VAT ON HEALTH CARE SERVICES IN UAE
VAT on Provision of Healthcare Services in Uae
VAT was implemented in UAE on 1 January 2018 in pursuance with the UNIFIED VAT AGREEMENT (UVAT), signed by all six GCC countries.
VAT is levied on the supply of goods and services. This tax is levied on END CONSUMER and is NOT A TAX ON BUSINESS. However, the businesses act as a collection agent on behalf of Federal Tax Authority (FTA). The suppliers of taxable goods and services charge the VAT on their supply and pay the same to the government. Details of the charge, collection and payment process are given in the coming paragraphs.
What Are Health Care Services?
“Health care services” includes both services and goods related to such health care.
These may include the furnishing of:
- medical treatment,
- surgical treatment,
- nursing service,
- hospital service,
- dental services,
- operational metrical service,
- complementary health services or
- any or all of the enumerated services or
- any other necessary services of like character, whether or not contingent upon sickness
Whether VAT Law is Applicable on Health Care Services?
Yes, it is applicable to the health care services. But these services are taxable at a rate of Zero percent (0%).
How VAT Works Throughout The Supply Chain?
VAT is charged at each step of the supply chain. End consumers generally bear the VAT cost while the registered businesses shall collect VAT on behalf of the tax authority. The VAT charged by a supplier shall be adjustable input tax against the tax payable on sales i.e. output tax.
A hospital purchases bandages from the factory, the factory shall charge VAT at the time of sale to the hospital and when the same bandage is used by the hospital for a treatment (a taxable service) then the hospital will charge the VAT from a patient who is end consumer.
What Is Meant By Zero Rated Supply Of Health Care Services?
Supply at the rate of zero percent means when the registered supplier of taxable goods and services will charge VAT at zero percent; for example;
Services Charges: AED =100,000/- only
VAT @ 0% AED=0/- only
Total AED =100,000/- only
Why Are Health Care Services Called Taxable If The Tax Is Not To Be Charged (0%)? Why Shouldn’t These Services Be Exempt?
There is different treatment of tax for the exempt supplies and the supplies at the rate of zero percent. The exempt supplies have no implication of tax law whatsoever, however, the supplies at zero percent can receive the benefits of input taxes.
What Is The Benefit Of Zero Rated Supplies?
Every business receives some inputs and supplies some outputs. Therefore, it will have to pay tax on its purchases and then collect tax on its sales. In case of taxable supplies, the business will be required to pay the difference between the tax collected on sales and tax paid on purchases; for example
Purchases (Inputs) AED 100,000
Input Tax AED 5,000
Sales (Outputs) AED 150,000
Output Tax AED 7,500
Payment to Federal Tax Authority
Output Tax AED 7,500
Less: Input Tax AED 5,000
Tax payable AED 2,500
When the business TAXABLE AT THE RATE OF ZERO PERCENT, there will be no tax on the supplies and all the tax paid on purchases will be REFUNDABLE for the business.
But when the business is EXEMPT, there will be no application of VAT law and all the taxes paid on the purchases will become part of the cost and there will be no adjustment and NO REFUND.
When Is It Considered That Supply Of Services Has Been Made?
A basic rule is that when services are completed but where the transaction is continuous over a period of several month or year i.e. different date of providing service, issuing invoice or receipt of payment then earlier of the following
- Payment is received
- Tax invoices are issued
Stay Healthy Hospital give treatment to Abu Al Hassan for his disease. Abu al Hassan treatment completed on 25 July 2017 but issues invoice on 15 August 2017. In this case, the date of supply will be 25th July as per basic tax point and vat will be due on the same date.
But where payment is received earlier i.e. 10 August 2017 then it will be considered as tax point and tax is due on the same date.
What is VAT Return?
VAT Return is a statement in a prescribed format file electronically on the Federal Tax Authority (FTA) portal. And it contained detail of all kinds of sales purchases made by the registered taxpayer.
When And by Whom VAT Return is Filled?
Every registered person file return.
Small/Medium size entities/business file return on monthly basis.
Large Size Business Entities File return on quarterly basis.
What are Other Requirements Regarding Filling?
The general provision regarding filling;
- If the last day of filing is the public holiday then the next business day will be considered as the last date.
- Correction in previous return can be made if an error has occurred in it
- Return must contain all kinds of supplies sold and purchases made
- State-wise break up of supply must be maintained
- The late filling may invite penalties
Whether There Is Specific Kind Of Record That Should Be Maintained By Service Provider After Implication Of VAT?
Yes, there are some additional records to be maintained but more or less it is same as to accounting Records.
Following should be maintained with accuracy whether it is in electronic format or manually
- Sales invoices
- Purchase invoices
- Debit & Credit Notes
- Import & export Records
- Zero Rated/ Exempt supplies record
- Record of goods delivered for free or for personal use
- Accounting Books
On Which Expenses VAT Can be Recovered Through Input Credit?
- Computer Software
- Postage & Courier
- Utility Bills
- Health Insurance
- Equipment Maintenance
- Building Insurance
- Statutory expenses
- Disposal of Fixed Assets
- Marketing Costs
- Printing and Stationery
- Internet Advertising
- Traffic Fines
- Website expenses
Read more about VAT Implications on Residential Buildings