Since January 1, 2018, the UAE has implemented Value Added Tax (VAT) at a standard rate of 5%. This tax applies to most goods and services across the country, including the insurance sector. Whether you’re dealing with health insurance, motor insurance, life insurance, or general insurance, it’s essential to understand how VAT affects each of them.
The way UAE VAT applies to insurance can be tricky because some types of insurance are taxable, while others are exempt. Knowing the difference can save you from unnecessary costs and help you stay compliant with the law. Therefore, we’ll break down everything you need to know about UAE VAT on insurance.
VAT Applicability on Different Types of Insurances in the UAE
The Value Added Tax (VAT) system in the UAE mandates that most insurance services are subject to VAT at a standard rate of 5%. However, there are some exceptions, particularly concerning life insurance and certain health insurance policies.
1. Life Insurance and Associated Reinsurance
VAT Treatment: Exempt from VAT.
Life insurance policies, which may cover events such as marriage or childbirth, are exempt from VAT when the recipient is a UAE resident. This exemption also extends to reinsurance services associated with life insurance. However, if the recipient is located outside the GCC implementing states, the services may be zero-rated.
2. General Insurance
VAT Treatment: Subject to the standard VAT rate of 5%.
This category includes various types of insurance:
- Motor Insurance: Coverage for vehicles against accidents, theft, and other risks.
- Property Insurance: Protection for real estate properties against damages or losses.
- Health Insurance: Policies covering medical expenses.
- Travel Insurance: Coverage for unforeseen events during travel.
- Marine Insurance: Covers goods, cargo, and vessels transported via sea.
3. Insurance Related to International Transportation
VAT Treatment: Zero-rated.
Insurance services connected to the international transportation of goods and passengers are zero-rated. This means that while these services are taxable, the VAT rate applied is 0%, allowing providers to reclaim any input VAT incurred.
4. Islamic Insurance (Takaful)
VAT Treatment: Aligned with conventional insurance counterparts.
The UAE’s Federal Tax Authority mandates that Islamic insurance products receive the same VAT treatment as their conventional equivalents. This ensures consistency in tax application across different insurance models.
Takaful, often referred to as Islamic Insurance, is a Sharia-compliant insurance model that operates based on the principles of mutual assistance, cooperation, and shared responsibility. Unlike conventional insurance, which is based on risk transfer and profit-making, Takaful follows a cooperative approach where participants contribute funds into a pool to protect each other against specified risks.
5. Reinsurance
VAT Treatment: Exempt from VAT.
Reinsurance is a financial arrangement where one insurance company (the reinsurer) agrees to cover a portion of the risks assumed by another insurance company (the cedant or primary insurer). This process helps insurers reduce their risk exposure and maintain financial stability, particularly when dealing with high-value or high-risk insurance policies.
The UAE VAT Law categorizes reinsurance services under financial services that are exempt from VAT. This is because reinsurance is considered a form of insurance transaction that involves risk transfer and financial protection between insurers rather than directly involving end consumers.
6. Employee Health Insurance
VAT Treatment: Subject to VAT at 5%.
Employee health insurance is a common benefit provided by employers to ensure their employees have access to medical care. In the UAE, offering health insurance to employees is mandatory in some Emirates, such as Dubai and Abu Dhabi.
VAT Application:
- When companies purchase health insurance policies for their employees, they are required to pay VAT at the standard rate of 5%.
- The VAT charged on health insurance premiums is generally recoverable as input tax if the employer is engaged in taxable business activities.
- However, if the health insurance relates to employees providing exempt supplies, the ability to recover input tax may be restricted.
7. Insurance Intermediaries
VAT Treatment: Exempt from VAT.
Services provided by insurance brokers and agents, acting as intermediaries between insurers and insured parties, are exempt from VAT. This exemption applies when they are involved in the negotiation and conclusion of insurance contracts.
However, commissions or fees charged by insurance intermediaries (agents or brokers) for facilitating general insurance products (e.g., motor, property, health insurance) are subject to VAT at the standard rate of 5%.
