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May 15, 2026

This Public Clarification (VATP003) by the Federal Tax Authority (FTA) details the VAT treatment of labour accommodation in the UAE. It establishes the criteria for distinguishing between a 'residential building', which is exempt from VAT, and 'serviced accommodation', which is standard-rated. The determination depends on the extent of additional services provided, such as cleaning, laundry, and catering. The clarification also explains how to identify a single composite supply versus a mixed supply, referencing the rules in Article 4 of Cabinet Decision No. 52 of 2017, to ensure suppliers apply the correct VAT liability.

VATP003

VAT Public Clarification

Labour accommodation: residential versus serviced property

Issue

Labour camps and labour accommodation are generally areas where labourers are housed by their employers. They can take many different forms and some may provide residents with additional services on top of the living accommodation. It is therefore necessary to consider on a case by case basis whether labour accommodation is:

a residential building, and therefore exempt from VAT (or zero-rated if the first supply); or
serviced accommodation, and therefore standard rated.

Summary

There will be instances where the supply of certain labour accommodation shall be a supply of residential property, and other instances where the supply of certain labour accommodation shall be a supply of serviced accommodation. The distinction is important as it will affect the VAT liability of the supply. Suppliers are required to consider the extent of the additional services supplied along with the accommodation in order to determine the nature of the supply. Suppliers should also consider whether they are making a single composite supply, or whether they are making a mixed supply of several different component parts.

Detailed discussion

Labour accommodation as residential property:

As mentioned in Paragraph 3.5 of the Real Estate guide, labour accommodation will be considered to comprise of lodgings which are to be treated as residential buildings where:

the building or lodging is occupied by the employees as their principal place of residence;
it is a building which is fixed to the ground and which cannot be moved without being damaged;
the building has been constructed or converted with lawful authority; and
it is not a building which is similar to a hotel, motel, bed & breakfast establishment, or serviced apartment for which services in addition to the supply of accommodation are provided.

Labour accommodation as serviced accommodation:

In certain cases, residents may be provided with additional services on top of the living accommodation. In such cases, it is necessary to consider whether the extent of the additional services provided would move the supply from one of residential accommodation to serviced accommodation. Each scenario must be assessed on its actual facts.

Services normally supplied along with residential accommodation: