VAT on Medical services in UAE

VAT on healthcare service in UAE is one of the sectors where the industry may choose a wrong rate of tax. Because in certain cases supply of healthcare services will be zero rated; whereas in certain other cases, supply of Healthcare Services will be standard rated; ie 5%.

Federal Tax Authority (FTA) has issued a public clarification in the month of October 2019; which clarifies that the supply of healthcare services between businesses to business is taxable at standard rate.

What are Healthcare Services in UAE?

“Healthcare Service is any Service supplied that is generally accepted in the medical profession as being necessary for the treatment of the Recipient of the supply including
preventive treatment.”

What is the Rate of Tax under Healthcare Services?

VAT on Healthcare Service in UAE means that if the service is a kind of treatment to a patient to cure a disease or is a preventive in nature; it will be treated as Healthcare Services. As per the article 45(14) of the UAE VAT Law and article 41 of the executive regulation, supply of healthcare services will be zero rated.

Special Scenario under Healthcare Services – Business to Business Supplies

In certain circumstances, the provider of healthcare services may enter into contract with another healthcare service provider to serve the patient. For example, a doctor may agree with a clinic or hospital to consult the patients coming to the clinic/hospital. The doctor will be providing the Healthcare Services to the patients at the premises of the Clinic/hospital. In certain cases, the clinics or hospital may contract with laboratory for availing the healthcare services to their patients. The question is whether such business-to-business healthcare services are eligible for zero-rating.

What is the Tax Rate for Business to Business Supplies Healthcare Services

The definition of Healthcare Services makes it clear that the recipient of the supply must be the patient that receives the treatment as well. In such cases, the rate of Tax can be zero rated. If the patient and the recipient of the supply are not the same person, the rate of tax will be 5%. In this circumstance it is important for the supplier of the Healthcare Service Provider to know that who is the recipient of the services. If the recipient of the service is not the patient the supply shall not be zero- rated. In determining the identity of the recipient of the supply, the starting point will be to consider the contractual position between the parties and, specifically, who is contractually entitled to the services supplied.

Examples of VAT on Healthcare Services in UAE to understand the applicability of the Tax rate.

Example 1

A doctor Mr. A agreed with a hospital named ABC LLC to consult the patients who visits the ABC LLC hospital. ABC LLC Hospital collected AED 50,000/ as consultation charge from different patients for the month September 2019. The monthly professional fee Mr. A agreed to charge ABC LLC is AED 25,000/

Applicable Tax Rate

50,000/ charged by ABC LLC is zero rated supply (provided all other conditions are met) since the service is done to the patients.
However AED 25,000/ charged by Mr. A to ABC LLC is standard rated (5%), because the contractual obligation of the doctor is to Hospital not with the patients.

Example 2

The hospital XYZ Hospital LLC referred patients to a Medical Lab named ABC Medical Lab LLC. The patients are charged by the medical lab and there is no contractual obligation between the hospital & the medical lab. ABC Medical Lad LLC collected AED 35,000/ as consultation charge from different patients referred by XYZ Hospital LLC for the month August 2019.

Applicable Tax Rate

AED 35,000/ charged by ABC Medical Lab LLC is zero rated supply (provided all other conditions are met) since the recipient of service are patients themselves.
Hospital LLC is receiving any service fee from ABC Medical Lab LLC.

Example 3

In the same example2; if XYZ Hospital LLC had entered into an agreement with ABC Medical Lab LLC for providing healthcare services to the patients referred from the hospital the tax treatment would have been different.

Applicable Tax Rate

In this scenario patients will be charged by the hospital and may be zero rated. However the amount charged by the Lab to the hospital will be taxed at 5%.

Example 4

The hospital ABC Hospital LLC agreed into a contract with JKH Specialist Hospital LLC, to provide advanced treatment to the patients referred by ABC Hospital LLC. ABC LLC Hospital collected AED 90,000/ as healthcare service charge from different patients for the month September 2019. JKH Specialist Hospital LLC charged ABC LLC is AED 55,000/ for the treatment given to the patients from ABC Hospital LLC.

Applicable Tax Rate

90,000/ charged by ABC LLC is zero rated supply (provided all other conditions are met) since the service given to the patients.
However AED 55,000/ charged by JKH Specialist Hospital LLC to ABC Hospital LLC is standard rated (5%), because the contractual obligation of the specialist hospital is with another hospital; not with the patients.

Summary

A supply of healthcare services may only be zero- rated if the recipient of the supply is also the person who receives the treatment.

For any more information you may reach us
Email: Kapil@rama.co.in/ dipesh.chordiya@rama.co.in
Phone: +971 54 380 1743/ +91 97693 63338