VAT Implication in the Healthcare sector in the UAE

by Zaara 03, Mar 2022

VAT Implication in the Healthcare sector in the UAE

The UAE health authorities focus on providing all people with high-quality health care services that lead to their better lives. As a consequence, the UAE has made most healthcare facilities subject to zero-rated VAT. There are also healthcare facilities valued at 5 per cent quality. Healthcare facilities are any services offered that are widely accepted for treatment, including preventive medicine, as appropriate. Suppose patients find themselves paying VAT on healthcare services in the UAE. In that case, it will significantly affect the image of the UAE as a nursing partner in the overall desirable healthcare service destination.

The supply of healthcare services in Dubai shall be zero-rated on the conditions made by:

  • Healthcare body or institution
  • Doctor or nurse
  • Technician, dentist, or pharmacy licensed by the Ministry of Health or by the other competent authority and related to the well-being of a person's being

VAT on Healthcare Services

Other healthcare systems around the world exclude the facilities. But in the UAE, healthcare facilities are not considered to be exempt. The VAT incurred on sales or expenditures will be rendered irrecoverable by excluded providers. The UAE’s decision to tax healthcare facilities, either zero-rated or standard-rated, helps the healthcare industry recover the production costs. Therefore, the healthcare system does not incur any added charges.

Below are services that are segregated into zero-rated and standard-rated:

Zero Rated (0%)

  • Vaccine-inclusive preventive health programmes
  • Human-treatment health facilities - medical and dental services
  • Medicines and medical supplies as alluded to in the decision of the cabinet

Standard Rated (5%)

  • Some health care programmes that are not preventive, such as cosmetics,
  • Medicines and medical devices which are not included in the Cabinet Decision
  • Certain medical materials

Record keeping can also have an impact on the implementation of VAT in the UAE. Holding records and documentation for a minimum of 5 years is considered necessary. Failure to maintain the documents and data needed would lead to penalties. Even if this influences hospital or clinic records, it is deemed time-consuming at the same time. The healthcare industry can also face difficulties in defining and separating standard and zero-rated facilities with a specific case. As most of the facilities are zero-rated, healthcare industries can demand back the VAT input by applying for a VAT refund. It may affect the company's cash flows.

Scenarios

  • VAT on marketing or advertising costs, services, office furniture, and products’ procurement is claimable in proportion to the number of taxable supplies.
  • Experience indicates that hospitals do not recover 100 per cent of all VAT suffered. These extra costs may also affect pricing.
  • Consultation fees for doctors are excluded from VAT.
  • When a healthcare service provider enters into a contract with another healthcare service provider or a laboratory, a regular 5% VAT on the service is charged. It is due to the service being given to the healthcare service provider rather than the patient. As far as VAT is concerned, the service’s beneficiary should be the same as the medication recipient to be eligible for zero-rate VAT.

Some practical instances are:

  • To consult the visiting patients, consider a physician contracting with a hospital. Consultation payments collected from patients by the hospital are subject to zero-rate VAT. Simultaneously, any fees paid to the hospital by the doctor for the treatment rendered are subject to a regular VAT rate of 5 per cent.
  • It will be a direct service given to the patient by the laboratory if a hospital or a clinic refers a patient to a laboratory even if there is no arrangement between the laboratory and clinic. Zero-rated VAT is levied on the service.

 

The UAE is home to several organisations in the healthcare sector and has a well-planned medical system. However, knowing the VAT regime’s intricacies and how it affects the healthcare sector is crucial for different healthcare operators. In general, the Federal Tax Authority (FTA) finds healthcare supplies to be subject to a zero VAT rate. Healthcare facilities are subject to a zero VAT rate if they are designed to treat patients to treat a disease. The FTA considers only preventive healthcare services to be zero-rated, and other services such as cosmetics are subject to the standard rate of VAT. The patient who is eligible for the zero VAT rate should also be the beneficiary of healthcare services.

However, several instances where the standard 5 per cent VAT rate is applicable, including preventive healthcare facilities. This may be a tricky situation for healthcare operators because they will need to understand what circumstances the supplies fall under the standard rate for which advice is recommended for successful VAT consulting services in the UAE.

As many healthcare-related companies manufacture, supply, and manage various services, the healthcare industry’s VAT consequences are very complicated. What is more problematic is that there are taxed, zero-rated and excluded supplies in the healthcare sector. Instead of following the excluded route, the UAE government has embraced the zero-rated VAT treatment of healthcare services.

It ensures that it is possible to recover VAT paid concerning these facilities. Health services provide medical and dental facilities for patients' lodging and meals, medications, and medical supplies. However, several other associated facilities are subject to a 5 per cent VAT, such as elective procedures and plastic surgery.

Impact Of VAT On Health Services In The UAE

VAT on Healthcare Services

In the UAE, instead of making them exempt products, the government has agreed to opt for 0 per cent VAT on some health care services. Multiple related facilities, however, are subject to 5 per cent VAT. For service providers employed in the healthcare sector, this can be difficult.

