Manpower supply in the UAE is standard-rated at 5% VAT, and when workers are on your own visa the VAT applies to the whole amount you bill, including recovered salaries, visa and medical costs. Only costs that meet the disbursement conditions stay outside your VAT. Register once supplies pass AED 375,000 in 12 months, and file the VAT 201 by the 28th after each quarter.
- You supply labourers, drivers, cleaners, nurses or office staff to clients on your own visas
- You charge recruitment or placement fees to UAE or overseas employers
- You recharge visa, Emirates ID, medical or insurance costs to clients
- You refund placement fees when a candidate leaves during an agreed replacement period
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Does a manpower supply or recruitment agency need to register for VAT?
Yes, once taxable supplies pass AED 375,000 in the previous 12 months or are expected to within 30 days. For a manpower supplier that total includes the salaries built into your monthly invoices, so even a small crew of 10 workers can cross the line quickly.
Placement fees charged to overseas employers are usually zero-rated, but zero-rated supplies are still taxable supplies and count toward AED 375,000.
| Agency profile | Counts toward AED 375,000? | Registration outcome |
|---|---|---|
| Supplies 12 workers at AED 4,000 a month all-in | Yes, AED 48,000 a month | Over the threshold in under 8 months |
| Recruitment fees from UAE employers only | Yes, 5% supplies | Mandatory above AED 375,000 |
| Placement fees from employers outside the GCC | Yes, as zero-rated supplies | Registration test still applies |
| Start-up with visa quota costs over AED 187,500 | Expenses allow voluntary registration | Optional, lets you recover input VAT |
| Agency company, mainland or free zone | Separate Corporate Tax rule | Register for CT whatever the revenue |
Corporate Tax for staffing businesses, including gratuity provisions, is in our sibling guide on Corporate Tax for manpower and recruitment agencies.
Why is VAT charged on the full manpower invoice, not just the agency margin?
Because the workers are your employees, the client is buying staff from you, and every dirham it pays for that is consideration for your supply. Salaries, housing and transport are your own costs as the employer, so recovering them is not a pass-through.
How a typical monthly manpower invoice is taxed
| Invoice line | Whose cost is it? | VAT |
|---|---|---|
| Worker salary recovered from client | Yours, as employer | 5% |
| Agency fee or markup per worker | Yours | 5% |
| Accommodation and transport for workers | Yours, as employer | 5% |
| Overtime billed at agreed hourly rates | Yours | 5% |
| Client-specific site pass paid for the client in its name | Possibly the client’s | Outside your VAT only if disbursement conditions are met |
Labour supply vs a genuine outsourced service
Whether you supply bodies on timesheets or deliver a cleaning or security contract with your own supervision, the rate is the same 5%. What changes is how you describe the invoice and which costs you can argue belong to the client. If you are unsure which model your contract follows, our accounting guide for labour-intensive businesses explains contract profitability per site.
Is VAT due on visa, medical and insurance costs recharged to clients?
Usually yes, because visa, medical and health insurance for workers on your sponsorship are your obligations as employer. A recharge can only be treated as a disbursement, with no VAT, when all the disbursement conditions are met.
The disbursement test in practice
- The client, not your agency, is the one who legally receives the underlying service
- The client is responsible for paying the cost, and you pay it on its behalf with its authority
- The third party’s invoice or receipt is in the client’s name
- You recharge the exact amount, with no markup, shown separately on your invoice
- You do not claim input VAT on that cost
Applying the test to common staffing recharges
| Recharge | Workers on your visa | Candidate hired on the client’s visa |
|---|---|---|
| Work permit and residence visa fees | Your cost, 5% on recharge | May be a disbursement if paid in the client’s name |
| Medical fitness test and Emirates ID | Your cost, 5% on recharge | May be a disbursement if the client is responsible |
| Health insurance policy | Your cost, 5% on recharge | Client’s policy paid by you: may be a disbursement |
| Flight ticket for joining | Your cost, 5% on recharge | Depends on who contracted the airline |
| Recruitment fee itself | Part of your supply, 5% | Your supply, 5% or 0% for an overseas employer |
Getting this wrong in the client’s favour means your returns understate output VAT for every month of the contract, so review recharge lines carefully before an FTA audit, not after one starts.
