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.