The recent VAT or value-added tax clarifications from the Federal Tax Authority offer relief for many businesses. By differentiating between manpower supply and visa facilitation, they throw light on the technicalities of VAT responsibilities.
The VAT is applied to the service fee charged by the employer or visa sponsor, when using visa facilitation services. However, the employee’s salary, flight allowance, and other benefits are not included in the amount subject to VAT.
In the case of visa facilitation services, however, VAT is applicable only on the facilitation fee charged by the supplier that is the employer/visa sponsor who is referred to as the ‘facilitator’.
A tax benefit is available because the employee’s salary, flight allowance, and other benefits are not included in the amount used to calculate taxes on visa facilitation services.
Manpower supply also involves a scenario where employment visas are held by one company while employees work under the supervision and control of another company. The VAT is applied to the full value of manpower supply services, since January 1, 2018.
Manpower suppliers are required to pay VAT on both the fees they charge and any amounts paid directly to employees by the recipient, including salaries and benefits.
To become eligible for benefits, the facilitator/supplier and customer should be a part of the same corporate group. The facilitator should ensure that its business activities should not include the supply of manpower. If employees are provided to any person other than a member of the same corporate group, all supplies including that to the corporate group member would be taxed at full value.
Some of the eligibility criteria required includes employee’s salary, monetary benefits such as annual flight allowances, housing allowances, and medical insurance and accommodation that must be borne by the customer. The facilitator/supplier should not pay for these.
However the most important condition is that the employees must work solely for the client and follow their direct supervision. It is important to note that a public clarification is not a legal revision and starts applying when the corresponding laws are in force. Companies should determine the potential effects on their visa services and corporate tax situation.
