment: The consideration for visa facilitation services consists of the fees charged for the visa processing itself. This does not include any salaries or benefits paid to the employees.

Justin Whitehouse, Managing Director at Alvarez and Marsal, notes, "The FTA guidance is helpful and provides a useful easement, making clear that to avail oneself of it, very specific conditions need to be met. 

I do think many specialist providers of manpower and visa services may be confused about the value for VAT purposes of their own services and I would encourage those businesses to also consider the guidance and its significance for their activities."

Practical Implications:

• Distinguishing Services: Companies must accurately classify their services to determine the correct VAT treatment. Misclassification could lead to compliance issues and incorrect VAT calculations.

• Intercompany Transactions: This guidance is particularly crucial for corporate groups where intercompany transactions might involve both types of services. Proper classification ensures correct VAT application and avoids potential disputes with tax authorities.

Halil Erdem, Vice President of Tax at a leading bank, explains, "This clarification specifically addresses the challenges companies face in categorizing their services correctly for VAT purposes. The FTA emphasizes that businesses must accurately determine the nature of their supplies to apply the correct VAT rules. 

Manpower services are considered to include all amounts recharged by the supplier to the customer and those directly paid by the customer to the employees, such as salaries and benefits. In contrast, visa facilitation services involve the costs directly associated with visa issuance, including typing fees and logistics. 

Companies should assess the impact of this clarification on their operations to ensure compliance. This involves reviewing their contracts and financial arrangements to correctly classify their services as either manpower or visa facilitation. Additionally, businesses should implement internal controls to monitor the nature of their supplies and the corresponding VAT treatment. Misclassification can lead to significant financial and legal consequences."

Valuation Rules:

• Manpower Services: For VAT purposes, the total value includes all amounts charged to the customer, including any employee-related costs directly paid by the customer.
• Visa Facilitation Services: The valuation is based solely on the administrative fees charged for facilitating visas.

Challenges:

• Complexity in Classification: Companies may struggle with determining whether their service falls under manpower or visa facilitation, especially when elements of both are present.
• VAT Calculation: Ensuring accurate VAT calculation for each type of service requires a thorough understanding of the applicable rules and careful financial management.

Nimish Goel, Partner at WTS Dhruva, highlights, "This clarification from the FTA provides much-needed clarity on the manpower supply made by various business entities. The FTA clarifies that the consideration for this supply shall be the entire amount received (salaries and benefits) by the supplier from the recipient. A large number of manpower supply companies were not sure of the consideration subject to VAT and this will bring certainty on this.

 Classification of these services as visa facilitation services is a new concept introduced by the FTA that could potentially lead companies to relook at their arrangements. Where companies in the past had taken a position to consider the services as manpower supply but under the clarification are only visa facilitation service providers, they would need to revisit their position. 

The challenge will be to examine and satisfy the conditions required to qualify as visa facilitation services."

The document emphasizes the importance of understanding and correctly applying the VAT rules to manpower and visa facilitation services. Proper classification and valuation are essential for compliance and accurate VAT reporting.

For detailed guidance, refer to the full document -