An Essential Guide to VAT on Insurance Sector in the UAE
Under the UAE VAT regime, the insurance and related services are subject to the standard VAT rate of 5%. Also, the VAT incurred on costs that can be wholly attributed to the standard-rated supply can be recovered in full. Yet, there are exempted supplies and zero-rated supplies within the insurance services that the businesses need to be aware of. For example, life insurance and life reinsurance are treated as exempt supplies under VAT in UAE.
However, the VAT treatment varies for the supply of life insurance and reinsurance to a recipient established outside the GCC states. Also, the businesses in the insurance sector are required to know about the VAT treatment of other insurance services like Islamic insurance, real estate insurance, bundled products etc. The services of registered tax agents in Dubai help the taxable entities navigate the intricacies of VAT in the insurance sector. We have highlighted below the VAT treatment on some of the most important services related to the insurance sector.
1. Life Insurance
Life insurance and life reinsurance services are considered exempt under the VAT in the UAE if the recipient of the supply is a resident in the UAE. In case the recipient is outside the UAE or outside the GCC then it is considered as zero-rated. This VAT treatment applies to Life insurance products such as Individual policy, Group insurance, Investment-linked policy, Life annuity and Term insurance.
2. Travel Insurance
Travel insurance provided to UAE residents is subject to the standard rate of 5%. If the recipient is outside the UAE or outside the GCC implementing states, then it will be zero-rated. Consult with the best VAT consultants in Dubai, UAE for further insights on the VAT treatment of travel insurance and related services.
3. General insurance
General insurance is subject to the standard rate of 5% if the recipient is a resident in the UAE. If the recipient is outside the UAE or outside the GCC implementing states, then it will be zero-rated. This VAT treatment is applicable for General Insurance products such as Motor insurance, Real Estate Insurance, Fire and theft insurance and Contents insurance etc. Insurance companies can consult with the best VAT consultancy services in Dubai for expert assistance.
The FTA in its VAT user Guide says the reinsurance on a reinsurer established outside the UAE will be treated as an imported insurance service. The premium on such a service payable by the insurance company is subject to VAT under the reverse charge mechanism. However, this does not apply to VAT on Life Reinsurance, which is exempt under the UAE VAT. Talk to registered tax agents in Dubai for assistance on insurance-related VAT services.
5. Islamic Insurance
The FTA mandates to exercise equality in the VAT treatment between Islamic and non-Islamic products. The insurance providers need to take into account the purpose, structure and pricing of the Islamic product to determine the exact VAT treatment. The VAT treatment on Islamic insurance products should be done on a product by product basis. Consider hiring the best VAT consultants in Dubai for expert advice on the VAT treatment of each product.
6. Employee Health Insurance
The employers can recover the VAT incurred on the health insurance they provide to their employees since it is a legal obligation in the UAE. In some cases, the employer may be providing health insurance to the family member of the employee. In such cases, the input tax can be recovered only if the employer is legally required to provide health insurance to the family members of the employee. The laws regarding such requirements may not be the same in all the emirates and the VAT treatment of the health insurance provided to the employee’s family members will be dependent upon the emirate-level laws on insurance. VAT consultants in Dubai assist the taxable businesses in resolving the VAT related issues regarding employee health insurance.
7. VAT for Insurance Intermediaries
In cases where the insurance intermediary (agent/broker) is the disclosed agent for an insurance transaction, the collection of premium from the insured and remission of the premium to the insurer are not considered supplies for VAT purpose. The commission charged by the broker to the insurer or insured is subject to VAT at the standard rate or zero-rate or out of scope depending on the place of supply rules. VAT consultants in Dubai advise the insurance agents to have clarity on what service they provide and to whom they are providing.
Consult with the Best VAT Consultants in Dubai
The introduction of VAT in 2018 was one of the biggest regulatory reforms that changed the business landscape of the UAE irrespective of the industries. The VAT has had a significant impact on various sectors including real estate, education, healthcare etc. Among the financial services, the VAT treatment of the insurance services has been subject to much debate due to the presence of various kinds of products and services in the sector. The FTA had issued various guidance from time to time to clear the air on the VAT treatment of the insurance sector.
Yet, the insurance service providers need to exercise prudence while applying VAT on their services to ensure compliance. The taxable businesses are not alone in their pursuit to ensure VAT compliance in the UAE as the best VAT consultants in Dubai such as Jitendra Chartered Accountants (JCA) are just a call away. JCA has an expert team of registered tax agents in Dubai who are well-versed in UAE VAT Law. JCA provides the best VAT consultancy services in Dubai which includes VAT registration, deregistration, VAT Return filing, and assistance in related services such as VAT reconsideration and Clarification. Businesses avail the services of JCA to be on the right side of the UAE Law by ensuring they are VAT compliant.