A Guide to VAT on the Insurance Sector

Understanding VAT on insurance in the UAE has become a real concern for many companies and policyholders. Many people end up paying extra or making filing mistakes because of unclear rules and mixed interpretations.

To stay compliant and avoid losses, it’s vital to understand how VAT applies to each type of insurance. By knowing the rules clearly, insurance businesses become able to recover their eligible input tax correctly.

JCA (Jitendra Chartered Accountants) helps businesses understand their VAT obligations correctly. Our qualified VAT agents in the UAE assist you in filing accurate returns and proper documentation.

Overview of VAT in the UAE

The UAE introduced Value Added Tax (VAT) on January 1, 2018, at a standard rate of 5%. The tax applies to most goods and services, including insurance. However, insurance is not treated the same across all categories. Some insurance products are taxable, some are zero-rated, and others are exempt.

Knowing where your product stands under VAT rules is essential for proper compliance and cost control.

1. Life Insurance and Reinsurance are Exempt from VAT

 

Life insurance is fully exempt from VAT when the recipient of the policy is a UAE resident. This includes insurance plans that provide coverage for life events like death, marriage, or childbirth. The same rule applies to reinsurance related to life insurance.

If the recipient of the service is outside the GCC countries that have implemented VAT, the transaction may qualify as zero-rated instead. Since life insurance is exempt, insurers offering these products cannot claim VAT on their related expenses, which can increase their operating costs.

2. General Insurance is Subject to 5% VAT

General insurance includes motor, property, travel, health, and marine insurance. These services are taxable at the standard VAT rate of 5%.

• Motor Insurance – Covers vehicles against accidents or theft.
• Property Insurance – Covers damages or losses to buildings or assets.
• Health Insurance – Covers medical expenses for individuals or employees.
• Travel Insurance – Provides protection against travel-related risks.
• Marine Insurance – Covers goods or cargo transported by sea.

Insurers can charge VAT on these services and can also recover input tax paid on their related business expenses.

Need more information? Consult our VAT agents in Dubai.

3. Insurance Related to International Transport is Zero-Rated

Insurance services linked to international transportation of goods or passengers are zero-rated. This means the VAT rate is 0%, but the insurer can still recover VAT paid on expenses.

4. Islamic Insurance (Takaful) – Same VAT Treatment

Islamic insurance, known as Takaful, is treated the same way as conventional insurance. The UAE Federal Tax Authority (FTA) ensures consistency across both systems.

Takaful operates under Sharia principles, where members contribute to a shared pool to support each other.

5. Reinsurance – Exempt from VAT

Reinsurance, which allows insurers to transfer a portion of their risks to other insurance companies, is exempt from VAT. This classification aligns with how financial services are treated. Since reinsurance transactions occur between insurers and not directly with consumers, they fall under the exemption category.

6. Employee Health Insurance – Subject to VAT

Many employers in the UAE are required by law to provide health insurance to employees, especially in Dubai and Abu Dhabi.

These policies are subject to VAT at 5%, but the tax is usually recoverable if the employer conducts taxable business activities. Learn more about it from our VAT agents in Dubai.

7. Insurance Intermediaries – Mixed VAT Treatment

Insurance brokers and agents act as intermediaries between insurers and clients. Their VAT treatment depends on the type of insurance they handle:

• Services linked to life insurance are exempt from VAT.
• Services related to general insurance are taxable at 5%.

If intermediaries earn commission on general insurance products, they must charge VAT. But commissions on life insurance contracts remain exempt.

8. Real Estate Insurance – Subject to 5% VAT

Insurance that protects real estate against damages, theft, or natural disasters is taxable at 5% VAT. Businesses purchasing such insurance for their commercial properties can usually claim VAT back if the property is used for taxable activities.

However, insurance on residential property that falls under exempt supplies may not qualify for VAT recovery.

9. VAT Registration for Insurance Companies

Insurance companies must register for VAT if their annual taxable supplies exceed AED 375,000. Those with supplies above AED 187,500 can register voluntarily.

Companies dealing only in exempt supplies, such as life insurance, are not required to register. The registration process requires key documents like a trade license, bank details, passport copies, an Emirates ID, and a turnover declaration. You can also register with the help of VAT agents in Dubai for a faster process.

10. Input Tax Recovery Rules

Input tax is the VAT paid on purchases or imports related to business operations. Insurers can recover this tax if their expenses are linked to taxable supplies.

To claim input VAT, the company must:

• Be VAT-registered with the FTA.
• Hold a valid tax invoice with supplier details and VAT number.
• Claim within six months of the invoice date.

When an insurer offers both taxable and exempt products (for example, life and general insurance), they must apply partial exemption rules.

How can JCA (Jitendra Chartered Accountants) help?

JCA’s expert VAT agents in the UAE help you;

• Understand your VAT obligations.
• Register and file accurate returns.
• Audit your financial statements.
• Deal with tax disputes.
• Provide tax advice.