According to Tax Experts, the United Arab Emirates’ (UAE) judgment to impose value-added-tax (VAT) on non-life insurance is expected to push up the cost of property premiums, health, and motor.
Motor Insurance And Health Insurance Costs
The UAE is the largest insurance market in the Gulf Cooperation Council (GCC) region, where motor and health policies value for 70 percent of the market. The Gulf Arab state’s insurance sector got into trouble by the fall in oil prices, and UAE companies have been dealing with the increase in the cost of motor insurance and health insurance.
Back in 2014, the UAE government made it compulsory for all the residents to get health insurance. It also made an immediate hike of 100 percent on the car insurance from 2017 beginning.
When the VAT in UAE has to provide is applicable only for the general insurance.where the life insurance premiums are currently exempt from tax. But the VAT on commissions paid to insurance brokers will become unrecoverable.
The UAE’s Ministry of Finance has confirmed that VAT workshops that normal insurance premiums will be taxable at 5%, while life insurance premiums are currently planned to be exempt.
- General insurance products rated is 5%, while life insurance (including the reinsurance of a life insurance contract) is exempted from the VAT.
- Input tax credits have to need to be allocated if insurance contracts include any element of investment (such as investment-type riders)
- Insurers may decide to increase costs charged to customers – but they will need to be wary of regulatory constraints and any impact on their advantage.
Also, Gurdeep Randhay, head of tax at consultancy firm Grant Thornton, says, “Everything other than life insurance will come under VAT.”
“Health, vehicle, (and) property insurance… the cost of purchasing these products will increase by five percent,” he added.
Randhay said so and so soon after attending the UAE Ministry of Finance’s first VAT awareness workshop which was held last month. The events are meant to educate tax companies ad businesses ahead of the implementation of VAT, which is likely to go effectively from January 1, 2018.
UAE insurance costs
He also said that life insurance will be treated as an ‘exempt supply’ while non-life supplies will be rated standard and will be liable for VAT rate of 5 percent.
The major difference between the exempt and zero-rated supplies is that the providers of goods and services that are zero-rated can reclaim their input VAT on their own cost, but suppliers of exempt goods can’t reclaim their input VAT.
Younis Al Khouri, under-secretary at the UAE’s finance ministry, said that 5 percent VAT is likely to be implemented together across the six nations of the Gulf Cooperation Council (GCC) starting January 1, 2018. He said that sectors like health and education might be provided special treatment through zero rating.
Randhay said that health insurance does not count under the health sector. “VAT is not a cost to the insurance companies,” Randhay clarified. “It’s a cost to the public, which are the companies and individuals.”
He added that the health insurance provided to the employees by the companies with being offered at marginal cost.
According to the UAE’s Insurance Authority website, In 2016, the UAE insurance sector reported Gross Written Premiums (GWPs) of 40 billion dirhams ($10.89 billion) while GWPs stood at 37 billion dirhams in the UAE in 2015 and 33.4 billion dirhams in 2014.