Manpower vs Visa Facilitation Services - VATP038
VATP038
VAT Public Clarification
Manpower vs Visa Facilitation Services
Issue
In some instances, employment visas are held by one person (e.g. company) while the employees work under the supervision and control of another person.
Supervision and control of employees refer to an employer being responsible for deciding on the place of work of the employee, assigning employees their work tasks, and evaluating/assessing their performance.
These supplies can either be classified as manpower services (identifying/recruiting/hiring candidates and 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.
This Public Clarification provides guidelines on determining the nature of these supplies as well as the application of the relevant valuation rules.
Summary
The identification/recruitment/hire of candidates and making such employees available to work for any other entity would, generally, be regarded as the supply of manpower services, unless certain conditions are met.
In the case of manpower services, the consideration [1]is the full amount received (or expected to be received) by the employer ('Supplier') from the recipient of the service ('Customer').
This includes all amounts recharged by the Supplier to the Customer and amounts directly paid by the Customer to the employees (such as salaries and benefits).
In the case of visa facilitation services, the consideration consists of any amount charged for the process to facilitate the visas of natural persons effectively employed by another person, e.g. the fee charged for the visa services.
Detailed analysis
In some instances, employment visas are held by one person (e.g. a company) while the employees work under the supervision and control of another entity.
Since the VAT treatment differs, companies are required to differentiate between manpower services and visa facilitation services.
Manpower services
The identification/recruitment/hire of candidates and making such employees available to any Customer would, generally, be regarded as a taxable supply of manpower services under the VAT legislation.
In these instances, the Supplier is, generally, responsible for all the employment obligations, including the payment of salaries and other benefits.
In respect of supervision and control, the Supplier would generally be responsible for the employee's performance of his/her role at the Customer and potentially control where each employee is placed.
Furthermore, supervision and control also include establishing the nature of each employee's work and working hours as well as directing and guiding employees.
For example, a company, i.e. the Supplier, seconds employees to another company, i.e. a Customer. The Supplier is responsible for ensuring the employees perform their duties for the Customer including ensuring quality of work performed. The Supplier is responsible for agreeing terms of employment.
Value of supply - manpower services
The consideration for the supply of manpower includes the full amount received (or expected to be received) by the Supplier from the Customer that is either recharged to the Customer, or directly paid to the employees such as salaries or wages.
Therefore, for VAT purposes, the consideration will include the employees' salaries, benefits and any additional amounts charged as well as other recharges, that relate to the provision of the manpower services.
Example - Manpower Services
Company A holds the employment visas for employees working at Company B. Company A makes these employees available to Company B, and, hence, Company A is regarded as supplying manpower services irrespective of whether the employees' salaries and benefits are paid by Company A or Company B.
The consideration for the supply of manpower services is equal to the total amount incurred by Company B, including salaries and benefits (irrespective of whether the employees' salaries and benefits are paid by Company A or Company B), as well as any amounts related to the services provided by Company A to Company B in relation to the supply of the services.
Company A must account for output tax on the full value of the supply. The value of the supply is the consideration less VAT.
Visa Facilitation Services
As an exception to the above, a supply would not be regarded as a supply of manpower services but rather as a supply of visa facilitation services if all of the requirements set out below are met.
1. The employment visa holder ('Facilitator') and the Customer are part of the same corporate group, but are not part of the same tax group. [2]
2. The Facilitator's business activities do not include the supply of manpower.
3. The Facilitator is not responsible for any of the obligations related to the employee.
4. The Facilitator sponsors these employees to exclusively work for, and under the supervision and control, of the Customer.
Corporate group requirement
In order for this condition to be met, the Facilitator and Customer must be part of the same corporate group from a commercial/accounting perspective.
Please note that the reference to 'corporate group' differs from the tax group concept used for tax purposes (e.g. VAT or Corporate tax), but relates to companies operating within the same corporate structure, which includes common ownership of the companies in line with Article 9(2) of the Executive Regulation. [3]
If the Facilitator and Customer are not part of the same corporate group, the condition would not be met and the supply would be regarded as a supply of manpower services.
If the Facilitator and Customer are part of a VAT group, they would be regarded as the same person and would not be regarded as making a supply. In such instances the activity would fall outside the scope of VAT. [4]
No supply of manpower services
The Facilitator must consider the nature of the services it provides as part of its business.
