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The recent clarification published by the FTA has spoken on the issues that companies that are engaged in providing Manpower Services are being provided to their customer.
The Public Clarification has mentioned that the supplies can be either be classified as manpower services (identifying/recruiting/hiring candidates making such employees available to work for another entity) or visa facilitation services (administrative services to merely facilitate the employment visa process for employees hired by another entity without making its employees available to that other entity).
Companies are facing challenges in determining the nature of the supply i.e. whether it is a supply of manpower or visa facilitation services, and how to determine the value of these supplies for VAT purposes, especially where they are part of the same corporate group.
Where a supplier who is providing services of identification, recruitment and hiring of a candidate and is then making such employees available to work for any other entity would regard the supply of the employee as a manpower service and consider the full amount that is received from the recipient of the services will be treated as taxable services. This includes all amounts recharged by the Supplier to the Customer and those directly paid by the Customer to the employees.
However, In the context of visa facilitation services, the consideration refers to any amount charged for facilitating the visa process for individuals who are employed by another entity. This includes fees charged for the visa services.
As outlined in the clarification summary, the identification, recruitment, hiring of candidates, and making such employees available to any customer are generally considered a taxable supply of manpower services under VAT.
In this context, the supplier of the manpower is responsible for all employee-related obligations. This includes paying the employees’ salaries and providing any additional benefits.
The supplier also oversees the employees’ performance and working conditions at the customer’s premises. This responsibility encompasses the nature of the work the employees will perform and the duration of their assignments at the customer’s location. Thus, the supplier ensures that the employees meet the required standards and fulfill the customer’s needs effectively.
The consideration for the supply of manpower includes the total amount received (or expected to be received) by the Supplier from the Customer. This encompasses not only amounts recharged to the Customer but also amounts directly paid to the employees, such as salaries or wages.
Therefore, for VAT purposes, the consideration covers a broad range of costs associated with the provision of manpower services. This includes the employees’ salaries, benefits, and any additional charges that may be applied. It also includes any other recharges related to the manpower services, ensuring that all financial aspects of employing and providing the manpower are accounted for in the taxable amount.
Company A holds employment visas for employees who work at Company B. By making these employees available to Company B, Company A is deemed to be supplying manpower services. This classification applies regardless of whether the employees’ salaries and benefits are paid by Company A or directly by Company B
The consideration for the supply of manpower services is equal to the total amount incurred by Company B. This includes salaries and benefits, regardless of whether these are paid by Company A or Company B, as well as any additional amounts related to the services provided by Company A to Company B in connection with the supply of manpower services.
As an exception, a supply would not be regarded as a manpower supply if all the below conditions and requirements have been satisfied,
The public clarification states that services within the same corporate group are not considered manpower supply if the companies are part of the same corporate group. A corporate group, unlike a tax group, includes companies with common ownership under VAT Regulations. If the Facilitator and Customer belong to the same VAT group, they are considered the same entity, and their activities are outside the scope of VAT.
The second condition for the supply of such services to not be regarded as manpower supply is that the supplier of such services should not in any capacity provide manpower services to any person.
The public clarification’s third condition states that the customer, not the supplier, will cover employee obligations like salary, incentives, allowances, and medical insurance. The supplier is only responsible for the cost of obtaining the employment visa.
The fourth condition in the public clarification states that visa facilitation services apply if the employee works solely for the customer under the customer’s control and supervision. If the employee also works for any other corporate group company, it is considered a supply of manpower services.
If the supply of such services satisfies the conditions mentioned in the public clarification and is provided to a company located in the UAE, such supplies would be regarded as taxable supplies.
The value of such supplies is limited to the cost of typing fees, medical tests and issuance of employee Emirates IDs and would exclude the employee’s salary, annual flight allowance and any other monetary benefits as these would be the obligation of the customer.
As the conditions are in relation to a related party, If the supplier charges a fee below market value and the customer cannot fully recover input, VAT must be imposed on the market value of the supply. If the fee charged equals the market value, it is considered as consideration for the taxable supply of services.
If the supplier provides free visa facilitation services, it may be deemed a supply unless exceptions apply. If no input tax is recovered, it is not deemed a supply. If input tax is recovered, the supplier must account for output tax based on total costs, including direct (typing fees, logistics) and indirect (overhead) costs. If costs cannot be calculated, use the market value of similar services.
The public clarification states that services within the same corporate group are not considered manpower supply if the companies are part of the same corporate group. A corporate group, unlike a tax group, includes companies with common ownership under VAT Regulations. If the Facilitator and Customer belong to the same VAT group, they are considered the same entity, and their activities are outside the scope of VAT.
The second condition for the supply of such services to not be regarded as manpower supply is that the supplier of such services should not in any capacity provide manpower services to any person.
The public clarification’s third condition states that the customer, not the supplier, will cover employee obligations like salary, incentives, allowances, and medical insurance. The supplier is only responsible for the cost of obtaining the employment visa.
The fourth condition in the public clarification states that visa facilitation services apply if the employee works solely for the customer under the customer’s control and supervision. If the employee also works for any other corporate group company, it is considered a supply of manpower services.
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