TAX ALERTS ON LABOR ACCOMMODATION

 

The Federal Tax Authority has released a clarification on labour accommodation/labour camps taking the nature of residential or serviced property. The FTA has laid out broad guidelines clarifying the basis on which labour accommodation can be considered as residential or serviced property since VAT liability of the supply would depend on such classification.

The clarification has prescribed two essential criteria to determine whether the same shall be a residential accommodation or a serviced accommodation:

a.       The extent and the nature of additional services supplied along with the accommodation shall determine whether the same should be treated as a residential or a serviced property.
b.       Suppliers should also consider whether they are making a single composite supply or multiple supplies.

Key Highlights

1.       Labour accommodation as Residential Property:

It is important to consider the nature of the additional services provided in order to determine the taxability. If the services provided are ancillary to the main supply and not provided for an additional fee, such incidental services should be considered as a single composite supply and the entire consideration shall be subject to the VAT treatment of the principal component. Such incidental services may include the following:

a.       Cleaning of communal areas;
b.       Maintenance services required for the general upkeep of the property;
c.       pest control;
d.       garbage collection;
e.       security;
f.        utilities e.g. electricity, water etc.
g.       access to facilities within the building for residents to use themselves;

2.       Labour Accommodation as serviced accommodation:

The additional services which may indicate that the supply is one of a serviced accommodation includes but is not limited to the following:

a.       telephone and internet access;
b.       cleaning of rooms, other than communal areas of the property;
c.       laundry services, including the regular changing of bed linen;
d.       catering;
e.       maintenance services other those required for the general upkeep of the property

It is essential for the suppliers of labour accommodation to distinguish whether they are making a single composite supply (of either residential accommodation or serviced accommodation based on above) or a mixed supply with separate component parts.  The FTA has urged each case should be evaluated on its facts to determine the nature.