UAE / FTA published Public Clarification on the VAT treatment of labour accommodation
The Federal Tax Authority (FTA) issued a Public Clarification concerning the VAT treatment of so called ‘Labour camps’ and "labour accommodation", namely, all such areas where labourers are housed by their employers. The Clarification clarifies and better highlights what already expressed in the FTA Guide concerning Real Estate.
Residential vs Serviced
First, the FTA clarified that, as a preliminary matter, one shall divide between residential houses and accommodations, that are zero-rated, and ‘serviced’ accommodation, that shall be charged at standard 5% rate.
In order to draw such a distinction, one shall consider, according to the FTA, the extent of the “additional services” supplied along with the accommodation and whether the supply is a single composite supply or mixed multiple supply of more than one component.
Residential property
The Clarification reinforces that labour accommodation places are deemed to be ‘residential buildings’ where: (i) the building is occupied by the employees as their “principal place of Residence”; (ii) such building is an ‘immovable property’ as such (fixed to the ground and cannot be moved without being damaged); (iii) the building has been constructed or converted with lawful authority; and (iv) such building cannot be considered a hotel, motel, bed and breakfast. In addition, such building shall not be a ‘serviced apartment’ for which services in addition to the supply of accommodation are provided.
The FTA also lists a number of services that, although provided aside the residential property accommodation service shall be considered as ‘residential supply’ (if their provision is not against a consideration), namely: (i) cleaning of communal areas; (ii) maintenance services; (iii) pest control; (iv) garbage collection; (v) security; (vi) utilities; and (vii) access to facilities within the building for residents to use themselves (e.g. launderette facilities, gym, pool, prayer rooms etc)
Serviced accommodation
Where residents are provided with “additional services” aside the living spaces it is worth considering whether the extent of the additional services provided would move the supply from one of residential accommodation to serviced accommodation. Each and any case shall be assessed, as the FTA clearly points out, on its “actual facts”.
According to the FTA, the following are additional services indicating a supply of ‘serviced accommodation’: (i) telephone and internet access; (ii) cleaning of the rooms (not communal areas of the property); (iii) laundry services (including regular changing of bed linen); (iv) catering; and (v) maintenance services other than those required for the general upkeep of the property. The list above is not exhaustive and is provided for explanatory purposes; accordingly, the services that can cause a residential supply to turn into a services supply is wider and shall be assessed on a case-by-case basis.
Single composite vs Mixed supplies
The FTA also points out that one shall duly consider whether the supply is either a single
composite or a mixed supply with separate component parts. Where a principal component does exist VAT treatment shall be that of the principal component.
Author: Roberto Scalia, Chairman JIACC Tax Commission, Of Counsel Aurifer Middle East