How do overseas placement fees and failed placements affect a recruitment agency's VAT?
Placement fees billed to an employer based outside the GCC can be zero-rated when the export conditions are met, and a refunded fee after a failed placement needs a tax credit note to reverse the VAT.
Placement fees for overseas clients
A Dubai agency sourcing engineers for a company in Germany with no UAE establishment is exporting a service, so the fee is normally 0%. A UAE subsidiary of that same group paying the fee is a UAE customer, so 5% applies. Keep the client’s overseas registration, contract and correspondence on file; read the conditions in our guide to zero-rating exported services.
Replacement periods and refunds
| What happens | VAT action | Document |
|---|---|---|
| Candidate leaves, you provide a free replacement | No change to the original VAT | Replacement note on the file |
| Candidate leaves, you refund part of the fee | Reduce output VAT on the refunded amount | Tax credit note |
| Client disputes the fee and pays less | Reduce output VAT on the agreed reduction | Tax credit note |
| Client never pays | Consider bad debt relief once conditions are met | Write-off and notice to client |
How does a staffing agency file its VAT 201 each quarter?
Build the return from timesheets and client invoices, then test every recharge before it reaches EmaraTax. These steps suit agencies with dozens or hundreds of workers.
Reconcile timesheets to invoices
Confirm every worker-month on a client timesheet has been invoiced in the quarter, including overtime and backdated rate changes.
Tag every recharge line
Mark visa, medical, insurance and travel lines as either part of your supply (5%) or a documented disbursement, with the client-named receipt attached.
Split UAE and overseas placement fees
Put fees from employers outside the GCC in zero-rated supplies only where the evidence file is complete.
Post credit notes for refunds
Include every credit note issued in the quarter for failed placements or disputed invoices.
Claim input VAT on agency costs
Include VAT on worker accommodation, transport, uniforms, office rent and job-board subscriptions where invoices are in your name with a supplier TRN.
Check sales by emirate
Allocate standard-rated supplies to the emirate of your establishment as required, then review net VAT against last quarter for unusual swings.
Submit and pay on EmaraTax by the 28th
File the VAT 201 and pay on the same day to avoid late payment charges.
What records does a manpower or recruitment agency need for VAT?
You need the chain from worker to timesheet to invoice to payment, plus proof for every disbursement and zero-rated fee, kept for at least 5 years.
- Client service agreements showing whether you supply staff or recruit for the client
- Signed monthly timesheets per client
- Tax invoices and credit notes with sequential numbers
- Client-named government receipts for any cost treated as a disbursement
- Overseas client registration documents and contracts for zero-rated fees
- Placement replacement terms and refund approvals
- Supplier tax invoices for accommodation, transport and insurance
- Payroll registers that tie workers to client sites
Which VAT deadlines apply to staffing agencies in late 2026 and 2027?
Each quarter’s VAT 201 and payment are due by the 28th of the following month. Staffing agencies with long client payment terms often have to pay VAT before the client pays them.
| Item | Due | Staffing note |
|---|---|---|
| VAT return, quarter ending 30 September 2026 | 28 October 2026 | VAT due even if client invoices are unpaid |
| VAT return, quarter ending 31 December 2026 | 28 January 2027 | Year-end rate reviews and backdated invoices |
| Corporate Tax return, December 2025 year end | 30 September 2026 | Company-level return, separate from VAT |
| E-invoicing ASP appointment, revenue under AED 50M | 31 March 2027 | Go-live 1 July 2027 |
| Tax invoice after each monthly supply | Within 14 days | Late invoicing does not delay the tax point forever |
What are the 2026 VAT penalties for manpower supply companies?
