Dubai, UAE – 4 July 2025 – In response to the latest VAT Public Clarification (VATP038) issued by the UAE Federal Tax Authority (FTA), leading tax expert Iftikhar Qazi has outlined critical takeaways for businesses navigating the complex landscape of workforce-related services and their VAT treatment.
According to Qazi, VATP038 provides long-awaited guidance on how to distinguish between manpower services and visa facilitation services, particularly in cases where employment structures are shared across corporate entities.
“This clarification is essential for companies operating shared service centers or managing visa processes centrally,” said Iftikhar Qazi. “It addresses common confusion around how these services should be taxed, especially when one entity holds the visa while another supervises the employee’s work.”
Key Distinctions and VAT Treatment
Manpower services are now clearly defined as the supply of staff where the supplying entity remains responsible for employment obligations, including payment of salaries, benefits, and performance management. In such cases, the entire amount charged—including salary reimbursements, administrative fees, and visa costs—is subject to the standard 5% VAT rate.
In contrast, visa facilitation services are limited to administrative support for obtaining employment visas—such as managing medical tests, typing, or Emirates ID issuance—without any involvement in the employee’s work or supervision. These are typically rendered within the same corporate group but outside a VAT group, and only the administrative service fee is subject to VAT.
Hidden Pitfalls in Group Structures
Qazi also highlighted the complexity of intra-group arrangements. “Many companies operate under the assumption that internal support services are exempt, but that’s not always the case. If a service is provided without charge or at below-market value, VAT is still due—based on market value or actual costs.”
He stressed that supervision and control remain the key tests to distinguish manpower supply from facilitation. “If your company is deciding where an employee works, assigning tasks, or evaluating performance—even if the visa is held elsewhere—you are likely dealing with a taxable manpower supply.”
Call for Proactive Compliance
With the FTA reinforcing its stance through VATP038, Qazi urged businesses to review their current intercompany arrangements, update documentation, and ensure accurate VAT treatment.
“This is not just a tax issue—it’s a compliance and reputational risk,” Qazi added. “Misclassification could lead to underpayment of VAT, penalties, and unnecessary audits. The FTA has now drawn a clear line, and it’s up to businesses to align.”
For companies relying on shared workforce models or centralized visa management, this clarification represents a pivotal moment to revisit internal processes, pricing mechanisms, and VAT reporting frameworks.
Iftikhar Qazi is a UAE-based tax expert with extensive experience in cross-border VAT compliance, GCC tax frameworks, and digital economy regulations. He advises multinational firms, SMEs, and digital platforms on navigating UAE tax law and implementing robust compliance strategies.
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