The UAE VAT Law will be effective on 1 January 2018. Like many of our partners we have been working towards ensuring we are in full compliance with the requirements of the VAT law. As we progress with system and process changes we feel it is necessary to communicate some of the key process changes that will be introduced once the VAT law is in force. The process changes will mean that both AIG and our respective partners will need to make several changes to the way we engage with each other. To this end, we have compiled a generic Q&A, our answers are based on our understanding of the VAT law as of the date of this letter, this of course could change once the relevant regulations are published.
Over the coming months we expect to hold partner briefing sessions where we will provide further details on the changes and how these will impact the way our respective organizations engage each other.
Whilst AIG has shared its views below, we ask that you consult your tax advisor for your own organization’s requirements.
The UAE Ministry of Finance describes VAT as follows:
Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.
VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.
VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain.
The VAT law treats business and individuals differently. Please refer to the below categories:
For Businesses providing taxable services to AIG (brokers, cedants, distribution partners, other vendors):
For Businesses receiving taxable services from AIG:
End users of taxable services from AIG:
The VAT will be calculated and charged on a prorated basis for the period after 1st January 2018 until the expiry.
Indemnity payments are not subject to VAT.
Reimbursements will be treated in the following manner:
If VAT has been charged and paid, AIG will refund the VAT in the same proportion as the premium, i.e, on a pro rata basis.
No VAT will be refunded if no VAT was charged.
If you are a cedant registered in the GCC, VAT will be charged at the standard rate.
AIG’s understanding is if you are a reinsurer registered in the GCC, you will need to charge and collect VAT.
Please consult your tax advisor.
Based on our understanding of the law as of the date of this communication, the GCC countries that have not implemented VAT regulations by 1st January 2018 will be considered as “outside GCC”.
As per our understanding of the law, it is AIG’s responsibility to issue VAT invoice to the insured and we will work with our brokers to define an appropriate process.