The term 'business activities' is not limited to the activities stated on the Facilitator's commercial or trade licence, and activities listed as part of its VAT registration, or any internal documentation.
If the Facilitator supplies any manpower services to any person, the condition would not be met and its supply to the Customer would not qualify as visa facilitation services.
Employee obligations
Generally, an employer sponsoring its employees would be responsible for all contractual obligations due to its employees. These obligations may, for example, include:
Payment of an employee's salary.
Payment of other monetary benefits, including financial incentives, annual flight allowances, and housing allowances.
Provision of medical insurance and accommodation.
As part of the visa facilitation, the Customer takes the responsibility for these obligations, and the Facilitator's obligations will be limited to incurring the costs relating to obtaining the employment visa.
Consequently, for this condition to be met, recurring employee obligations must be borne by the Customer, and the Facilitator should not pay for these obligations.
Employment, supervision, and control by the Customer
As the Facilitator merely acts as the sponsor of the employment visas, the employees would be required to work exclusively for the Customer employing them, and are under the supervision and control of the Customer.
Where employees exclusively work for the Customer and are under that Customer's supervision and control, this condition would be met.
Please note that if an employee performs his/her work duties for the Customer in addition to other companies in the corporate group, this condition would not be met and the supply would be treated as a supply of manpower services.
Examples
Example 1
Company A holds employment visas for persons working for Company B. Company A and B are part of the same corporate group.
As part of Company A's operations, it also provides secondment services to businesses outside its corporate group. Company A is, therefore, regarded as supplying manpower services, and the supply does not meet the second condition.
Consequently, the supply of visa support services provided by Company A to Company B does not qualify as a supply of visa facilitation services and Company A is regarded as supplying manpower services to Company B.
Example 2
Company A provides support services to Company B (part of the same corporate group), including bookkeeping, payment processing and collections, and 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.
Company B enters into a contractual agreement with a new employee and is responsible for payment of the salary, benefits and maintains supervision over the employee during his or her employment.
In this example, Company A is regarded as providing visa facilitation services, provided that it does not perform a centralised HR function for the corporate group.
Visa facilitation services - Value of supply
If the supply made by a Facilitator meets the conditions to qualify as visa facilitation services, this supply would be regarded as a taxable supply of services if the place of supply is in the UAE. [5]In these instances, the Facilitator is, generally, required to impose VAT on the value of the supply.
The consideration for the supply of visa facilitation services is the amount charged for the services which could include the recharge of expenses such as typing fees, medical tests and issuance of employee Emirates IDs.
The value of the supply of visa facilitation services excludes the employee's salary, annual flight allowance and any other monetary benefits, as these are the obligation of the Customer.
Note that the following special valuation rules apply for supplies between related parties and supplies made for no consideration.
Value of Supply â Related parties[3]
Since the first condition for visa facilitation services is that the supply must be made within the same corporate group, a special valuation rule applies if the Facilitator does not charge a market related fee.
If the Facilitator charges a fee that is less than market value and the Customer is not entitled to full input recovery, the value of supply is the market value of the supply. [6],[7]
In such instance, the Facilitator is required to impose VAT on the market value of the supply, regardless of the actual amount charged for the visa facilitation services.
If the Facilitator charges the Customer a fee that is equal to the market value of the supply, the fees charged would be regarded as consideration for the taxable supply of services. [8]
Value of Supply â No fee is charged
If the Facilitator provides the visa facilitation services to its Customer for no charge, the supply would constitute a deemed supply,[9][10]unless one of the relevant exceptions applies.
The supply would not be regarded as a deemed supply if the Facilitator did not recover any input tax incurred to make the supply. [11]This includes direct costs (e.g. VAT charged on typing fees) as well as indirect costs (e.g. overhead costs). In such instance the supply of visa facilitation services would fall outside the scope of VAT.
If the Facilitator recovered any input tax to supply the visa facilitating services, the Facilitator will be required to account for the output tax due based on the total cost incurred to make the supply, including direct and indirect costs. [12]
For completeness, in the context of visa facilitation services, the term 'direct costs' refers to costs that specifically relate to the services provided within this context, including typing fees, logistics, and any other fees charged for the purpose of visa issuance.
