Understanding Manpower vs. Visa Facilitation Services

Summary

The identification, recruitment, and hiring of candidates to work for another entity are generally considered manpower services unless certain conditions are met.

• Manpower Services: The consideration is the full amount received or expected to be received by the supplier from the customer. This includes all amounts recharged by the supplier to the customer and any amounts directly paid by the customer to the employees (salaries and benefits).

• Visa Facilitation Services: The consideration consists of any amount charged for facilitating the visa process for employees effectively employed by another entity, such as the fee charged for visa services.

Detailed Analysis

Manpower Services

When employment visas are held by one entity and employees work for another entity, it typically constitutes manpower services under VAT legislation. The supplier is generally responsible for employment obligations, including payment of salaries and benefits.

Supervision and control by the supplier encompass:

• Deciding the place of work

• Assigning tasks

• Evaluating performance

Example of Manpower Services

Company A holds employment visas for employees working at Company B. Company A makes these employees available to Company B. Therefore, Company A is supplying manpower services regardless of who pays the salaries and benefits. The consideration for manpower services is the total amount incurred by Company B, including salaries and benefits. Company A must account for output tax on the full value of the supply.

Visa Facilitation Services

A supply is considered visa facilitation services if all the following conditions are met:

1. The employment visa holder (Facilitator) and the customer are part of the same corporate group but not the same tax group.

2. The Facilitator’s business activities do not include supplying manpower.

3. The Facilitator is not responsible for employee obligations.

4. The Facilitator sponsors employees to work exclusively for the customer.

Corporate Group Requirement

The Facilitator and the customer must be part of the same corporate group from a commercial/accounting perspective, not just a tax group. If they are part of a VAT group, they are regarded as the same person, and no supply occurs.

No Supply of Manpower Services

The Facilitator’s business activities must not include supplying manpower. If the Facilitator supplies manpower services to any person, the condition is unmet, and the supply qualifies as manpower services.

Employee Obligations

The customer must bear all employee obligations, such as salaries, benefits, medical insurance, and accommodation. The Facilitator should only handle the costs related to obtaining the employment visa.

Supervision and Control by the Customer

Employees must work exclusively for the customer and under their supervision and control.

Example of Visa Facilitation Services

Company A provides support services, including bookkeeping, payment processing, collections, and holding employment visas for employees working at Company B, part of the same corporate group. Company A is responsible only for visa issuance processes. Company B handles salaries, benefits, and supervision. In this scenario, Company A provides visa facilitation services.

Visa Facilitation Services – Value of Supply

1. Taxable Supply: If the supply meets the conditions for visa facilitation services, it is a taxable supply, and VAT must be imposed on the value of the supply.

2. Consideration: The consideration for visa facilitation services includes fees charged for services and any expenses recharged, like typing fees and medical tests.

3. Exclusions: The value excludes salaries, flight allowances, and other benefits, which are the customer’s obligation.

4. Special Valuation Rules: These apply for supplies between related parties and supplies made for no consideration.

Value of Supply – Related Parties

If the Facilitator charges a fee less than market value and the customer cannot recover full input tax, the value of supply is the market value, and VAT must be imposed on this value.

Value of Supply – No Fee Charged

If services are provided for no charge, it constitutes a deemed supply unless the Facilitator did not recover any input tax incurred. In such cases, the supply falls outside the scope of VAT.

Definitions and Notes

• Direct Costs: Costs specifically related to the services, such as typing fees and visa issuance.

• Indirect Costs: Overhead expenses like office rental and utilities.

• Market Value: The value of similar services may be used if the cost of providing the service cannot be calculated.

This clarification is based on the Federal Decree-Law No. 8 of 2017 on VAT and its amendments (for more info visit Federal Tax Authority United Arab Emirates ). It aims to explain the Federal Tax Authority’s (FTA) position and does not amend any legislative provisions.