A Guide to the VAT Treatment of Labour Accommodations in the UAE
Businesses need to be cautious while assessing the UAE’s VAT treatment of labour accommodations as the tax rates may vary depending on the nature of the supply. Entities must determine whether the accommodation provided to labourers is a supply of a residential building or a supply of serviced accommodation. Different VAT rates apply in each of these cases but you may seek the advice of tax agents in Dubai to determine the exact nature of the supply.
The Federal Tax Authority (FTA) has issued a public clarification (VATP003) that provides more clarity on the VAT treatment of labour accommodations in the UAE. Based on the public clarification, we have compiled a guide that offers insights on the VAT treatment of labour accommodations. Additionally, you can consult with VAT consultants in Dubai before making any tax-related decision. Read ahead to know further.
Labour Accommodation: Residential V/s Serviced Property
The UAE VAT regulations define labour camps and labour accommodations as places where employers house their labourers. Labour accommodations come in different forms as some employers provide additional services on top of the living accommodation. Therefore, it has become necessary to determine whether a labour camp is a residential property or a serviced accommodation.
Tax agents in Dubai advise you to give due consideration to this difference as the nature of the supply determines the tax rates. For instance, you must check for the following VAT rates:
- A labour accommodation will be exempt from VAT if it is a residential building
- The labour accommodation will be zero-rated in case the residential building used as a labour camp is the first supply
- The supply of labour accommodation will be standard rates at 5% if it is a serviced accommodation
Situations where a Labour Accommodation is Treated as a Residential Property
A labour accommodation comprising lodgings will be treated by the FTA as a residential building if it meets the following conditions:
- The lodging should be occupied by labourers as their principal place of residence
- The building should be fixed to the ground and can’t be moved without any damage
- The building should be constructed or converted with permission from relevant lawful authorities
- The building should not be similar to a hotel, motel, bed & breakfast establishment, or serviced apartment for which the employer provides services apart from the supply of accommodation
Services that Don’t Change the Residential Status of a Labour Accommodation
Most labour accommodation providers offer certain services as ancillary to the main supply. If such additional services are incidental to the main supply of accommodation and no additional fee is charged, then the residential labour accommodation will not become a serviced accommodation. Such incidental services may include, but are not limited to, the following:
- Cleaning of communal areas
- Maintenance services necessary for the general upkeep of the space
- Pest control
- Garbage collection
- Utilities such as gas, electricity etc.
- Facilities provided in the building such as prayer rooms, gym, pool, launderette service etc.
Additional Services Indicating Supply of Serviced Accommodation
The supply of certain services will make a residential accommodation into a serviced accommodation. Such services will attract a VAT rate at the standard rate of 5%. Tax agents in Dubai can help you to assess the VAT liability of a serviced accommodation. Services that indicate the supply of a serviced accommodation include, but are not limited to the following:
- Access to telephone and internet
- Cleaning of rooms other than exclusive cleaning of communal areas
- Laundry services, including the regular changing of bed linen
- Maintenance services other than those essential for the general upkeep of the property
Labour Accommodation: Mixed V/s Composite Supplies
It is critical for suppliers of labour accommodation to determine whether they are making single composite supplies or mixed supplies with separate component parts. A single composite supply will consist only of either a residential accommodation or a serviced accommodation. A mixed supply could consist of both supplies.
In the case of a single composite supply, the entire consideration for the supply will be based on the VAT treatment of the principal component. In the case of a mixed supply, you need to evaluate each part and apply the correct VAT treatment to each part. VAT consultants in Dubai can assist you in accurately determining the VAT treatment of single composite or mixed supplies of labour accommodation.
Consult with the Best Tax Agents in Dubai, UAE
Businesses making the supply of labour accommodation must first determine whether the supply is residential accommodation or serviced accommodation. They should also determine whether the supply is a single composite or mixed supply. Both these determinations can be complex for which you can seek the assistance of FTA-approved tax agents in Dubai such as Jitendra Chartered Accountants (JCA).
JCA is one of the leading VAT consultants in Dubai with an excellent track record of solving critical tax issues of business entities. Our dedicated tax consultants in Dubai can help you with services such as VAT filing, VAT registration, VAT deregistration, VAT reconsideration etc. Consult with JCA to resolve all of your tax-related requirements.