The Federal Tax Authority (FTA) recently issued two Public Clarifications under UAE VAT law that discuss the VAT treatment on:
A. Performing the function of Director on a Board of Directors by a natural person
B. Clarity provided on determining manpower and visa facilitation services
We have summarized below the gist of the key UAE VAT positions discussed in the Public Clarification:
A. Performing the function of Director on a Board of Directors by a natural person
The said Public Clarification (VATP037) replaces the previous VAT Public Clarification (VATP031) on the Value Added Tax (VAT) treatment of services provided by a natural person as a director on a board of directors. In the said regard, refer to our detailed update here. There are no changes proposed from the previous Public Clarification issued.
B. Clarity provided on determining manpower and visa facilitation services
It is a prevalent practice in companies that employment visas are held by one company while the employees work under the supervision and control of another company. These supplies can either be classified as manpower or visa facilitation services. Accordingly, Public Clarification (VATP038) has been issued to provide guidelines to determine whether the same is manpower or visa facilitation services.
- Manpower services: The clarification
defines manpower services as the identification/recruitment/hire of
candidates and making such employees available to any customer.
- Control and responsibility of employees: The employee works under the supervision and control of the supplier. Hence, he is responsible for their performance and establishing the nature of work. Moreover, the responsibility for all the employee obligations, such as payment of salary and other benefits, lies with the supplier.
- VAT treatment: Manpower services are considered as taxable supplies and accordingly, VAT shall be applicable to the same.
- Value of supply: The consideration for the supply of manpower services includes the receipt of the full amount charged by the supplier to the customer and the amount paid directly by the customer to employees.
- Visa facilitation services: The said services are an exception to the above. A supply shall be considered as a visa facilitation service rather than manpower service if all the following conditions are met:
- The employment visa holder (hereafter referred as "Facilitator") and the customer are part of the same Corporate Group1.
- The Facilitator's business activities do not include the supply of manpower.
- The Facilitator is not responsible for any employee obligations.
- The Facilitator sponsors employees to work exclusively for the customer.
- Control and responsibility of employees: The employee works under the supervision and control of the customer; hence, he is the one responsible for their performance and establishing the nature of work. Moreover, the responsibility for all the employee obligations, such as payment of salary and other benefits, lies with the customer.
- VAT treatment: The said supply shall be
taxable if the place of supply is UAE and VAT shall be applicable
to the same. The tax treatment further depends on the following:
- Corporate Group
Particulars VAT treatment Part of the same Corporate Group Considered as visa facilitation service, which is taxable Not a part of the same Corporate Group Considered as manpower services rather than visa facilitation services since the 1st condition failed to be met - VAT Group2
Particulars VAT treatment Part of VAT Group Supply shall be outside the scope of VAT Not part of any VAT Group Supply shall be taxable
- Corporate Group
- Value of supply: The consideration for the said service shall include the amount charged by the Facilitator to the customer but shall exclude the amount of employee obligations (Salary, allowances and other monetary benefits) paid directly by the customer to the employee.
- Special Cases relating to value of supply:
- No fee is charged: The supply shall be
considered as a deemed supply unless any exceptions apply. However,
the following instances are to be analyzed:
Fee charged Value of supply Less than the market value and the customer not entitled to recover input tax Market value Equal to the market value The amount of fee charged - No fee is charged: The supply shall be
considered as a deemed supply unless any exceptions apply. However,
the following instances are to be analyzed:
Particulars VAT treatment Facilitator does not recover input tax incurred to effect the supply Outside the scope of VAT Facilitator recovers input tax incurred to effect the supply Account for output tax based on the cost incurred to effect the supply Where the cost incurred is unascertainable Tax on market value of the service
- No fee is charged: The supply shall be
considered as a deemed supply unless any exceptions apply. However,
the following instances are to be analyzed:
| Our Comments A revisit is required to be undertaken in which businesses are functioning at present, considering Public Clarification issued in relation to Director Services, determination of manpower and visa facilitation services. Basis the above, the business shall be required to conduct a detailed impact assessment as the amendments would impact:
|
Footnotes
1. Corporate group differs from tax group. Both the parties should be part of the same corporate group which means that they should operate within the same corporate structure.
2. As per Article 1 of the Federal Decree-Law No. 8 of 2017, Tax Group means two or more Persons registered with the Authority for Tax purposes as a single Taxable Person.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.