Labour Accommodation can be provided through residential building or serviced accommodation. Both are treated different as per VAT rate law. The residential building is exempt from VAT and serviced accommodation is charged at standard rate. The distinction between both is very important for VAT liability.
A labour accommodation will be treated as residential building if:
- The building or lodging is occupied by the employees as their principal place of residence;
- The building is fixed to the ground and cannot be moved without being damaged;
- The building has been constructed or converted with lawful authority; and
- The building is not similar to a hotel, motel, bed & breakfast establishment, or serviced apartment for which services in addition to the supply of accommodation are provided.
Normally, a supplier of residential accommodation may provide certain services as ancillary to the main supply. Where those additional services are incidental to the main supply of accommodation and not provided for an additional fee, they should not become one of serviced accommodation. Such incidental services may include:
- Cleaning of communal areas;
- Maintenance services required for the general upkeep of the property;
- Pest control;
- Garbage collection;
- Utilities e.g. electricity, water, etc;
- Access to facilities within the building for residents to use themselves.
The above list is not exhaustive. However there are few services which will make a labour accommodation to be treated as serviced accommodation are:
- Telephone and internet access;
- Cleaning of the rooms, other than purely the communal areas of the property;
- Laundry services, including the regular changing of bed linen;
- Maintenance services other than general upkeep of the property.
Suppliers of labour accommodation should also consider whether they are making a single composite supply (of either residential accommodation, or serviced accommodation based on the above), or whether they are making a mixed supply with separate component parts.
Where a single composite supply is made, the entire consideration for the supply shall be subject to the VAT treatment of the principal component. Where a mixed supply is made, each component part must be valued and the correct VAT treatment applied to each component part.