Understanding VAT Public Clarification VATP038: Manpower Supply vs. Visa Facilitation Services

Understanding VAT Public Clarification VATP038: Manpower Supply vs. Visa Facilitation Services

The Federal Tax Authority's VAT Public Clarification VATP038 provides essential guidance on distinguishing between manpower supply and visa facilitation services within corporate groups. Companies often struggle to determine the nature and taxability of such transactions, especially when they involve both manpower services and visa facilitation. This clarification aims to clarify these complex areas, ensuring proper VAT compliance and aiding companies in accurately assessing their services' value.

Manpower Supply Services vs. Visa Facilitation Services: An Overview

Initially, under the UAE VAT Decree-Law, there was no distinction between the supply of manpower services and visa facilitation services. Manpower supply refers to the supply and allocation of necessary human resources or workforce according to the requirements of an organization. This includes employees, contractors, and temporary workers who possess different skills and expertise. 

Under the supply of manpower services, employees are fully managed and controlled by the supplier company. The company will be responsible for all obligations related to the employees, including their salaries and other benefits. They will also be liable for the overall management and welfare of the employees, covering all associated costs and administrative responsibilities. 

The value of supply for manpower service is calculated based on the total amount, which includes salaries (whether paid by the manpower supply company or not), other employee benefits, visa charges, and supporting service charges such as typing fees, medical tests, and the issuance of employee Emirates IDs. 

There are instances where in one corporate group, the employee visa is held by one company and the employees work for another company. There comes the relevance of this clarification. According to this Public Clarification VATP038, where employees of one company work for another company which are in the same corporate group (It does not mean any tax group concept (e.g. VAT or Corporate tax)), such services will not come under the scope of the manpower services, rather it will be treated as visa facilitation service. 

The value of supply for visa facilitation service is different when compared to the value of supply of manpower service. Under visa facilitation service, the value of supply includes expenses such as typing fees, medical tests and issuance of employee Emirates IDs and excludes the employee’s salary, annual flight allowance and any other monetary benefits.

Detailed Analysis of VATP038

VATP038 specifies that manpower supply can be categorized as visa facilitation under several conditions:

1. Corporate group Requirement

The first condition states that the visa facilitator company and the customer company should be of the same corporate group. That means the visa issuing company and the company for whom the employees are working, should be part of the same corporate group. The companies involved in the corporate group should be under common ownership and operate within the same corporate structure. It does not mean any tax group concept (e.g. VAT or Corporate tax).
If the visa facilitator and the customer are forming part of the same VAT group, the transaction between them will not become a taxable supply and will be outside the purview of UAE VAT Law.

2. No Supply of manpower services

The visa facilitator company should not be involved in the supply of manpower service. The business activity of the facilitator should not include manpower service and even if it is not listed as a business activity in the trade license, it should not be a part of their supply.  

3. Employee Obligation

When an employer hires an employee, the payment for all the contractual obligations including their salary, other monetary benefits, insurance and other allowances is the responsibility of the employer.  When it comes to visa facilitation service, all these responsibilities will be transferred to the customer and the visa facilitator company will only be obliged for visa-related costs. Therefore, the visa facilitator company will be relieved from all the employee obligations.

4. Employment, supervision and control by the customer

Under visa facilitation service, the employment, supervision and the control of the employees should be with the customer. If an employee is hired by one customer and also works for other companies in the same corporate group or companies outside the corporate group, the condition for visa facilitation services would not be met and that supply becomes supply of manpower service. 

Practical Examples and Value of Supply 

Example 1:

Company A provides employee visas for employees working at Company B. Both Company A and Company B are in the same corporate group. Because of their interconnected economic, financial, and regulatory relationships, they decided to form a tax group.
Once the tax group is formed, transactions between members of the tax group fall outside the scope of VAT and it does not meet the first condition for visa facilitation service.

Example 2:

Company A provides employee visas for employees working at Company B. Company A and B are part of the same corporate group but not a tax group. According to Company A’s trade license their business activity is not classified as manpower supply. However, they do supply of manpower to companies outside the corporate group.
In this scenario, the second condition is violated, making the visa facilitation services provided to Company B fully taxable under the manpower supply.

Value of Supply – Related parties 

It is important to maintain consistency in the value of supply for related party transactions since the first condition requires that the facilitator and the customer must belong to the same corporate group.

According to this rule, the visa holding company is required to impose VAT on the market value of the supply, regardless of the actual amount charged for the visa facilitation services.

Value of Supply – No fee is charged

A supply is treated as a deemed supply when it takes place without consideration. Therefore, if a facilitator provides visa facilitation services to a customer within the same corporate group without consideration, the supply will be treated as deemed supply and will be taxable on the market value of such supply.

A supply is not considered a deemed supply if no Input Tax was recovered by the facilitator for the related Goods and Services. Therefore, if the facilitator does not recover any input incurred on the expenses to make such supplies, then that supply would not be considered as a deemed supply, and no obligation is created on the facilitator to charge tax.

Conclusion

This VAT Public Clarification from the Federal Tax Authority elucidates the criteria for distinguishing between manpower supply and visa facilitation services, facilitating better VAT compliance and reporting by companies within the same corporate group. This guidance is crucial for companies to accurately identify and value these supplies, ensuring clarity and compliance in their business operations.