FTA publishes Guide on VAT treatments of Insurance
On 2 October 2018, the Federal Tax Authority (FTA) of the United Arab Emirates (UAE) published a new Value Added Tax (VAT) Guide on Insurance (VATGIN1, and henceforth the “Insurance Guide”) dated September 2018 to provide guidance on VAT matters of insurance industry.
- In the Insurance Guide, the FTA covers the following discussions:
- The definition and characteristic of “insurance services”
- Single composite supply versus multiple supplies
- General VAT treatment of a non-exhaustive list of insurance products.
- Other VAT discussions that are relevant to the insurance business (such as insurance agent)
- Input tax apportionment method (“partial exemption calculation”)
Despite the Insurance Guide having no force of law, it represents the interpretation of the FTA of the VAT legislation.
The salient points from the Insurance Guide include:
- Takaful/Retakaful providers are required to consider the four (4) step approach of the FTA in achieving the canon of “Equality” of VAT treatment between Islamic and non-Islamic arrangements.
- Employers are normally not entitled to recover input tax incurred in purchasing health insurance for family members of employees, unless the employer has a legal obligation to do so under the applicable labour law in the UAE or Designated Zone. Alternatively the employer would need to be able to show that it is both a contractual obligation in its employment contract and it is required in order that the employee may perform the role for which they are employed.
- The place of supply of real estate insurance will be determined by the place of establishment of the insurance provider or insurance customer (in the case of imported insurance services), but not the actual location of the real estate. This potentially has important implications for any decision on when services would be considered to be “related to real estate”.
- The result of the input tax apportionment calculation must be “fair and reasonable”. Where this is not the case, insurance providers need to consider an alternative method, subject to FTA’s approval.