Medical Exemption From VAT

Only such medical facilities count for exemption from VAT under the FTA rule. These facilities include, according to the Value Added Tax Consolidation Act 2010:

  1. Specialist medical services, as defined by the Ministry of Health, except optical and dental services. Dieticians, psychologists, orthoptists, physical therapists are included.
  2. Other VAT-exempt medical providers include chiropodists, osteopaths, and chiropractors.

The correct classification of healthcare facilities into zero-rated, regular and excluded VAT is vital in deciding whether or not VAT will be paid.

Pharmacist

Services rendered by a pharmacist are subject to VAT in the UAE. However, such medical facilities are, as approved by the Ministry of Health, excluded from VAT. Such facilities include:

  1. Flu Vaccine
  2. Pneumococcal vaccines
  3. Zoster vaccines

 

Both of these vaccines are excluded, i.e., there would be no input credit to the pharmacy owner with this vaccine’s purchase. Some medical products, including syringes, bandages and other medical consumables, are zero-rated. All other products not included in the healthcare sector’s prescribed list are subject to a standard 5 per cent VAT rate in the UAE.

Suppliers of Medical Equipment & Medicine

When items are covered in a Cabinet decision, the supply of medical equipment and pharmaceuticals is regarded as zero-rated. If they are supplied to an individual with zero-rated healthcare facilities, certain items often count as zero-rated.

"For any medical equipment to qualify for zero-rated VAT, according to the Cabinet Decision "Medications and Medical Equipment is Subject to Zero Rate," it should:

  1. It should be registered with MoHP and imported with the authority's permission.
  2. The meanings "Medication" and "Medical Equipment" should conform to the goods.

VAT treatment handled differently with some items and accessories such as 'gloves,' 'mouthwash,' etc. Therefore, if the supplier is uncertain of these goods’ VAT treatment, they should contact a VAT consultancy for the requisite clarification.

Purchase Of Land/ Lease for Infrastructure

One of the highest costs in the healthcare services sector is infrastructure and property. Service providers have two choices: to buy stuff for infrastructure development or to develop on leased land. The lease or acquisition of commercial property is subject to VAT, and the VAT charged on the purchase of healthcare facilities can be recovered.

There are two options if a service provider wants to build its infrastructure:

  1. Purchasing of bare land: According to the FTA Guidelines, VAT is excluded from raw land acquisition.
  2. Bare Land lease: When it comes to leasing land for development, it can be either without the right to build on the ground or the "Musataha Right." Under this right, for 50 years or more, the owner of this right can create a health care facility on another's bare land.

This Agreement is excluded from VAT in the UAE before the building’s surface area level is reached. The Musataha Agreement's taxability is very complicated.

Proper VAT Classification Of Your Transactions For Business

Be careful if your company deals with the healthcare sector, as specific services you offer will be viewed as zero-rated (e.g., ward accommodation for your patients). Some services will, however, be considered as taxable and exempt. For example, housing for non-patients, such as relatives or infants, is subject to a standard VAT of 5%.

Similarly, administration costs are often known to be zero-rated since the provision of a zero-rated health care programme is paid. However, standalone premiums paid for taxable healthcare service providers are also subject to a 5 per cent regular VAT tariff.

The Government has revealed that the impact of VAT on the Medical sector will be as follows:

Impact on the Healthcare Sector

VAT Rate

Preventive health care services or facilities  including vaccinations

 0%

 Healthcare services focus on the treatment of humans, including medical services and dental services

 0%

 Other healthcare services that are not for treatment and are not preventive (e.g. elective, cosmetic, etc.)

 5%

 Medicines and medical equipment as listed in Cabinet Decision

0%

 Drugs and medical equipment not listed in Cabinet Decision

 5%

 Other medical supplies

 5%

 

More than two years since its implementation in the UAE, the Value Added Tax (VAT) has brought a transformative effect on the economy in the UAE. Even if it is too early to determine the impact of VAT on the UAE economy, the VAT regime has made the economy more resilient. However, the need to ensure VAT enforcement has made business processes more streamlined and transparent across different industries. And the UAE's healthcare sector is no exception to that. Nevertheless, every UAE company still violates VAT enforcement’s fundamental principles and gets fined by the FTA. In such conditions, a successful VAT consultant such as Commitbiz is an inevitable aid to companies.

You need to consult a specialist VAT company like Commitbiz to ensure proper VAT care for all your services and regular transactions for a business supply. A minor change in the VAT scenario can lead to different results, so save yourself the hassle and get professional assistance to manage and ensure compliance with your VAT regulations.

If you are looking forward to setting up a business in the United Arab Emirates, you may require VAT related services. One such firm which provides VAT services that will assist your company to grow further is Commitbiz. We at Commitbiz Business Setup Consultants Dubai have our team of experts to help businesses in Tax Consulting for VAT in Dubai UAE. Should you have any queries or need any VAT assistance, do contact us, and we’ll sail you through it.

Start your Entrepreneurship Journey Today in UAE at AED 5,500

Commitbiz will help you with every step of your success journey. You can get one-on-one mentorship from our experts and get guidance on how to clear the legal proceedings and grow your business.

Know More