VAT on HR Consultancy Services in the UAE! What’ll future be like?

VAT on HR Consultancy Services in the UAE! What’ll future be like?
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VAT in the UAE, including on recruitment Services! All HR services providers including Dubai Consultant Companies assisting with new business setup services, recruitment agencies delivering hiring services and others joined every other person in experiencing a shock. Having lived in this paradise called the UAE, most of us would have woken up to a strange morning on 1 January 2018 whenthe VAT began to bite. We knew it was coming, but that it becamea fact, is still difficult to digest. But, it is all for the good on the long run, for all as well as HR and business consulting in UAE.

Positives aspects:

Analysts forecast that Dh 10 to 12 billion will be the total collection in the UAE, which will free economy from depending on oil and gas revenues. As the government starts ploughing the VAT collections back into the economy, growth will accelerate. More businesses will find it lucrative to open shop in the UAE. And, demand for Hiring Services, Relocation Services etc., is sure to see an uptick across the Emirates. Given that the UAE VAT is just 5%, it shouldn’t dampen the business enthusiasm.

But, will VAT make HR Consultancy services too costly for businesses particularly the SMEs?

Good news:

Both employers and employees may rejoice on the following three counts.

  • Salaries, bonus, gratuity and similar payments are not subject to VAT,
  • Lease on residential buildings is exempt
  • Educational services up to school level is zero rated

So, as such, if you are providing lease-paid accommodation and reimbursement of education to any employee as perks, there won’t be any additional burden.

Effect of VAT on HR Services in the UAE:

Human Resources development services do not fall under Exempt category and therefore will be subject to 5% VAT. The cost of services will definitely increase but the effect will be minimum as businesses can avail input tax credit. Consider an example. Suppose, you avail services of a recruitment agency for Dh 10,000, the VAT component will be Dh 500 on which you are eligible for input tax credit. On the other hand, suppose, you don’t wish to bother with paying the VAT and then claiming input tax credit; the alternative is to hire a fulltime recruitment manager, an arrangement that will cost you much, much more.

Some points in the tax system are not clear as of now and only time and actual experience can clarify these intricacies. Consider mobility Services in Dubai. Transport services provided to shift goods and people is exempt from VAT. This means that, the service component in the relocation would alone be subject to VAT, whereascost of transportation should be exempt. But, these are early days and Dubai relocation companies are awaiting clarity on these matters.

But for such minor and temporary hurdles, VAT does not have major effect on business and HR services.

*Disclaimer:This discussion is brought to you purely for information purposes. It is not a legal advice on VAT or any other related matters. If you wish to have additional information on the impact of VAT on your recruitment, relocation, employee satisfaction surveys and other HR services, you’re welcome to contact us.

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