VAT PO038: Manpower vs. Visa Facilitation Services

VAT PO038: Manpower vs. Visa Facilitation Services

by | Mar 15, 2025

The UAE Federal Tax Authority (FTA) has issued a Public Clarification to help determine the VAT implications on services related to hiring and deployment of employees / manpower within and outside group companies

Background:

The UAE has many Group Companies structures wherein one of the group company is responsible to hire employees on their payroll and visa, however, such employee work under the supervision and control of other Group companies for specific functions or common group level functions

This is mainly pertinent on account of following commonly observed reasons:

  • Group companies operating under various licensing authorities (free zone/mainland) due to specific trade license activity,
  • Visa quota limitations
  • Common group functions such as HR, finance etc. are handled by one group company and the cost is allocated to various other sister concerns

It is also generally observed that since on the Group level, the Ultimate beneficiaries are common, the Companies often cross charge the cost of group employees through debit notes without understanding the proper VAT implications of such deployment

Potential Issues on account of incorrect classification of such services:

VAT is applicable in the UAE on every ‘taxable supplies’. It is important to note that such recharge of employee cost between group companies is also considered as a ‘service’ subject to VAT in the UAE i.e. a ‘taxable supply’. Accordingly, failure to correctly classify the nature of service could lead to various issues such as:

  • A Group Company may fail to register or de-register itself for VAT if it does not consider the correct value of consideration against such services for the purpose of determining the VAT threshold
  • Incorrect calculation of VAT liability leasing to penalties and requirement to file Voluntary Disclosures during audits
  • Failure to create appropriate tax group structures wherein proper identification of such transactions can help create tax efficiencies in the Group

Key Aspects of Clarification:

The Public Clarification assists in determining whether the nature of hiring and deployment of manpower by one Company to another Company is considered as “Manpower Services” or merely that of “Visa Facilitation”.

The key aspects of the clarification are summarised below.

Determination of Nature of Supply
Manpower Services Visa Facilitation Service
  • The identification/ recruitment/ hiring of candidates and making such employees available to any customer would generally be regarded as a taxable supply of manpower services
  • Supplier is generally responsible for the supervision and control
  • Supervision and control include factors such as employees performance, potentially control where the employee is placed, establishing the nature of work and working hours
  • Supplier is generally responsible for all the employment obligations, including the payment of salaries and other benefits
  • It is important to note that if such services are provided to a Company which is not part of the same corporate group, the services will be classified under “manpower supply” irrespective of the other facts

 
  • Services would qualify as “visa facilitation” if all the below requirements are met:

a) The employment visa holder (“Facilitator”) and the Customer are part of the same corporate group (i.e. have common ownership as per Article 9(2) of VAT Regulations) but are not part of the same VAT group

(If the Companies are part of the same VAT Group, there is no requirement to charge VAT due to the benefits of grouping the Companies under a single TRN)

b) The Facilitator’s business activities (i.e. not only the trade license activities) do not include the supply of manpower

c) The Facilitator is not responsible for any of the obligations related to the employee including payment of salaries and other benefits

d) The Facilitator sponsors these employees to exclusively work for, and under the supervision and control, of the Customer

(thus if an employee is deployed to perform a common role on group level (eg: HR, group finance etc), the cost recharge related to such employee cannot be classified as visa facilitation service)
Value of Supply
  • Full amount received (or expected to be received) by the Supplier from the Customer
  • This includes the amount that is either recharged to the Customer, or directly paid to the employees such as salaries or wages
  • Value of supply includes the cross charge or recharge of expenses such as all legal expenses related to employee onboarding (eg: typing fees, medical tests, and issuance of employee Emirates ID) etc
  • Thus, the value of salaries and wages will not be considered as a ‘consideration’ for supply and thus will not be subject to VAT
Illustration
Following cases will be regarded as supply of manpower services by Company A irrespective of which Company pays for the salaries

  • Company A outsources employee to Company B.  Company A is responsible to ensure employee performance and employment terms
  • Company A holds visas of employee working at Company B which is not a Group Company.
  • Company A holds visas of employee working at Company B, a Group Company. The employee works for both the Companies and is not exclusively deployed for the Group Company
 Following cases will be regarded as supply of visa facilitation services by Company A:

  • Company A provides support services to Company B (part of the same corporate group), including holding employment visas for employees working at Company B. Company A’s responsibilities are limited to arranging for the visa issuance, including medical tests, visa stamping, and issuance of employee’s Emirates IDs and Company B enters a contractual arrangement with new employee.
Special Valuation rules in case of supply to Related Parties
  • The primary condition for classify a service as ‘visa facilitation’ is that the service provider and recipient shall qualify as “Group Companies” i.e., “Related Parties”. Thus, the special valuation rules will particularly apply in case of visa facilitation services
  • If such supply is made at a fee which is lower than market value or is provided for free i.e. without any consideration, the special valuations rules will apply
  • In case of related party transactions, if the supplier charges a fee which is less than the market value and the recipient is not eligible to recover the input credit in part of whole, VAT shall be discharged on the  the “market value” of the supply
  • If the Supplier provides such services for free i.e. without any charge to the Customer, VAT shall be discharged on the following based on the ruled for deemed supply:

a) If no input VAT has been availed by the Supplier (eg: on typing fee, admin overheads etc), the supply will be ‘outside the scope of VAT’

b) If input has been claimed on above services, VAT is required to be charged on the total direct and indirect cost incurred to make the supply

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