Cabinet Decision 129 of 2025 applies to VAT violations from 14 April 2026. For staffing agencies the incorrect-return penalty and disclosure charges on understated recharges are the most common.
| What went wrong | Penalty from 14 April 2026 |
|---|---|
| Registered late | AED 10,000 and backdated output VAT |
| Return filed late | AED 1,000, then AED 2,000 for a repeat within 24 months, per return |
| VAT paid late | 14% a year, charged monthly |
| Return was incorrect | AED 500 first, AED 2,000 repeat |
| Error corrected by voluntary disclosure | 1% a month before an audit notice; 15% plus 1% a month after |
| No tax invoice or credit note issued | AED 2,500 per case |
| Records not kept | AED 10,000 for a first violation |
How it stacks: an agency that treated AED 240,000 of visa and medical recharges as disbursements over two years left out AED 12,000 of VAT. Disclosed before any audit notice 12 months after the average due date, the charge is about 12% of AED 12,000, or AED 1,440, on top of the AED 12,000 itself. Found by the FTA first, the fixed 15% alone is AED 1,800 before monthly charges.
Charging VAT only on your markup?
We check your manpower invoices, visa recharges and zero-rated placement fees before an underdeclaration grows.
6 VAT mistakes manpower and recruitment agencies make
Every one of these reduces output VAT on paper and increases what the FTA can assess later.
- Charging VAT only on the markup. Recovered salaries are part of your supply, so the unpaid 5% on salaries becomes an assessment plus penalties.
- Treating visa and medical recharges as disbursements when workers are on your visa. They fail the disbursement test and create an incorrect return.
- Zero-rating fees paid by a UAE branch of a foreign group. The UAE entity is the customer, so 5% was due.
- Refunding placement fees without a credit note. The refund is valid commercially but costs AED 2,500 per missing credit note and your VAT reduction has no support.
- Ignoring zero-rated fees in the threshold test. Agencies serving overseas employers register late and face AED 10,000.
- Waiting for client payment before declaring VAT. VAT follows the invoice or payment date, whichever is first, so holding it back runs late payment at 14% a year.
How do staffing agencies avoid VAT penalties?
Tie VAT checks to payroll and billing cycles you already run.
- Monthly: invoice every worker-month within 14 days of the timesheet period
- Monthly: review new recharges against the disbursement conditions before invoicing
- Monthly: track rolling 12-month supplies, zero-rated fees included, until registered
- Per refund: issue a tax credit note the same day the refund is approved
- Quarterly: reconcile client invoices, credit notes and the VAT 201 figures
- Quarterly: file and pay before the 28th, even if major clients are slow to pay
- Yearly: review client contracts to confirm who sponsors each worker
- When an error is found: submit a voluntary disclosure before the FTA contacts you
Use our VAT return checklist as the quarterly sign-off sheet.
What should an agency do after a missed VAT return or an FTA audit notice?
File and pay what is outstanding first, then fix recharge errors in earlier periods. Acting before the FTA does is what keeps disclosure charges at 1% a month.
- Submit overdue returns and pay. Each month of delay adds 14% a year on the unpaid VAT.
- Disclose recharge and salary errors voluntarily. Before an audit notice, 1% a month of the tax difference; after, 15% plus 1% a month.
- Apply for reconsideration within 40 business days if an assessment treats genuine disbursements as taxable. Our guide to requesting reconsideration from the FTA explains the evidence to attach.
- Appeal to the Tax Disputes Resolution Committee if reconsideration is refused.
If timesheets and invoices do not reconcile, start with catch-up bookkeeping, and read our late VAT registration guide if you crossed the threshold unnoticed.
FTA audit letter or late return for your agency?
Send the notice and we will tell you what to file and in which order.
Worked example: VAT for an illustrative Sharjah manpower supplier
An illustrative supplier invoices AED 300,000 in a quarter (excluding VAT) for workers placed at three construction and hospitality clients, salaries and visa recharges included. It pays the VAT one month late and refunds one recruitment fee with no credit note.
| Step | Arithmetic | AED |
|---|---|---|
| Output VAT on all manpower invoices | 300,000 x 5% | 15,000 |
| Input VAT on accommodation, transport, uniforms | Supplier tax invoices | 6,000 |
| VAT payable | 15,000 minus 6,000 | 9,000 |
| Late return, first time | Fixed penalty | 1,000 |
| Late payment for one month | 9,000 x 14% / 12 | 105 |
| Refund with no credit note | 1 case | 2,500 |
| Penalties total | 1,000 + 105 + 2,500 | 3,605 |
Had the supplier charged VAT only on its AED 60,000 markup, it would have declared AED 3,000 of output VAT instead of AED 15,000, leaving AED 12,000 underdeclared in a single quarter.
