VAT on Manpower Supply in the UAE: What Applies

Short answer: yes. Manpower supply is a taxable service in the UAE, so VAT applies at 5% to the full rate you are charged, salary element included.

Manpower supply is a service, and in the UAE a service supplied by a taxable person is subject to VAT at the standard rate of five per cent unless the law says otherwise. Nothing in the VAT law says otherwise for manpower, labour supply, staff outsourcing or temporary staffing. What confuses buyers is not the rate but the base: whether the wage element is taxable, whether government fees recharged at cost carry VAT, and what a valid invoice must show. This guide covers the general position; your own arrangement should be confirmed with your tax adviser or against the Federal Tax Authority's published guidance.

The rate is the consideration

When a licensed supplier employs workers on its own licence and visas and charges you a monthly rate for supplying them, the whole rate is what you pay for the service. The wage the supplier pays the worker, the visa costs it amortises, the insurance it buys and its own margin are the supplier's costs of delivering that service, not separate transactions between you and the worker. VAT therefore applies to the full rate, salary element included. A supplier that adds VAT only to its "service fee" and treats the wage element as outside the scope is describing a different arrangement from the one it is actually running, and the exposure is the supplier's first and the client's second when the invoice is challenged.

The position is different where the workers are your employees. Under a PEO or HR outsourcing arrangement, salaries run through your own payroll and your own WPS file; the provider charges a fee for administering them, and VAT applies to the fee. The test is the same one that decides everything else in this industry: who is the legal employer. Our explainer on employer of record against PEO draws the line.

Government fees at cost

"At cost" describes the absence of a markup; it does not describe the VAT treatment. Whether a recharged government fee carries VAT depends on whose obligation the fee was.

Where the supplier is the sponsor, the work permit, entry permit, medical, Emirates ID and labour card fees are the supplier's own liabilities, incurred in the course of making its supply to you. Recharged at cost on their own lines, they are generally treated as part of the consideration for the service, so VAT applies to them; a supplier treating them as outside the scope should be able to say on what basis. The at-cost line is honest about the amount; it does not by itself decide the VAT.

Where you are the sponsor and a provider has paid a government fee on your behalf that was legally yours to pay, in your name, with no margin, the recharge may qualify as a disbursement outside the scope of VAT. The Federal Tax Authority has set conditions for treating a payment as a disbursement rather than a reimbursement, and they turn on whose obligation the cost was and whose name is on the receipt. A provider should be able to say which it is applying and why.

The tax invoice

You can only recover VAT you were charged on a valid tax invoice. For manpower supply that means a document that says "Tax Invoice", carries the supplier's name, address and tax registration number, the date and a sequential number, your details where the value requires them, a description of the supply, the amount, the rate and the VAT in dirhams, and the total. A simplified tax invoice with fewer fields is permitted only below the value threshold the law sets, which a monthly manpower invoice almost always exceeds.

The itemisation that makes a rate honest also makes the invoice easy to check: wage line, government fees, insurance, accruals, transport and administration, each on its own line with the VAT computed on the total. An invoice that shows a single bundled figure and VAT on it is valid; it is just uncheckable, which is a different problem and the subject of our guide to what a manpower rate contains.

Recovering the VAT

A VAT-registered business that uses supplied workers to make taxable supplies recovers the VAT on the manpower invoice as input tax on its return, in the period the invoice is received, subject to the usual rules. A business that makes exempt supplies, such as some residential property or financial services, recovers only in proportion to its taxable activity. Either way, the supplier's VAT is not a cost of the service for most buyers; it is a cash-flow item between the invoice and the return.

Free zones and designated zones

Designated zone rules affect goods, not services. A client in a designated zone buying manpower supply is buying a service, and the standard rate applies as it does on the mainland. Do not accept a quote that treats a free zone address as a reason to leave VAT off a manpower invoice.

The four models side by side

Manpower supply and staff outsourcing: the supplier is the employer, VAT applies to the whole charge including the wage element and the recharged fees. Employer of record: the same, under its international name. PEO and HR outsourcing: you are the employer, salaries are outside the scope, VAT applies to the provider's fee and to any recharged fees that are not disbursements. Recruitment: the agency finds a person you employ, VAT applies to the placement fee. The model decides the base; the rate is five per cent in every case.

What to ask a supplier

Three questions settle the VAT position of any quote. Is the rate quoted inclusive or exclusive of VAT, and is the VAT shown on the total including the wage element? Are government fees on the invoice treated as part of the consideration or as disbursements, and on what basis? Will the invoice be a valid tax invoice with every field the law requires? A supplier that answers all three in writing has a VAT position you can rely on.

tamdeed quotes every rate exclusive of VAT with the tax shown on the charge sheet and the invoice, shows recharged government fees on their own lines with their VAT treatment stated, and issues itemised tax invoices you can check line by line. The manpower supply rates page shows the structure behind the invoice.