Value Added Tax (VAT) Frequently Asked Questions
1. What is VAT?
VAT or Value Added Tax is a form of consumption tax that is imposed on a transactional level. The GCC has agreed to apply a uniform standard rate of 5%. This standard rate will apply to almost all domestic transactions. UAE and KSA will implement VAT on 1 January 2018, and the other GCC countries are expected to implement in the following 12 months.
In limited instances VAT can also apply at 0% (zero-rate), or transactions can be exempt from VAT, or out of scope.
How it works is that taxable businesses are generally able to recover the VAT they incur on their purchases and expenses.
However, as individuals, we are the final point of the supply chain and therefore, will bear the cost as we are not able to recover the VAT.
2. Will the VAT Law and rules be the same in all GCC countries?
The GCC countries’ VAT rules must be compliant with the GCC Framework Agreement. However, where the framework does not specify a treatment, it is up to each member state to set their own detailed rules.
For example, the UAE has decided to zero-rate essential medical services, since the framework does not impose a treatment for healthcare services. By way of contrast, in KSA medical services will be standard-rated, unless it is provided by a public hospital in which case it will be out of scope.
3. Do all businesses – customers, brokers, partners, providers and suppliers – have to register for VAT?
Not necessarily. Businesses will only be required to register if the total value of their taxable supplies (supplies subject to VAT at either 0% or 5%) exceeds or is expected to exceed US $100,000 in a 12 month period.
As such, smaller businesses (e.g. sole traders) who do not reach this threshold may not be required to register.
Businesses whose supplies and costs combined exceed $50,000 in any 12 month period may register for VAT voluntarily.
4. How should VAT registered intermediaries, providers and suppliers submit their Tax Registration Number to AXA?
A copy of the VAT registration certificate should be sent to email@example.com.
5. What is AXA’s Tax Registration Number?
AXA Insurance (Gulf) B.S.C. (c) Dubai Branch Tax Registration Number is 100291881900003.
6. Will insurance and reinsurance be subject to VAT?
When provided locally, Life insurance and the reinsurance of Life contracts will be exempt. All other forms of insurance (including reinsurance of non-Life contract) will be subject to VAT at 5%. All other fees will be subject to VAT at 5% (e.g. admin fees).
The policies may change to being zero-rated or out of scope, depending on whether they are being exported or being sold to another GCC member state. This will need to be determined on a “per policy” basis.
7. Will all non-Life insurance products be subject to VAT at 5%?
Not always. There may be instances where the non-Life insurance policy qualifies for zero-rating (e.g. as an export), or where the supply is out of scope (e.g. because it is an intra-GCC supply to a business registered for VAT in another GCC state).
8. Is AXA liable for paying VAT on premiums if the premium and VAT is not collected; e.g. if customer or broker is still within credit period or collection is delayed?
There are special timing rules which need to be applied to determine when the VAT liability crystallises for a supplier. For continuous supplies such as the supply of insurance, the VAT liability arises at the earlier of:
1. Issuance of a tax invoice
2. Payment being due
3. Payment being received.
Thus, if any of the above events have taken place then AXA is required to account for the output VAT in that tax period.
9. Will VAT be due on policies which span across 1 January 2018, where payment has already been received and an invoice issued prior to 1 January 2018?
The concept is, that supplies which are deemed to take place prior to 1 January 2018 are not subject to VAT, while supplies which take place on or after 1 January 2018 will be subject to VAT. In principle, VAT will be due on the pro-rata premium for 1 January 2018 onwards; i.e. the portion that relates to the policy period in 2018.
10. Should quotations show VAT?
The published price must be inclusive of VAT so the following wording must compulsorily be included on all manual quotations: “The premium amount shown is inclusive of Value Added Tax (VAT) as applicable to your Policy”.
VAT will automatically be charged at the applicable rate for all system generated quotes.
11. Will VAT be refunded if a policy is cancelled?
Where there is either an adjustment to the price, or a cancellation of a taxable supply, then there would be a corresponding adjustment to the output VAT accounted for by AXA.
Going forward, AXA will issue Tax Credit Notes with respect to any cancellations of policies. The issuance of a Tax Credit Note triggers a corresponding downwards adjustment in the total output VAT payable by AXA.
For registered customers, the receipt of a Tax Credit Note triggers a downwards adjustment in the total input VAT they are entitled to claim in the tax period they receive the Tax Credit Note.
12. What is self-billing?
Ordinarily, it is the supplier who is required to issue the tax invoice with respect to their supplies.
The VAT rules allow for VAT registered suppliers and VAT registered recipients to agree an arrangement where the recipient issues the tax invoice on behalf of the supplier, effectively to themselves.
AXA intends to offer this self-billing arrangement to its intermediaries.
13. Will VAT be chargeable by intermediaries or providers for services supplied in 2017, but invoiced in 2018?
Yes. The reason for this is that the service being provided by the brokers is a discrete supply, which is completed only when they have collected the premium from the customer and invoiced for their commission.
Thus, if their commission invoice is raised on or after 1 January 2018 then VAT should apply, even if the insurance policy which they have sold commences prior to 1 January 2018.
14. Will AXA charge VAT on sale of salvage?
Yes. This would be a standard-rated supply so AXA will need to issue a tax invoice and account for VAT.
For further information, please visit the official website: https://www.tax.gov.ae