UAE: Insurers continue bid to resolve VAT issue
Source: Middle East Insurance Review | Apr 2019
The Emirates Insurance Association (EIA) has filed a memorandum with the Federal Tax Authority’s appeals committee to clarify the legal interpretation of the mechanism for the application and payment of VAT paid on insurance policies sold in 2017 but whose term lasts into 2018.
Since last year, the association had been seeking a meeting at senior levels between representatives of the insurance sector and officials in the various agencies concerned with the subject of taxes, said Mr Khaled Bin Mohd Al Badi, EIA chairman, in an interview with the newspaper Al Ittihad.
The imposition of VAT started in the UAE on 1 January 2018. All insurance policies are subject to VAT, except for life insurance. This means that general insurance policies sold in 2017 but with a policy period that ran into 2018 were subject to the 5% VAT on the premiums on 2018’s portion of the policy.
However, many insurers have been caught out because they had failed to collect from their clients the VAT on the 2018 portion of insurance policies sold in 2017. S&P Global Ratings had estimated in a report last year that the amount of VAT involved ranged from AED700m ($190.6m) to AED800m.
S&P said it might be possible for insurers to collect some portion of this amount from their corporate customers who could, in turn, claim this VAT on their tax returns as an input tax.
“However, considering the large number of insurance policies (especially motor) sold to individual retail customers, it would be practically impossible for insurers to reach out to hundreds of thousands of retail customers to recover the applicable VAT,” the rating agency said.
Mr Al Badi said the EIA wished to discuss the possibility of recovery of the portion of VAT not paid for by clients. Insurers had paid for this portion of the VAT retroactively last year to avoid fines or penalties of any kind despite their conviction that amounts could not be collected from the insured. M
AED1 = $0.27