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GCC Indirect Tax Weekly Digest
October 29, 2019
FTA publishes Public Clarification on business-to-business supplies of healthcare services
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published a new Value Added Tax (VAT) Public Clarification on business-to-business supplies of healthcare services (VATP016).
The Public Clarification addresses the issue of whether healthcare services provided by one healthcare provider to another, or to other corporate entities, are eligible for zero-rating.
Whilst the contents of the Public Clarification will largely impact suppliers of healthcare services and suppliers into the healthcare industry, there may also be implications for businesses which have purchased such services in the past and may therefore expect to incur additional VAT charges relating to historic services procured.
The document states that a supply of healthcare services may only be zero-rated if the recipient of the supply is also the person who receives the treatment i.e. the patient.
This means that in order for the supply to be eligible for zero-rating, the contractual entitlement to the healthcare services supplied must lie with the patient. The Public Clarification states that although the contractual agreements between parties are not always conclusive in determining the direction of a supply, they should in most circumstances be taken as reflective of the commercial and economic reality of the transaction.
If the contractual arrangement is between one healthcare provider and a corporate entity, the supply will not qualify as “healthcare services” as per Article 41(1) of the UAE VAT Executive Regulations, and will therefore be subject to the standard rate of VAT at 5% on the basis that the patient was not the contractual recipient of the supply.
As an example provided by the FTA, a laboratory providing testing services to a hospital (e.g. blood testing) would be required to charge the hospital 5% VAT on the basis that even though the testing services relate to the wellbeing of the hospital’s patient, the contract is between the laboratory and the hospital. On the other hand, if the laboratory contracted directly with a patient to provide them with testing services, the supply may be zero-rated.
VATP016 confirms that the FTA has taken a narrow view in relation to the scope of zero-rating of healthcare services. As such, it is important for businesses making supplies of healthcare services to ensure that they are in compliance with the Public Clarification.
Due to the previous ambiguity on this issue, such businesses should thoroughly review the contractual arrangements governing healthcare services where corporate entities are involved in the supply chain to make sure that the correct VAT treatment has been applied and determine if voluntary disclosures to the FTA are required.
Excise Tax expansion approaching (1 December 2019)
The deadline for businesses to achieve compliance with the expanded Excise Tax regime in the UAE is fast approaching.
Excise Tax will, from 1 December 2019, be expanded to cover sweetened drinks, electronic smoking devices and tools, and the liquids used in them.
There is one month remaining until businesses in the UAE which manufacture, import, or sell these products must be in full compliance with the expanded Excise Tax regime, including the following decisions previously published by the FTA:
- Ministerial Decision No. 236 of 2019 – Implementation of the Cabinet Decision No. 52 of 2019 On Excise Goods, Excise Tax Rates and the Methods of Calculating the Excise Price
- Ministerial Decision No. 237 of 2019 – Implementation of the Cabinet Decision No. 55 of 2019 On Excise Price for Tobacco Products
Additionally, any business holding stock of such products on 1 December 2019 has a requirement to conduct a stock-take of the volume of goods on hand, and have these records audited by an independent third party. The requirement to keep such records applies whether the business has an obligation to register for Excise Tax or not, and the complexity of this process should not be underestimated.
This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.