Vat Implications On Healthcare Services In UAE

The VAT implications on the healthcare sector are quite complicated as many industries related to healthcare are producing, supplying, and administering a wide range of services. What’s more complicated is that the healthcare industry has taxable, zero-rated, and exempt supplies. UAE government has adopted zero-rated VAT treatment of the healthcare services instead of taking the exempt approach like most western countries.

This means that VAT incurred in relation to these services can be reclaimed. Healthcare services include medical and dental services to accommodation and meals for patients, medicines, and medical equipment. However, many other related services like elective treatments and cosmetic surgery are subject to a 5% VAT.

Let us further understand a little about VAT implications on healthcare services in detail.

An Insight into Impact of VAT on Health Services in the UAE

Here is everything you need to know about VAT implications on healthcare services from private hospitals to pharmacies and land ownership for infrastructure. Let us begin!

VAT on Healthcare Services

In the UAE, the government has decided to opt for a 0% VAT on certain healthcare services instead of making them exempt goods. However, multiple related services are subject to VAT at 5%. This can be complicated for service providers working in the healthcare industry.

Therefore, the smartest way to ensure compliance is to get in touch with the Best VAT consultancy in Dubai to help you with the classification of goods and services into zero-rated and exempt.

Following are the details of these services:

1) Zero-Rated VAT

Following services in the healthcare sector are subject to 0% VAT:

a) Preventive treatment and healthcare services provided by private/ government hospitals, physician, nurse, dentist, or a licensed practitioner by the Ministry of Health and Prevention or any other competent authorities.

b) Medicine and medical equipment as approved by the Ministry of Health and Prevention.

2) Standard VAT rate – 5%

The following goods and services are subject to a standard VAT rate of 5% in the healthcare sector:

a) Healthcare services like cosmetic surgery, therapy (Chinese medicine, acupuncture, and reflexology) that are not for treatment or prevention.

b) Medication and medical equipment that is not approved by the Ministry of Health and Prevention. For example, laser equipment for cosmetic purposes, message machines, etc.

Medical Exemption from VAT

Under the FTA law, only certain medical services qualify for VAT exemption. According to the Value Added Tax Consolidation Act 2010, these services include:

1) Professional medical services, as described by the Department of Health, excluding dental and optical services. These also include dietician, psychologist, orthoptist, occupational therapist, and more.

2) Other medical services that are exempt from VAT, as recognized on 1 January 2020, include Chiropodists, Osteopaths, and Chiropractors.

The correct classification of healthcare services into zero-rated, standard VAT and exempt is a crucial task to see if VAT will be charged or not. So, make sure to consult a VAT services Dubai based company to ensure correct VAT treatment on all business supplies.

Pharmacists

Services provided by a pharmacist are taxable under VAT in UAE. However, certain medical services are exempt from VAT as authorized by the Ministry of Health. These services include:

1) Flu vaccines

2) Pneumococcal Vaccines

3) Zoster vaccines

All these vaccines are exempt, i.e., there will be no input credit for the pharmacy owner with the purchase of this vaccine. Some medical products are zero-rated such as syringes, bandages, and other medical consumables. All other goods within the healthcare industry that are not included in the prescribed list are liable to a standard rate of 5% VAT in UAE.

Suppliers of Medical Equipment & Medicine

Supply of medical equipment and pharmaceuticals are treated as zero-rated if products are covered in a Cabinet decision. Some goods also qualify as zero-rated if they are supplied to a person with zero-rated healthcare services.

For example, a patient was administered a medicine called XYZ during his treatment, which does not qualify as zero-rated, according to the Cabinet. However, as the medication is administered during necessary healthcare treatment that is zero-rated, hence the medicine should also be treated as such.

According to Cabinet Decision No. 56 of “Medications and Medical Equipment Subject to Zero Rate,” for any medical equipment to qualify for zero-rated VAT, it should:

1) It should be registered with MoHP and imported with permission from authorities.

2) The products should meet the definition of “Medication” and “Medical Equipment.”

VAT treatment of some goods and accessories like ‘gloves,’ ‘mouthwash,’ etc., may be treated differently. Therefore, if the supplier is unsure about the VAT treatment of these products, they should approach a VAT consultancy in Dubai for necessary clarification. The incorrect classification can lead to legal consequences and administrative penalties.

Land Purchase/ Lease for Infrastructure

In the healthcare services industry, one of the most prominent costs is infrastructure and land. Service providers have two choices –to purchase land for construction of infrastructure or build on land that is leased. Renting or buying commercial property is subject to VAT, and VAT paid on the procurement of healthcare services is recoverable.

If a service provider wishes to build its own infrastructure, there are two possibilities:

1) Purchase of bare land: According to the FTA guidelines, the procurement of bare land is exempt from VAT.

2) Lease of Bare Land: When it comes to leasing of land for building, it can be either without the right to build over the land or “Musataha Right.” Under this, the owner of this right can build a healthcare services facility on the bare land of another for 50 years or more.

This agreement is exempt from VAT in UAE until the construction reaches the surface level. The taxability of the Musataha Agreement is quite complicated. To know more about “Musataha Right” consult a VAT services Dubai based company, to ensure that you are complying with all FTA VAT rules and regulations.

Proper VAT Classification of Your Business Transactions

If your business deals with the healthcare industry, be cautious as some services that you provide will be treated as zero-rated (e.g., ward accommodation for your patients). However, some services will be treated as taxable and exempt. For example, providing accommodation for non-patients such as relatives or children is subject to a standard 5% VAT.

Similarly, administration fees are also treated as zero-rated because it is charged for supplying a zero-rated healthcare service. However, standalone fees that are charged in the supply of a taxable healthcare service is also subject to a standard VAT rate of 5%.

Therefore, you need to consult an expert VAT company in UAE like Bens Auditors, to ensure correct VAT treatment for all your services and daily transactions for a business supplies. A slight change in the VAT scenario may lead to varying outcomes, as discussed above, so save yourself the headache and get professional help to manage your VAT regulations and ensure compliance.