A Brief Guide On VAT Treatments Of Insurance In UAE
After a lot of debate about the application of VAT on insurance products, the Federal Tax Authority (FTA) has provided a detailed clarification of VAT on insurance in UAE issued on October 2nd, 2018. However, the transactions in the insurance sector are quite complicated, but they are treated as financial transactions, thus comes under VAT in UAE.
According to the FTA, all insurance and related services in the UAE are subject to VAT at the standard rate, i.e., 5%. These supplies are treated as taxable supplies in the UAE. Just like other taxable supplies, VAT incurred on costs can be fully recovered. Insurance is treated as a financial service according to the regulations in the UAE. Therefore, it has its own VAT treatment and rules.
All You Need to Know About VAT Treatment of Insurance in the UAE
If you are confused about the VAT treatment of insurance in UAE, then here is a detailed guide about insurance transactions and VAT implementation.
Insurance Bundle Products
Residents of the UAE were confused regarding the VAT treatment of insurance because some products are sold as a bundle but treated as separate services. The issue was how to characterize these bundled products, i.e., when services are treated differently, e.g., one supply may be taxed at a standard VAT rate, while others could be exempted or zero-rated.
These are quite common in the market when you get add-on insurance products to the basic life insurance policy. To clarify this issue, FTA clarified that there would be a single composite supply with one element as the principal component, while the other elements will be treated as ancillary. It means these supplies will be treated as an additional bonus on top of the principal component.
However, all bundled products cannot be treated as single composite supplies. These supplies have two or more elements that are linked together to form a single supply, and it is impossible to split them. Supplies will be treated as such if they have the following features:
- The price of its different elements are not identified separately or charged separately by the supplier.
- All the components of the bundle are supplied by a single supplier.
If you are thinking about getting real estate, health, car insurance, etc., make sure to contact the best VAT consultancy in Dubai to clear all doubts about the VAT treatment of insurance.
Insurance Agents/ Brokers
In case of an insurance transaction, if an insurance intermediary acts as the agent, the collection of premiums from the client on the insurer’s behalf is not supplied for VAT. The fee charged by the insurance agent for services provided is either liable to VAT at standard (5%) or zero rates or is out of scope depending upon supply rules.
According to the FTA, reinsurance through a reinsurer located outside the UAE will be treated as an imported service. Therefore, reinsurance payable by the insurance company will be subject to VAT. Only life reinsurance is exempt from this category. Life insurance supplied in the UAE will be exempt but implemented in any GCC state will be treated as zero-rated supply.
Input VAT Recovery on Health Insurance
In the case of input tax recovery on Health Insurance VAT, FTA has made separate rules regarding employees and their family members. An employee will be able to recover input tax on VAT imposed on premiums on health insurance coverage. This health insurance is provided by the employer to their employees as benefits and is mentioned under the employment contract.
However, in the case where health insurance is also offered to the family members of the employee, input tax can be recovered only in case of a legal obligation under the applicable labor law to provide these services to the family members. If there is no legal obligation to provide insurance to the family members, input tax cannot be recovered.
Real Estate Insurance
In the case of the supply of insurance services in the real estate sector, the VAT treatment will depend upon the place of supply of services, i.e., a place where the insurance provider or customer resides. It does NOT depend upon the actual location of the real estate.
According to the FTA, “supply of insurance in respect of real estate will not be considered a service related to real estate and such supply shall be determined based on general place of supply rules, i.e., by reference to the Place of Residence of the supplier.”
According to the FTA guidelines, all finances, Islamic and non-Islamic, will face the same VAT treatment in the UAE. Therefore, any transaction made under an Islamic financial entity certified as Shariah-compliant will be treated the same way as any other non-Islamic product. However, features of the product concerned must be noted to determine the appropriate VAT treatment.
Get VAT Consultancy for Your Insurance
This is everything you need to know about the VAT treatment of insurance in the UAE. Due to its complex nature, FTA has published a detailed guide on VAT requirements for insurance. There are different kinds of insurances like life, real estate, medical, vehicle, etc. and each insurance is treated as a separate financial transaction with different VAT treatments. So, consider getting in touch with the best VAT consultancy in Dubai before getting insurance, so you are clear about VAT treatment on various insurance supplies. By getting VAT consultancy, you will be able to know everything about VAT treatment and VAT recovery on insurance supplies.