Is VAT charged on salaries recharged to a related company?
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Yes. If you're supplying staff to a related company, VAT is charged on the whole amount recovered from them, including the salaries - not just any separate fee or margin. If you charge them less than the real cost and they can't recover VAT in full, the taxable value is bumped up to market value anyway.
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The detail
Where a company makes its employees available to a related company, this is treated as a supply of manpower services, and the consideration subject to VAT includes the full amount recovered from the recipient - salaries, benefits and any other related charges - not merely an administrative fee. Separately, under Article 36 of the VAT Law, if this supply between related parties is priced below market value and the recipient cannot recover the VAT in full, the value of supply for VAT purposes is deemed to be market value.12
What the law says
- For manpower services, the VAT-able consideration is the full amount received from the customer, including employees' salaries and benefits recharged, per FTA guidance on manpower vs visa facilitation.2 Based on FTA guidance
- Under Article 36 of the VAT Decree-Law, supplies between related parties priced below market value must be valued at market value for VAT purposes if the recipient cannot fully recover the input tax.1
What it depends on
- The Article 36 market-value override only applies if both conditions are met: the charged value is below market value, and the recipient cannot recover the VAT in full.1
- The manpower services treatment applies where the supplying entity holds the employment visa and makes employees available to the related company, regardless of who pays the salaries.2 Based on FTA guidance
Check before you rely on it
- Confirm which entity holds the employees' visas and is legally regarded as the supplier of manpower
- Check whether the recharge amount equals or is below the actual salary/benefit cost incurred
- Confirm the recipient company's VAT recovery position (full or partial recovery)
Sources (2) — read the official text
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Article 36 - Value of Supply and Deemed Supply for Related
Read the article
Article 36 - Value of Supply and Deemed Supply for Related Parties17 As an exception to Articles 34, 35, and 37 of this Decree-Law, the value of the supply or Import of Goods or Services between Related Parties shall be considered equal to the market value if all of the following conditions are met: 17 Article amended as per Federal Decree-Law No. 18 of 2022. Federal Decree-Law No. 8 of 2017 and its amendments – As published by the Ministry of Finance 19 1. The value of the supply is less than the market value. 2. If the supply is a Taxable Supply and the Recipient of Goods or Recipient of Services does not have the right to recover the full Tax that would have been charged on such supply as Input Tax.
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Read the article
قيمة التوريد – خدمات توفير قوى عاملة Value of supply - manpower services The consideration for the supply of manpower يشمل مقابل توريد خدمة توفير قوى عاملة المبلغ الكامل includes the full amount received (or expected to ،الذي يستلمه المورد (أو الذي يتوقع أن يستلمه) من العميل be received) by the Supplier from the Customer والذي يتم إما فرضه على العميل أو دفعه مباشرة للموظفين that is either recharged to the Customer, or .مثل الرواتب أو األجور directly paid to the employees such as salaries or wages. Therefore, for VAT purposes, the consideration will سيشمل المقابل ألغراض ضريبة القيمة المضافة،لذلك include the employees' salaries, benefits and any ،رواتب الموظفين والمزايا وأية مبالغ مفروضة إضافية additional amounts charged as well as other تتعلق بخدمات توفير،وكذلك أي استرداد لتكاليف متكبدة recharges, that relate to the provision of the .قوى عاملة manpower services. مثال على خدمات توفير قوى عاملة Example - Manpower Services Company A holds the employment visas for تتم كفالة الموظفين العاملين لدى الشركة (ب) من قبل employees working at Company B. Company A تقوم الشركة (أ) بإتاحة هؤالء الموظفين للعمل.)الشركة (أ makes these employees available to Company B, وبالتالي يُنظر إلى الشركة (أ) على أنها،)لدى الشركة (ب and, hence, Company A is regarded as supplying تقوم بتوريد خدمات توفير قوى عاملة بغض النظر عما إذا manpower services irrespective of whether the )كانت رواتب الموظفين ومزاياهم تدفع من قبل الشركة (أ employees’ salaries and benefits are paid by .)أو الشركة (ب Company A or Company B. The consideration for the supply of manpower يكون مقابل توريد خدمات توفير القوى العاملة مساويا ا للمبلغ services is equal to the total amount incurred by بما في ذلك الرواتب،)اإلجمالي الذي تتكبده الشركة (ب Company B, including salaries and benefits والمزايا (بغض النظر عما إذا كانت رواتب ومزايا الموظفين (irrespective of whether the employees’ salaries وكذلك أي مبالغ،))تدفع من قبل الشركة (أ) أو الشركة (ب and benefits are paid by Company A or Company )تتعلق بالخدمات التي تقدمها الشركة (أ) إلى الشركة (ب B), as well as any amounts related to the services provided by Company A to Company B in relation to the supply of the services. 4/14 .فيما يتعلق بتوريد الخدمات
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Written by AI from the FTA sources above and checked before display. Not tax advice or official FTA information - confirm with a tax adviser before you act. Full disclaimer
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