UAE clarifies VAT treatment of business healthcare supplies

The Federal Tax Authority (FTA) has issued a public clarification (5-page / 1.3MB PDF) confirming that VAT will be charged at the standard rate of 5% on healthcare-related supplies "where the patient and the recipient of the supply are not the same person". The clarification covers scenarios such as where a doctor has contracted with a hospital to provide treatment services to patients from the hospital's premises, or where a hospital has contracted with a laboratory to provide test results.

The clarification also sets out the FTA's view of how to determine the 'recipient' of the supply.

VAT expert Joanne Clarke of Pinsent Masons, the law firm behind Out-Law, said: "This is a very important clarification for businesses in this industry sector as there was no clarity over this point to date, other than possible confirmation by the FTA to businesses on a one-to-one basis during audits and technical interactions".

"For large operators which had been applying 0%, there is a risk to them of real VAT costs if such VAT cannot be passed on to their business customers. An analysis of the VAT clause per commercial contracts, together with the relationship between stakeholders, would be important in this regard. The issuance of this public clarification may result in businesses submitting voluntary disclosures to the FTA and thereby exposing themselves to fixed and tax geared/time geared penalties for non-compliance," she said.

"Businesses should ensure to follow the correct procedures for VAT voluntary disclosures in the region, in an accurate manner, to ensure that any penalty costs are mitigated as much as possible. Any penalties applied by the FTA over and above the voluntary disclosure formal penalty regime may be appealed by businesses through the formal Tax Dispute Resolution Committee (TDRC) process," she said.

The clarification would also impact on the cash flow of healthcare businesses in the region which make zero-rated end supplies of core healthcare services to patients, Clarke said.

"The treatment of these B2B services as liable to 5% rather than 0% VAT may put a number of large healthcare operators in the region who supply directly to patients into larger refund positions on a periodic basis, which obviously affects cash flow of such businesses which would need to request the refund, answer any enquiries from the FTA and then await payment of receipt," she said.

The UAE has opted to apply VAT at 0% on supplies of preventative and basic healthcare services and related goods and services to patients. This distinguishes it from Saudi Arabia, which has opted not to apply zero-rating to these supplies. Bahrain also charges VAT at 0% on basic healthcare supplies. However, local law, guidance and regulations have not yet clarified whether this also applies to business-to-business supplies of healthcare services in Bahrain.