Value Added Tax’s (VAT) fundamental nature is that it’s not taxation imposed on businesses. Instead, it’s a type of tax that’s collected by business entities operating in the UAE that is rather imposed on end consumers by the local tax authorities.
VAT Treatment of Different Types of Insurance in UAE
Consistent with VAT’s essential nature, taxation of insurance products or related services differ in terms of liability of charges. Issued by the UAE Federal Tax Authority or FTA, the VAT Guide or VATGIN1 has provided clarifications on VAT rates of several different insurance-related products and services.
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General insurance
General insurance includes motor insurance, fire and theft, real estate insurance, and contents insurance. Liability of charges will be as follows:
- Zero rate – if the recipient of the general insurance is a resident outside any GCC implementing state, is located outside of the UAE, and performance of insurance service isn’t received by someone who is in the UAE that won’t be allowed in recovering incurred VAT.
- Standard rate – if the recipient of the general insurance is a UAE resident
Life insurance
This category includes individual insurance, group insurance, life annuity, term, and investment-linked policy. In all cases, the following liability of charges apply:
- Exempt from VAT – if the recipient of life insurance is a UAE resident
- Zero rate – if the recipient of life insurance is a resident that’s outside any GCC implementing state, is located outside of the UAE, and performance of insurance service isn’t received by a legal entity in UAE who wouldn’t be able to process VAT recovery for VAT incurred.
Read also: Why Insurance Companies Should Hire Regulated Tax Agents in UAE?
International transport
This includes insurance for the transportation of passengers and aviation or marine cargo. VAT treatment for such will be zero-rated with respect to international transportation services with the exemption of travel insurance.
International transportation is defined as:
- Transportation of products or passengers which starts from the UAE then ends outside of UAE
- Transportation of products or passengers which starts outside UAE and ends in UAE
- Transportation of passengers that are from a place in UAE onto another place in UAE either by land, air or sea of international transport of passengers if final destination place or 1st place of departure is outside UAE
- Transportation of goods that are from UAE to another place within UAE if services are supplied for the purpose or part of international transportation of products either from UAE to any place outside UAE or from any place outside UAE onto UAE.
Insurance with international transportation includes the act of arranging any form of insurance.
Travel insurance
Travel insurance will be liable for a VAT rate of:
- Standard rate – if the recipient of the travel insurance is a UAE resident
- Zero rate – if the recipient of life insurance is a resident that’s outside any GCC implementing state, is located outside of the UAE, and performance of insurance service isn’t received by a legal entity in UAE who wouldn’t be able to process VAT recovery for VAT incurred.
Other types of insurance
Medical insurance, accident insurance, public liability, and public indemnity insurance will have the following VAT treatment in UAE:
- Standard rate – if the recipient of the travel insurance is a UAE resident
- Zero rate – if the recipient of life insurance is a resident that’s outside any GCC implementing state, is located outside of the UAE, and performance of insurance service isn’t received by a legal entity in UAE who wouldn’t be able to process VAT recovery for VAT incurred.
Take note: Reinsurance will have the same general principles mentioned above.
Read also: Tax-Related Mistakes Of Businesses In UAE
What are considered insurance products and services in UAE?
The products and services that are provided to consumers by persons or businesses which involve any of the following are considered as insurance:
- A contract that provides the insured becoming entitled to something should a specific event occurs;
- The event must be something that involves the element of uncertainty;
- Insured by an insurance contract must have insurable interest with the contract’s subject matter
In practice, the insurer makes an offer to the potential party to be insured, which it either approves of or rejects. Contracting parties must all be in agreement with the intention of an insurance contract. There must also be the intention in entering into a legal relationship under which a party has the obligation in providing insurance. Lastly, there must be a benefit, right, or some payment offered by the party that’s potentially issued to the insurance contract. Premium forms policyholder or insured’s consideration for the promise of insurer to pay in accordance to terms of the insurance policy.
Risks that are covered by insurance contracts can be wide. They include loss of profits, life and endowment, general indemnity, motor vehicles, fire accidents.
For more tailored advice on the applicability of VAT on your business transactions, call us here in VAT Registration UAE to speak with our regulated tax agents in Dubai! Contact us now.
