FTA clarifies VAT on healthcare of employees' families

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The Federal Tax Authority issued a clarification on insurance that states that an employer would only be able to claim the input VAT on the health insurance provided to employees' families if it is the legal obligation of the employer to provide the insurance.

Pratik Shah, partner at Dhruva Advisors, said there is no legal obligation in Dubai on the employer to provide health insurance to the family of an employee, whereas Abu Dhabi mandates employers to provide such extended benefits.

"It would be interesting to see how an employer having head office in Abu Dhabi and having operations and employees situated all over the country will split the recovery of VAT and vice-versa. VAT being a federal-level law should ideally provide a 'level playing field' for all tax registrants. However, this would lead to employers situated in Abu Dhabi at an advantageous position to employers situated in the rest of Emirates," Shah said.

However, an employee who buys a health insurance product for its family would not be able to recover VAT.

Anurag Chaturvedi, managing partner at Chartered House Tax Consultancy, said when an employer provides medical insurance to employee's family, VAT will only be recoverable if there is a legal obligation to provide medical insurance to those family members. Hence, it is non-recoverable except in cases where it is legally mandated or based on a documented policy.

The FTA further clarified that a supply of insurance in respect of a real estate will not be considered as a supply of services related to real estate and such supply shall be determined based on general place of supply rules. It is important to note that if the provision of insurance is included within the service charge for real estate, then it shall be considered as a service related to realty.

Chaturvedi further explained that travel insurance will be subject to 5 per cent VAT if the recipient is resident in the UAE and 0 per cent if the recipient is resident outside GCC states.

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