Labor Accommodation: Residential vs. Serviced Property

We can see in the United Arab Emirates many labor camps, which are the places where the employers accommodate their labor. Moreover, many of the employers offer extra services with the accommodation, which makes the residence become a serviced property, which leads to different VAT treatments. Therefore, it is important to analyze on a case by case basis whether the labor camp is a:

• Residential building and therefore, zero-rated or exempt from VAT; or
• Services property and therefore, standard rated.

To be able to understand the correct VAT treatment that shall apply on an accommodation supply, taxable persons shall first understand the nature of the accommodation that the labors are kept in. Where the accommodation is a residential property, the first supply will be treated as zero-rated supply, and the subsequent supplies will be treated as VAT exempt supplies.

Residential accommodation

As mentioned earlier in this article, the VAT treatment on the first supply of a residential accommodation is zero-rated, and VAT exempted in the subsequent supplies. Generally, residential buildings still come with services that are always necessary for the building and its residents, and does not make a residential property turn into a serviced property, for example,

• Security;
• Corridors cleaning;
• Garbage collection;
• Access to facilities.

Serviced accommodation

Serviced accommodation are residential buildings where extra services are being provided, making the whole accommodation supply taxable. The following are the services that, if provided, make the labor accommodation a serviced property rather than a residential accommodation,

• Telephone and internet access;
• Cleaning of the rooms;
• Laundry services, including the changing of the bed linen;
• Catering;
• Extra maintenance services – other than those normally provided.

Ziad Khawaja
Fame Legacy DMCC
Tax Assistant Manager – Tax Agent, TAAN: 20040382
+971503948973
Ziad@vatmiddleeast.com