VAT ON INSURANCE

VAT ON INSURANCE

INTRODUCTION :

  • ♦ It is a contract which provides that the insured will become entitled to something on the occurrence of some event;
  • ♦ The event must be one which involves some element of uncertainty;
  • ♦ The insured must have an insurable interest in the subject matter of the contract

 

REINSURANCE :

Reinsurance is the practice of an insurance company obtaining insurance in order to protect itself from risks

 

TYPES OF INSURANCE DEFINED BY THE LAW :

1.Life insurance and associated reinsurance

A contract lawfully entered into to the extent that it places a sum or sums at risk upon the contingency of the termination or continuance of human life, marriage, similar relationships permitted under applicable law, or the birth of a child

 

2.Insurance relating to the international transportation of passengers or goods

This is a contract of insurance which is provided in connection with the international transportation of goods or passengers, including a transfer which begins or ends in the UAE or which passes through the UAE

 

International transportation is further defined as:

  • ♦ Transportation of goods or passengers that begins in the U.A.E and ends outside the U.A.E or
  • ♦ Transportation of goods or passengers that begins outside the U.A.E and ends in the U.A.E or
  • ♦ Transportation of passengers from a place in the U.A.E to another place in the U.A.E by sea or air or land as part of an international transport of those passengers if either the first place of departure, or the final place of destination, is outside the U.A.E
  • ♦ Transportation of goods from a place in the U.A.E to another place in the U.A.E if the services are supplied as part, or for the purpose, of an international transportation of goods either from a place in the U.A.E to a place outside the U.A.E, or from a place outside the U.A.E to a place in the U.A.E

 

MULTIPLE SUPPLIES :

A business may make multiple supplies where it charges a single inclusive price for a number of separate supplies of goods or services

1.If supplies and the individual supplies are liable to VAT at the same rate

 

Calculate the tax that is due in the normal way

 

2. If supplies and the individual supplies are not liable to VAT at the same rate

 

Work out the tax value of each supply in order to calculate how much tax is due

 

For example, an insurer provides car insurance and life insurance. It charges two separate premiums. The car insurance would be subject to VAT and the life insurance would be exempt. This is because the two prices are separately identified and the products are not interrelated.

 

SINGLE COMPOSITE SUPPLIES :

A single composite supply will only exist where:

  • ♦ The price of the different components of the supply is not separately identified or charged by the supplier; and
  • ♦ All the components of the supply are supplied by a single supplier.

For example, an insurer may offer life insurance which includes an element of health insurance to make the product more attractive. The prices are not separately identified. The premium would be exempt because the principal component is the life insurance, not the health insurance

 

VAT APPLICABILITY :

Supplies of insurance and insurance related services are subject to VAT at the standard rate

1. Exported services

A )The supply of insurance and related services to a recipient established outside the GCC Implementing States will be zero-rated

B)Supplies of insurance and related services to a recipient established outside the U.A.E but within the GCC Implementing States have the following VAT treatments:

  • ♦ Where the recipient is registered or registerable for VAT in the GCC Implementing State in which the insurance or insurance related service is received, the supply is outside the scope of U.A.E VAT and the recipient is liable to account for the reverse charge in the other GCC member state at the prevailing rate of VAT applicable to that service in that state. Input tax which is directly attributable in respect of such supplies is still recoverable, even if the supply would have been an exempt supply if made in the U.A.E.

♦ Where the recipient is not registered nor registerable for VAT in the GCC Implementing State in which the insurance or insurance related service is received, the place of that supply will be the U.A.E. In such instances, the supply will be liable to U.A.E VAT as normal and will have the related level of VAT recovery

 

2. Imported Services

The imported services will be subject to the reverse charge mechanism as if the importer had supplied these services to itself. The importing insurance institution must therefore account for the VAT incurred on the imported services

 

3. Exempted Services

Exemption will apply to premiums payable in respect of life insurance and reinsurance of life insurance. VAT incurred on costs wholly attributable to such exempt supplies cannot be recovered at all

 

4. Health Insurance

  • ♦ Liable to VAT at the standard rate
  • ♦ Where an employer provides health insurance to the family of the employee, input tax will only be recoverable if there is a legal obligation to provide the insurance to the family members.

 

5. Real estate insurance

  • ♦ If the insurance is exported, i.e. where the recipient of the Real Estate insurance is not located in the U.A.E or other GCC Implementing States, it will be zero-rated
  • ♦ For this to apply, the insurance must be part of a single composite supply; must not be the principal component of that supply, and
  1. The price of the different components of the service charge should not be separately identified or charged by the supplier; and
  2. The insurance must be provided by the same supplier as the other components, such as maintenance, repairs, cleaning etc.

 

6. Agents

  • ♦ The insurer supplies the insurance to the insured and charges the premium to the insured. This supply will be liable to VAT at the standard rate
  • ♦ The intermediary collects the premium (which may be paid in installments) from the insured on the insurer’s behalf. This is not a supply for VAT purposes.
  • ♦ If the intermediary does charge a fee to the insurer or insured for the services provided. This is a supply and is either liable to VAT at the standard or zero rate, or is out of scope, depending on the application of the place of supply rules.
  • ♦ If the intermediary remits the premium to the insurer, then this is not a supply for VAT purposes

 

VAT TREATMENT OF INSURANCE CHARGES

Types of insurance Liability of charges
1.General insurance

 

Motor insurance

Real estate insurance

Fire and theft

Contents insurance

Premium – standard-rated if the recipient is resident in the U.A.E; zero-rated if the recipient is resident outside the GCC Implementing States, is located outside the U.A.E and the performance of the insurance services is not received by anyone in the U.A.E who would not be able to recover VAT incurred.
2.Life insurance

Individual

 

 

Exempt if recipient is resident in U.A.E

Group

Investment-linked policy

Life annuity

Term

Zero-rated if the recipient is resident outside the GCC Implementing States, is located outside the U.A.E and the performance of the insurance services is not received by anyone in the U.A.E who would not be able to recover VAT incurred
3.International Transport

Aviation/Marine Cargo

Transportation of Passengers

 

 

Premium – zero-rated if in respect of international transportation services only, but not for travel insurance

4.Travel .Standard-rated if the recipient is resident in the U.A.E;

· Zero-rated if the recipient is resident outside the GCC Implementing states, is located outside the U.A.E and the performance of the insurance services is not received by anyone in the U.A.E who would not be able to recover VAT incurred

5.Other

Public indemnity

Medical

Accident

Public liability

 

 

· Standard-rated if the recipient is resident in the U.A.E;

· Zero-rated if the recipient is resident outside the GCC Implementing states, is located outside the U.A.E and the performance of the insurance services is not received by anyone in the U.A.E who would not be able to recover VAT incurred

Reinsurance Same general principles apply as above

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