Should a recruitment agency handle VAT itself or hire an accountant?
Agencies with a few recruitment fees a month can manage alone; manpower suppliers with visa recharges, many sites and overseas clients usually need a reviewed return. Here is how the options compare.
| Option | Cost | Time | Risk | Suits |
|---|---|---|---|---|
| Owner or admin staff file | No fee | High at month-end payroll | Recharges misclassified | Small recruitment-only agencies |
| Freelance accountant | Typical market range: depends on transaction volume | Medium | Limited contract review | Agencies with one or two clients |
| Accounting firm such as Paci | Bookkeeping from AED 599/month; VAT filing by fixed quote | Low | Qualified accountant reviews each return | Manpower suppliers with many workers and sites |
Paci sends a fixed quote within 24 hours, no hourly billing. See our VAT return filing service.
What manpower agency owners actually ask us about VAT
Questions we hear from staffing and recruitment founders.
We supply workers on our visas, charge a fee per worker and recover their salaries. Is VAT only on our fee?
No. Manpower supply is standard-rated, and because the workers are your employees the recovered salaries are part of what the client pays for your supply. VAT at 5% applies to the full invoice, fee and salaries together.
We recover costs like phone bills from staff or clients. Do we add VAT?
Usually yes, when the cost is part of what you supply. A recovery stays outside VAT only when it meets every disbursement condition, including that the client received the underlying service and the invoice is in the client’s name.
All our placement fees come from clients outside the UAE. Do we still register once we pass AED 375,000?
Yes, the registration test applies. Zero-rated fees are taxable supplies at 0% and count toward the AED 375,000 threshold. Registering late costs AED 10,000 plus any backdated output VAT.
A placement failed and we refunded the fee. What happens to the VAT we charged?
Issue a tax credit note for the refunded amount and reduce output VAT in the period you issue it. Since 14 April 2026, failing to issue a credit note costs AED 2,500 per case.
How much do accounting firms charge to handle VAT for an agency?
Fees depend on how many workers, clients and invoices you have. Compare any fee with the penalty risk: AED 1,000 for a first late return, AED 2,000 for a repeat within 24 months, and AED 500 or AED 2,000 for an incorrect return. Our sibling guide on bookkeeping costs in the UAE compares packages.
Frequently asked questions
Is manpower supply subject to VAT in the UAE?+
Yes. Supplying staff is a standard-rated service at 5%, charged on the full amount billed to the client, including salaries recovered for workers employed on your visa.
Do recruitment agencies in Dubai charge VAT on placement fees?+
Yes, 5% on fees charged to UAE employers. Fees charged to employers based outside the GCC with no UAE presence can be zero-rated if the export conditions are met and documented.
Is there VAT on visa cost recharges?+
Where the worker is on your visa, the visa is your cost as employer and the recharge carries 5%. It may be a no-VAT disbursement only if paid on the client’s behalf, in the client’s name, at exact cost and shown separately.
Can a manpower company claim input VAT on worker accommodation?+
Generally yes where the accommodation is used to make your taxable supplies and the invoice is in your company name with the supplier’s TRN. Residential leases that are exempt carry no VAT to recover.
When is a staffing agency's VAT return due?+
By the 28th of the month after each quarter, for both filing and payment. Our guide to quarterly vs monthly VAT returns explains how periods are set.
What penalty applies to an incorrect VAT return for a recruitment agency?+
AED 500 for the first incorrect return and AED 2,000 for a repeat, plus disclosure charges on any tax difference. Our VAT penalties explainer covers each charge.
Do I issue a tax invoice every month for workers on a long contract?+
Yes. Bill each period and issue the tax invoice within 14 days of the supply. Letting timesheets pile up delays invoicing but not the VAT, and each missing tax invoice can cost AED 2,500.
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- FTA: Registration for VAT
- FTA: VAT Executive Regulations (consolidated)
- Ministry of Finance: Cabinet Decision No. 40 of 2017 and amendments
- FTA: Waiver of penalties
Checked against these sources on 15 September 2026. This guide is general information for UAE businesses, not advice on your specific facts.