02 April 2017
The United Arab Emirates’ (UAE) decision to impose value-added-tax (VAT) on non-life insurance is expected to drive up the cost of health, motor, and property premiums, a tax expert said.
The UAE is the biggest insurance market in the Gulf Cooperation Council (GCC) region, where motor and health policies account for 70 percent of the market. The Gulf Arab state’s insurance sector was hit hard by the drop in oil prices, and UAE companies have been struggled with the increasing cost of health and motor insurance.
In 2014, the government made it mandatory for all residents to have health insurance. It also increased the fees for mandatory
car insurance by around 100 percent from the start of 2017.
“Everything other than life insurance is going to be subject to VAT,” Gurdeep Randhay, head of tax at consultancy firm Grant Thornton, told Zawya Projects in an interview last week.
“Health, vehicle, (and) property insurance... the cost of purchasing these products will increase by five percent,” he added.
Randhay’s comments came after attending the UAE Ministry of Finance’s first VAT awareness workshop last month. The events are designed to educate tax firms and businesses ahead of the introduction of VAT from January 1, 2018.
He said that life insurance was likely to be treated as an ‘exempt supply’ for VAT purposes, while non-life supplies were likely to be ‘standard rated’, meaning they would be subject to the standard 5 percent tax VAT rate.
The difference between zero-rated and exempt supplies is that providers of zero-rated goods and services can reclaim their input VAT on their own costs and services, but suppliers of exempt goods will be either not registered for VAT or, if they are, will not be able to reclaim their input VAT.
Younis Al Khouri, under-secretary at the UAE’s finance ministry, told Zawya in an interview
in February that a 5 percent VAT is expected to be implemented simultaneously across the six nations of the Gulf Cooperation Council (GCC) starting January 1, 2018. He said that parts of some sectors like health and education might be given special treatment such as adopting a zero rate.
Randhay said that health insurance does not fall under the health sector. “VAT is not a cost to the insurance companies,” Randhay clarified. “It’s a cost to the end-user, which are the companies and individuals.”
While the tax does create an increased cost for companies that provide health insurance to employees, the expense is likely to be marginal, he said.
The UAE insurance sector reported Gross Written Premiums (GWPs) of 40 billion dirhams ($10.89 billion) in 2016, according to the UAE’s Insurance Authority website. GWPs stood at 37 billion dirhams in the UAE in 2015 and 33.4 billion dirhams in 2014.
© Zawya Projects News 2017