The term 'Indirect costs' refers to overhead expenses (e.g. office rental and utilities) as well as other general operational expenses incurred by the Facilitator.
In instances where the Facilitator is unable to calculate the cost of providing the visa facilitation service, the market value of similar services may be used as an indication for the value of the supply.
This Public Clarification issued by the FTA is meant to clarify certain aspects related to the implementation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments, and its Executive Regulation.
This Public Clarification states the position of the FTA and neither amends nor seeks to amend any provision of the aforementioned legislation. Therefore, it is effective as of the date of implementation of the relevant legislation, unless stated otherwise.
Legislative References:
In this clarification, Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments is referred to as 'Decree-Law', and Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments is referred to as 'Executive Regulation'.
[1]Article 1 of the Decree-Law defines the term 'consideration' as all that is received or expected to be received for the supply of goods or services, whether in money or other acceptable forms of payment.
[2]Article 1 of the Decree-Law defines the term 'tax group' as two or more persons registered with the FTA for tax purposes as a single taxable person in accordance with the provisions of the Decree-Law.
[3]Article 9(2) of the Executive Regulation states that two or more persons shall be considered related parties if they are associated in economic, financial and regulatory aspects, taking into account the following:
Economic practices, which shall include at least one of the following:
Achieving a common commercial objective;
One person's business benefiting another person's business;
Supplying of Goods or Services by different Businesses to the same customers.
Financial practices, which shall include at least one of the following:
Financial support given by one Person's Business to another Person's Business.
One Person's Business not being financially viable without another Person's Business.
Common financial interest in the proceeds.
Regulatory practices, which shall include any of the following:
Common management.
Common employees whether or not jointly employed.
Common shareholders or economic ownership.
[4]Article 12(1)(b) of the Executive Regulation states that registration of persons as a tax group shall result in any supply made by a member of the tax group to another member of the same tax group may be disregarded.
[5]Article 29 of the Decree-Law states that the place of supply of services shall be the place of residence of the supplier.
[6]Article 25(2) of the Executive Regulation states that the market value of a supply of goods or services at a given date is the consideration in money which the supply would generally achieve if supplied in similar circumstances at that date in the UAE, being a supply freely offered and made between persons who are not connected in any manner.
[7]Article 36 of the Decree-Law states that as an exception to Articles 34, 35, and 37 of this Decree-Law, the value of the supply or Import of Goods or Services between Related Parties shall be considered equal to the market value if all of the following conditions are met:
The value of the supply is less than the market value.
If the supply is a taxable supply and the recipient of goods or recipient of services does not have the right to recover the full tax that would have been charged on such supply as input tax.
[8]Article 34(1) of the Decree-Law states that the value of supply of goods or services for consideration shall be the consideration less the tax if the entire consideration is monetary.
[9]Article 1 of the Decree-Law defines a 'deemed supply' as all that is considered as a supply and treated as a taxable supply according to the instances stipulated in the Decree-Law.
[10]Article 11 of the Decree-Law states that the following cases shall be a deemed supply:
A supply of goods or services, which constituted the whole assets of a taxable person's business or a part thereof, but are no longer considered to be as such, provided that the supply was made without consideration.
The transfer of goods which constituted part of the taxable person's business assets in the UAE to his business in an implementing state, or from the taxable person's business in an implementing state to his business in the UAE, except in the case where the transfer of goods:
Is considered as temporary under the Customs Legislation.
Is made as part of another taxable supply of these goods
A supply of goods or services for which input tax may be recovered but the goods or services were wholly or partially used for purposes other than business. Such supply shall be considered as deemed only to the extent of the use for purposes other than business.
Goods and services that a taxable person owns at the date of tax deregistration.
[11]Article 12(1) of the Decree-Law states that a supply is not considered as deemed if no input tax was recovered for the related goods and services.
[12]Article 37 of the Decree-Law states that as an exception to Articles 34 and 35 of the Decree-Law , the value of the supply in the case of a deemed supply when the taxable person purchases goods or services to make taxable supplies but does not use those goods or services for that purpose, will be equal to the total cost incurred by the taxable person to make this deemed supply of goods or services.