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A Guide to the VAT Treatment of Labor Accommodations in the United Arab Emirates

Businesses should exercise caution when evaluating the UAE’s VAT approach of labour accommodations because tax rates vary based on the type of the supplier. Entities must assess whether the housing given to labourers is a supply of a residential building or a supply of serviced housing. Different VAT rates apply in each of these circumstances, but you should consult with a tax advisor in Dubai to understand the precise nature of the supply.

The Federal Tax Authority (FTA) has released a public explanation (VATP003) that clarifies the VAT classification of labour accommodations in the United Arab Emirates. Based on the public clarification, we created a handbook that provides information on the VAT treatment of labour accommodations. You may also seek the advice of VAT consultants in Dubai before making any tax-related decisions. Continue reading to learn more.

Residential vs. Serviced Property for Labor Accommodation

Labor camps and labour accommodations are defined under UAE VAT legislation as facilities where companies keep their workers. Labor accommodations vary because some businesses give other services in addition to housing arrangements. As a result, determining whether a labour camp is a residential property or a provided accommodation has become important.

The nature of the supply determines the tax rate, which is why Dubai tax agents advise you to take this into consideration. Take a look at these VAT rates, for instance:

  • If the labour accommodation is a residential building, it will be VAT free.

  • If the residential building utilised as a labour camp is the initial supply, the labour accommodation will be zero-rated.

  • If it is a serviced accommodation, the supply of labour accommodation will be at standard rates of 5%.

Situations in which a labour accommodation is considered a residential property

The FTA will regard a labour accommodation consisting of accommodations as a residential structure if it satisfies the following conditions:

  • Laborers should use the lodge as their primary place of abode.

  • The structure should be anchored to the ground and cannot be moved without causing harm.

  • The structure should be built or altered with the approval of the appropriate legal authorities.

  • The structure shall not resemble a hotel, motel, bed and breakfast facility, or serviced apartment for which the employer provides services other than lodging.

Services that do not change a labour accommodation’s residential status

As an add-on to the primary offering, most labour accommodation providers provide specific services. If such extra services are ancillary to the main provision of lodging and no additional money is made, the residential labour accommodation will not be considered serviced. These incidental services may include, but are not limited to:

  • Cleaning of public areas

  • Pest control is one of the maintenance services required for the overall upkeep of the area.

  • Collection of garbage

  • Security

  • Utilities such as gas and electricity

  • Prayer rooms, a gym, a pool, a launderette, and other amenities are available in the building.

Additional Services Indicates the Provision of Serviced Accommodation

The provision of certain services transforms a residential lodging into a serviced accommodation. Such services will be subject to VAT at the usual rate of 5%. Tax advisors in Dubai can assist you in determining the VAT liability of a serviced accommodation. Services that indicate the availability of a serviced lodging include, but are not limited to:

  • Telephone and internet access

  • Other than the exclusive cleaning of common spaces, cleaning of rooms

  • Laundry services, including frequent bed linen changes

  • Other than those required for the ordinary care of the property, maintenance services

Workforce Accommodation: Mixed vs. Composite Supplies

It is vital for labour accommodation suppliers to understand if they are producing single composite supplies or mixed supplies with discrete component pieces. A single composite supply will only include either residential or serviced accommodation. A mixed supply might include both types of goods.

The whole consideration for a single composite supply will be based on the VAT treatment of the major component. In the case of a mixed supply, you must examine each component and apply the appropriate VAT treatment to each component. VAT advisors in Dubai can help you determine the VAT treatment of single composite or mixed labour accommodation supply.

Consult the Best Tax Consultants in Dubai, UAE

Businesses that provide labour accommodation must first establish if the supply is residential or serviced lodging. They must also assess whether the supply is a single composite supply or a mixed source. Both of these decisions might be complicated, therefore you should seek the help of FTA-approved tax professionals in Dubai, such as The VAT Cosultant.

The VAT Consultant is one of Dubai’s premier VAT experts, having a proven track record of resolving key tax difficulties for businesses. Our professional tax advisors in Dubai can assist you with VAT filing, VAT registration, VAT deregistration, VAT reconsideration, and other services. Consult with us to meet all of your tax-related needs.

 

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