VAT Impact Insurance Sector in UAE

VAT Impact Insurance Sector in UAE

Introduction of VAT in the UAE

VAT was introduced on 1st January, 2018, which was considered as one of the challenges that the insurers had to face. It was expected that VAT would’ve had minimal effects on how the insurance was bought and delivered.

Provisions Relating to Insurance as Per Cabinet Resolution No. 52 of 2017

Article (33) deals with, Zero-rating international transportation services for Passengers and Goods and clause (2) states that, Service of insuring, or the arranging of the insurance, or the arranging of the transport of passengers or Goods would be zero rated in case the services are supplied in respect of the transportation services of passengers or Goods to which either Clause (1) of this Article applies or which are treated as taking place outside the State.

Article (42) , Deals with Tax Treatment of Financial Services and states that the provision or transfer of ownership of a life insurance contract or the provision of re-insurance in respect of any such contract would be exempted.

Hurdles Being Faced by Insurers after Implementation of VAT

 Some of the hurdles and the complexities that are being faced by the insurers are as follows:  

1. Recovery of input tax

In UAW, life insurance has been exempted from VAT which means that no VAT can be charged on the provision of life insurance coverage. Thus, VAT that has been incurred on the expenses ie input tax cannot be claimed in relation of making these supplies. For example: VAT on commissions paid to intermediaries will not be recoverable. This VAT will be a cost that must absorbed by the business. However in the case of supply of non-life insurance (such as health, marine cargo and workmen’s compensation) , input tax that has been incurred in making these supplies would be recoverable.

2. Bundled insurance products

There is a separate treatment from the basic life insurance coverage for the provision of any add-on insurance products (‘riders’) which however means that in case a policyholder takes a life insurance policy and tops this with a health, the waiver of premium or critical illness rider under one contract for example, no VAT would apply on the basic life policy but VAT would apply on the riders.

3. Cost of outsourcing has increased for insurers under VAT

The outsourced services such as shared accounting or IT services in other VAT jurisdiction have been subjected to VAT at the standard rate. The restricted claim of input tax has increased the cost of doing business.

Zero rating of premiums

The Foreign VAT jurisdictions have granted zero rating to certain insurance services. Zero rating thus means that VAT would apply at 0%. Zero rated supplies would thus be considered as a taxable supply, which means that any input tax which has been directly incurred in the provision of such supplies would be recoverable. Thus, In other jurisdictions also, the zero rating applies when one is :

  • Insuring property or assets outside the country;
  • Insuring a person who is not a resident in the country; or
  • The risk being insured is wholly outside the country

Impact on Business

Taxes in the insurance sectors are increasing the complexities since :

●       Additional resources including time and budget are being required to not only administer the VAT process but also to determine the payout under a policy between the registered claimants and one that is not .

●       Staff training  is required in order to make them compliant with the new regulations and necessary documentation.

●       Even if the services provided are VAT exempt, specific invoicing is required.

●       The insurance related companies, such as agents, brokers and claims handlers, will also need to understand how VAT could affect both margins and pricing

●       The insurers are required to assess whether the additional cost can be passed to the customers or whether all of some of this is to be absorbed due to market pressure where insurance is being taxed at 5%.  


While the regulations have introduced increases of 40% in automotive insurance premium in order to curb price wars, it is expected that after VAT implementation, the insurance market in UAE would grow significantly over the coming year. 

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