VAT Treatment of Labour Accommodation in UAE – Residential versus Serviced Property
Labour accommodations across UAE are places of residence provided by employers to the labourers of their business. This accommodation could include several additional services like pest control, garbage collection, security etc. in addition to being just a housing facility. Based on the nature of these additional services we can classify labour accommodations into –
- Residential building, therefore exempt from VAT (in case of first supply zero-rated)
- Serviced accommodation considered as a standard rated supply.
Distinction of these two types of accommodation needs to be understood carefully to analyse the VAT liability correctly. The extent of these services along with accommodation helps determine the nature of supply.
A labour accommodation would be considered as a residential building if :
- If it is the principal place of residence of the employees.
- The building is fixed on the ground (as opposed to a port-a-cabin construction)
- The building has been constructed lawfully
- It is not similar to a hotel, motel, bed and breakfast facility etc or a service apartment for which services in addition to supply of accommodation is provided.
A labour accommodation would also be considered as a residential building if, along with residence, additional services which is ancillary to the main supply are available and not provided for an additional fee like cleaning of communal areas, pest control, utilities like electricity and water etc.
However the following services would create a VAT liability as the residence would qualify as a serviced accommodation.
- Telephone and internet access
- Cleaning of rooms, other than communal areas
- Laundry service
- Maintenance other than general upkeep of the property
In case the suppliers of labour accommodation are making mixed supplies (components of both residential and service) each component must be valued and a VAT treatment should be applied.
IMPORTANCE OF ACCOUNTING
Every business requires its own performance examination, data, records, analysis etc which is why accounting is an integral part of every business. Accounting gives the management information regarding the financial performance (Statement of Comprehensive Income) and financial position (Statement of Financial Position) which is integral for the stakeholder to understand the health of the business. Accounting has basically 2 methods – Single entry and double entry. Double entry is the most widely used method whereas single entry is for very small scale businessmen where accounting merely means income less expenses.
Some of the areas accounting helps a business in are as follows:
- Planning and formulating strategies in the future based on past and current performances
- It helps in coordinating various business factors such as inventory procurement
- Brings better control of resources into the business
- It a medium of communicating the state of affairs of the business, in terms of numbers
- It helps in formulating budgets
- The accountant is the position to give valuable advice
- Comparison becomes easier
- Ensuring Law of land is adequately followed
The IASB (International Accounting Standards Board) is an independent, private-sector body that develops and approves IFRS (International Financial Reporting Standards) that provides certain principles for accounting. They specify how a business should maintain its books of records to ensure consistency, transparency, and comparability. It was established to create a common accounting language.
An Auditor’s opinion is presented in the audit report. This opinion is established after the independent examination of the financial statements of the entity, after acquiring sufficient and appropriate audit evidence and conducting audit procedures. An Audit opinion can be of 3 types:
Audit evidence – Bank Confirmations
With the ever-increasing complexity of the business, the importance and relevance of audits have increased over the years. Auditing is the independent examination of the financial statements of a company irrespective of its size or legal form, profit-oriented or not, in order to express a true and fair opinion thereon.
UPDATED ECONOMIC SUBSTANCE REGULATIONS
There has been an amendment in the Economic Substance Regulations. Cabinet of Ministers Resolution No.31 of 2019 is now replaced by Cabinet of Ministers Resolution No.57 of 2020. This new ESR is applicable retrospectively from 1st January 2019.
Audit Balance Confirmations
Auditing is an independent examination of the financial statements of an entity, irrespective of its size or legal form, for the auditor to express an opinion thereon. An auditor would acquire sufficient and appropriate audit evidence in order to draw a reasonable opinion on the financial statements. An Audit Balance confirmation is audit evidence received by the auditor by a written or an electronic response from the entity or a third party verifying the accuracy of the information in the books of accounts.