Saudi Arabia has published its final VAT implementing regulations, that exempt life insurance from the tax among other provisions. General insurance services will be subject to the standard rate of VAT.
Also to be exempted from VAT are leases of residential real estate and margin-based financial services.
In Saudi Arabia, GWP for the protection and savings segment stood at SAR935 million (US$249.3 million) in 2016, representing just 2.7% of the total gross premiums of SAR35.8 billion for the overall insurance market.
In contrast, the health and motor classes dominate the market, commanding a combined 84% of total gross premiums.
Saudi Arabia’s VAT law is based on the principles agreed in the Unified GCC Agreement for Value-Added Tax. However, the GCC agreement provides for VAT in education, health care, real estate and local transport to be left to the discretion of each member state (ie, whether these sectors are subject to tax at standard rate, zero rate or are exempt).
Saudi Arabia and the UAE are expected to be the first GCC states to impose VAT which is set to be effective from 1 January 2018. The standard VAT rate is 5% of the cost of goods or services sold. The other Gulf countries have till the end of next year to implement the new tax system.
In the light of the flexibility provided by the GCC VAT framework agreement, it is likely that industry sectors may be treated differently for VAT purposes in individual GCC countries. Even where the sector may have the same headline VAT treatment, the definitions may vary from country to country resulting in potentially different VAT outcomes for the same services, said Mr Shiraz Khan who is senior tax advisor at the law firm Al Tamimi & Company.
For instance, the VAT treatment for the education and healthcare sectors in the UAE and Saudi Arabia is different. In Saudi Arabia, education and healthcare services are neither exempt or zero rated (with public education and healthcare providers potentially not subject to VAT), said Mr Khan.
The UAE, however, has announced that certain education and healthcare services will be subject to VAT at the zero rate. M
SAR1 = US$0.27