Fronting and facultative fees earned by insurance firms to cater for administrative costs in respect of reinsurance services are exempted from Value Added Tax (VAT), the Tax Appeals Tribunal has ruled.
Fronting and facultative commissions are fees where a primary insurer issues a policy, then passes on the risk to a reinsurer.
The Tribunal ruled that services rendered in the provision of reinsurance are incidental to reinsurance services and are, therefore, VAT exempt, reported Daily Monitor.
The Tribunal’s decision was made on an application filed by Britam Insurance Company, challenging assessments issued by Uganda Revenue Authority for the period 2014-2016, in respect of VAT on fronting and facultative fees worth UGX250m ($66,000), received from other insurers.
URA had contended that Britam was acting as a broker and therefore should have charged VAT on the reinsurance contracts.