Under the UAE VAT framework, insurance and associated services are subject to the regular 5% VAT rate. Furthermore, the VAT paid on expenditures that can be entirely ascribed to the standard-rated supply can be fully reclaimed. However, there are exempted and zero-rated supply in the insurance services that enterprises must be aware of. In the UAE, life insurance and life reinsurance are recognized as exempt supplies under VAT.
However, the VAT treatment differs for the delivery of life insurance and reinsurance to a recipient located outside of the GCC nations. In addition, insurance companies must understand how VAT is applied to various types of insurance services such as Islamic insurance, real estate insurance, bundled products, and so on. Registered tax agents in Dubai help taxable firms handle the complexities of VAT in the insurance industry. Below, we have highlighted the VAT treatment of some of the most essential insurance-related services.
1. Life Insurance.
Life insurance and life reinsurance services are free from VAT in the UAE if the recipient of the provision is a UAE resident. If the beneficiary is located outside of the UAE or the GCC, the transaction is regarded zero-rated. This VAT approach applies to life insurance products such as individual and group policies, investment-linked policies, life annuities, and term insurance.
2. Travel insurance.
Travel insurance given to UAE citizens is charged at the regular cost of 5%. If the receiver is not in the UAE or one of the GCC’s implementing nations, it will be zero-rated. Consult the top VAT advisors in Dubai, UAE, for further information on the VAT treatment of travel insurance and associated services.
3. Reinsurance
According to the FTA’s VAT user Guide, reinsurance on a reinsurer established outside the UAE would be considered an imported insurance service. The premium for such a service paid by the insurance company is liable to VAT under the reverse charge method. However, this does not apply to VAT on Life Reinsurance, which is free from UAE VAT.
4. General Insurance.
If the beneficiary is a UAE resident, general insurance will be charged at the regular rate of 5%. If the receiver is not in the UAE or one of the GCC’s implementing nations, it will be zero-rated. This VAT treatment applies to general insurance goods such as motor insurance, real estate insurance, fire and theft insurance, and contents insurance.
5. Islamic Insurance
The FTA requires equivalent VAT treatment for Islamic and non-Islamic items. To establish the correct VAT treatment, insurance companies must consider the Islamic product’s purpose, structure, and cost. VAT treatment for Islamic insurance products should be determined on a product-by-product basis.
6. Employee Healthcare Insurance
Employers can recoup the VAT paid on the health insurance they give to their workers because it is a legal requirement in the UAE. In rare situations, the company may provide health insurance for the employee’s family members. In such circumstances, the input tax can only be recovered if the employer is legally compelled to offer health insurance for the employee’s family members. The regulations governing such requirements may differ among emirates, and the VAT treatment of health insurance given to the employee’s family members will be determined by the insurance legislation at the emirate level.
7. VAT for insurance intermediaries
In circumstances when the insurance intermediary (agent/broker) is the declared agent for an insurance transaction, the collection of premiums from the insured and remission of premiums to the insurer are not considered supplies under VAT. The commission charged by the broker to the insurer or insured is liable to VAT at the usual rate, zero-rate, or out of scope, depending on the place of supply regulations. VAT consultants in Dubai encourage insurance agents to be clear about what services they supply and to whom.
Consult the best VAT consultants in Dubai.
The implementation of VAT in 2018 was one of the most significant regulatory measures to reshape the UAE’s economic landscape, regardless of industry. The VAT has had a considerable influence on several industries, including real estate, education, and healthcare. The VAT treatment of insurance services has been a source of contention in the financial services sector due to the availability of a wide range of goods and services. The FTA had released numerous guidelines from time to time to clarify the VAT treatment of the insurance sector.
However, insurance service providers must use caution when applying VAT to their services to guarantee compliance. Taxable firms are not alone in their efforts to guarantee VAT compliance in the UAE, as the top VAT experts in Dubai, are only a phone call away. They have a skilled team of licensed tax agents in Dubai who are well-versed in UAE VAT law.