Services related to life insurance and associated reinsurance are exempt from VAT. Therefore, commissions earned by intermediaries for facilitating life insurance policies are also exempt.
8. Real Estate Insurance
VAT Treatment: Subject to VAT at 5%.
Real estate insurance refers to insurance policies that provide protection against financial losses related to real estate properties. This includes coverage for damages, theft, natural disasters, and other risks that can impact the value or usability of the property.
Businesses purchasing real estate insurance for commercial properties (e.g., office buildings, warehouses) can typically recover VAT as input tax if the property is used to make taxable supplies.
VAT Registration for Insurance Companies
Insurance companies must register for VAT if:
- Their taxable supplies and imports exceed AED 375,000 per year (Mandatory Registration Threshold).
- They wish to voluntarily register if their taxable supplies and imports exceed AED 187,500 per year but are below the mandatory threshold.
Insurance companies dealing with general insurance (e.g., motor, property, health) and insurance-related services subject to VAT at 5% are required to register. However, companies dealing exclusively with exempt supplies (such as life insurance) are not required to register for VAT.
Documents Required for Registration:
To register for UAE VAT on insurance, insurance companies must provide the following documents:
- Trade license
- Certificate of incorporation/registration
- Passport copies
- Emirates ID copies
- Bank account details including IBAN
- Turnover declaration
- Other supporting d documents (depending on the nature of the insurance business)
Input Tax Recovery for UAE VAT on Insurance
Input tax is the VAT paid by businesses on goods and services purchased or imported for their business activities. Insurance companies can recover input tax paid on their business expenses if they meet the necessary conditions set by the Federal Tax Authority (FTA).
Conditions for Reclaiming Input Tax:
- To be eligible for input tax recovery, insurance companies must meet the following conditions:
- The expenses must be related to making taxable supplies (standard-rated supplies at 5%).
- For general insurance products (e.g., motor insurance, health insurance), the VAT on related expenses is recoverable.
- The company must obtain a valid tax invoice issued by a VAT-registered supplier.
- The invoice must include essential details such as supplier details, VAT registration number, total amount, and VAT charged.
- Input tax must be claimed within six months from the date of the tax invoice or the date of import.
- The insurer must be registered for VAT with the FTA.
Insurance companies often provide both taxable and exempt supplies. For instance, life insurance is exempt from VAT, whereas general insurance is taxable. When both types of supplies are offered, insurers must apply the partial exemption rule to recover input tax.
How Shuraa Tax Can Assist
Understanding UAE VAT on insurance is essential for staying on the right side of the law. From general and health insurance to Islamic insurance and insurance intermediaries, ensuring proper VAT registration, input tax recovery, and compliance is crucial to avoid hefty penalties.
Handling VAT can feel complicated, but Shuraa Tax is here to make it simple for you. Our expert team can help you with everything, from VAT registration and compliance to advice on input tax recovery.
If you need help making sure your insurance business is fully VAT-compliant, reach out to Shuraa Tax today. We’ll handle the VAT part, so you can focus on serving your clients better.
Contact us today for personalised assistance:
📞 Call: +(971) 44081900
💌 WhatsApp: +(971) 508912062
📧 Email: info@shuraatax.com
Frequently Asked Questions
1. Is there VAT on medical insurance in the UAE?
Yes, medical insurance (general health insurance) is subject to 5% VAT. However, life insurance is exempt from VAT.
2. Can the company reimburse the VAT from employee health insurance?
Yes, companies can claim VAT on employee health insurance if it’s part of a contractual obligation or a legal requirement, such as providing insurance for employees under the UAE labour law.
3. How do you treat insurance claims under VAT?
Insurance claims are generally outside the scope of VAT. However, the administrative charges or fees associated with processing claims may be subject to VAT.
4. Is VAT applicable to reinsurance services in the UAE?
Yes, reinsurance services are treated like general insurance services and are subject to 5% VAT.
5. Do insurance brokers have to charge VAT on their services in UAE?
Yes, insurance brokers charge 5% VAT on their commission or service fees if the place of supply is within the UAE.
