VAT ON LABOUR ACCOMMODATION IN UAE
In order to clarify the confusion as to when would supply of labour accommodation be considered as supply of residential property ( which is exempted from VAT, zero rated if it is considered as first supply) and when would it be considered as supply of serviced accommodation ( which is standard rated), the Federal Tax Authority has issued Public Clarification VATP003. This has been issued since it would have a major impact on the VAT liability of the supply.
LABOUR ACCOMMODATION AS RESIDENTIAL PROPERTY
Labour accommodations would be considered to comprise of lodgings which are to be treated as residential buildings where :
- The employees occupy the building or the lodging as their principal place of residence
- The building is fixed to the ground and it cannot be moved without being damaged
- The building has been constructed or converted with lawful authority
- The building is not similar to a hotel, motel, bed and breakfast establishment or a serviced apartment for which services are provided in addition to the supply of accommodation
LABOUR ACCOMMODATION AS SERVICED ACCOMMODATION
In cases where the additional services are provided on top of living accommodation, it is necessary to consider whether the extent of additional services that have been provided would move the supply from one residential accommodation to serviced accommodation.
SERVICES NORMALLY SUPPLIED ALONG WITH RESIDENTIAL ACCOMMODATION
A supplier of residential accommodation at times provides certain services which are ancillary to the main supply. In case where the additional services are incidental to the main supply of accommodation and are not provided for an additional fee, they should not normally cause the supply to become one of the serviced accommodation. Such incidental services include but are not only limited to :
- cleaning of communal areas;
- maintenance services required for the general that are required for general upkeep of property
- Pest control
- Garbage collection
- Utilities, for eg: electricity, water
- Access to facilities within the building for use of residents themselves eg: launderette facilities, gym, pool, prayer rooms
ADDITIONAL SERVICES INDICATING A SUPPLY OF SERVICED ACCOMMODATION
The additional services that indicate that the supply is of serviced accommodation rather than residential accommodation includes :
- Telephone and internet access
- Cleaning of rooms other than purely communal areas of the property
- Laundry services including regular changing of linen
- Maintenance of services other than those which are required for general upkeep of property
MIXED VERSUS COMPOSITE SUPPLIES
The entire consideration for the supply would be subject to VAT treatment of the principal component, where a single composite supply is made.
In case of making mixed supply component, each component part is to be valued and the correct VAT treatment is to be applied to each component part.
Thus the supplier would be required to consider the extent of the additional services which is supplied along with the accommodation in order to determine the nature of the supply. The suppliers should also consider if they are making a single composite supply or are making a mixed supply of several different component parts.