VAT implications for the medical sector in UAE
VAT implications for the Healthcare sector in UAE
Healthcare services are important for any country and make up a big part of the national budget. Similar is the case with UAE. The National Agenda 2021 of UAE aims to make the country a top-notch destination for health care.
For this, the government is making efforts in terms of infrastructure development and improvement in quality medical services. It is also introducing initiatives to reduce lifestyle-related diseases and develop its ecosystem to fight epidemics. It is also motivating the citizens to adopt healthy living standards to improve the quality of life.
VAT is also a part of such a plan. If there are high VAT charges on medical services, the demand for such services may go down. So, most of the supplies of healthcare services in the UAE are subject to VAT at 0%. There are some supplies, which are subject to the standard rate of VAT if certain stipulated conditions are not met.
Let’s look at different types of medical services to understand the VAT treatment in each:
Zero-rated supplies
VAT at 0% is applicable on the following supplies:
- Preventive and basic healthcare services and their related goods and services, where the services are essential for treating the recipient of the supply
- Any pharmaceutical products, medical equipment, and any other goods that are essential to be supplied to a recipient during the provision of zero-rated healthcare services
Provided following conditions are satisfied:
- The supply must be made by a healthcare body or institution, pharmacy, doctor, nurse, dentist, or technician licensed by the Ministry of Health and Prevention (MOHAP) or by any other competent authority
- The supply must relate to the well-being of a human being
Such zero-rated supplies do not include the following:
- Cosmetic treatments that are not prescribed by any doctor or medical professionals but are elected by the recipient to treat a medical condition or prevent it.
- Any part of a supply that relates to staying in or attending an establishment, whose main purpose is to provide holiday accommodation or entertainment such that any healthcare service is incidental to the main provision.
- If the patient and the person receiving the services are different
In such cases, the VAT rate is 5%.
Healthcare service providers
VAT on primary healthcare services, diagnostic services, and related services is 0%. These can be provided by either private players or government-owned hospitals or clinics. But the supply of these healthcare services must meet the following conditions:
- A healthcare body, doctor, nurse, healthcare institution, pharmacy, dentist, and technician registered with MOHAP or with any other relevant authority must provide these services
- The supply must not relate to the provisions of entertainment or holiday accommodation
- The supply must be necessary for the well-being or treatment of a person and must not be an elective cosmetic treatment
VAT paid on expenses for procuring these healthcare services is recoverable fully.
There are situations where a hospital signs a contract with a doctor or a diagnostic clinic to visit and conduct treatment of the patient. The patient benefits from it.
A contract between hospital and doctor
In the case of a contract between a hospital and a doctor, the doctor is sent by another hospital. So, the supply of services is to the hospital, whose patient is in need of doctor’s services. So, the hospital sending the doctor will charge VAT at 5% to the hospital treating the patient. This is because here, the supply is of manpower.
A contract between hospital and diagnostic clinic
In the case of provision of diagnostic services such as blood tests, X-rays, or any other, the recipient of the supply is the hospital. So, the VAT rate is 5%.
Provision of ancillary services by hospitals and clinics
There are some ancillary services that hospitals and clinics provide at a minimal charge. These are not related to the core healthcare but are additional services. These are standard-rated in UAE. These services include:
- Fees for the provision of health reports on CDs
- Fees for parking facility if it is operated by the hospital or clinic
- Fees for registration if it is different from the healthcare services provided
- Fees for the provision of additional beds and food for relatives of the patient
- Supply of seminars, training, writing medical journals, etc
Specific cases of VAT treatment
- The supply of vacant space of hospitals for commercial use such as pharmacies, ATMs, cafeterias, parking lots, shops, etc is subject to the standard rate of VAT at 5%.
- Cosmetic treatment for the prevention of a medical condition or its treatment is zero-rated.
- Cosmetic treatment offered by Medical spas is treated to VAT of 5%.
- If a patient from another country comes to UAE for some specific medical services and approaches the service provider directly, the supply of healthcare services is considered the same as normal supply and VAT-rated accordingly.
- Vaccinations are zero-rated because they are included in preventive healthcare services
Suppliers of medicines, medical equipment, and accessories
Medical equipment and medications are subject to VAT at 0% if the following conditions are satisfied:
- The equipment and medication must be registered with the Ministry of Health and Prevention (MOHAP) and imported only after obtaining MOHAP’s permission
- These equipment, medicines, and medications must meet the criteria stated in their acceptable definition
The supplier must ensure to check what rate is applicable at what product and whether the supply meets the relevant conditions or not. These conditions and definitions are as per the Cabinet Decision. Whenever the suppliers are confused with the classification, they can approach the FTA for assistance.
If the goods are zero-rated, then you are not required to pay VAT on their imports. But, you must disclose them in your VAT returns under the reverse charge mechanism. If the standard rate of VAT applies on imports of goods, then reverse charge provisions also apply.
The supply of free samples on which the supplier does not receive consideration is called a deemed supply. If these goods given as free samples are zero-rated, then VAT will be 0% on such free samples. But the supplier must issue a tax invoice and disclose the same in VAT returns.
The free samples are considered deemed supply only if:
- The value of such samples is more than AED500.0 for each recipient in a year
- The total VAT payable by the supplier on such deemed supplies is more than AED2,000.0 for each recipient in a year
Purchase of land or lease for healthcare service providers
If you are purchasing a commercial property or renting it, the standard rate of VAT at 5% is applicable. But, if you pay VAT on procurement of the property, then you can recover that amount. The main considerations are:
- Procuring a piece of bare land for building a healthcare facility is exempt from VAT
- Lease of bare land is exempt from VAT until any construction work starts on it or reaches below surface level
- Once the construction on the bare land reaches above the ground level, its lessor can impose VAT at 5% on the lease rentals
Health insurance
Most of the transactions of healthcare services providers are with the insurance companies. This is because residency visa holders are mandated to have health insurance. Also, companies provide health insurance to their employees and dependents.
The patient receives the supply of healthcare services from the hospital, while the insurer pays for the services. In this case, the VAT rate applicable on healthcare services remains the same as in normal cases. The hospital sends an invoice to the patient and a copy of the invoice to the insurer. The insurance company cannot recover VAT on expenses incurred in facilitating this.
If the value of services exceeds the insured amount, the patient is responsible to make the payment of extra costs. If this extra cost includes an element of healthcare services, which are standard-rated, then the patient is responsible to make the VAT payment.
Conclusion About VAT Implications For the Medical Sector
Healthcare providers, clinics, hospitals, and doctors must be aware of these VAT-specific points to ensure accurate VAT implications. Ensure to evaluate each transaction to determine the applicable VAT rate and accurate filing of VAT returns.
Our VAT experts at UAE VAT Consultancy can help you with anything related to VAT. They have expertise in managing VAT compliance for several clients in the UAE in different industries. Our tax agents can provide you better clarity on specific circumstances where identifying VAT rate and treatment is confusing.
UAE VAT Consultancy is a prominent VAT consultancy services provider in UAE. Our tax professionals are well-versed with all the directives, laws, and regulations of UAE VAT. We assist you with every aspect of VAT to avoid getting fined by FTA.
