VAT on healthcare service in UAE is one of the sectors where the industry may choose the wrong rate of tax. Because in certain cases supply of healthcare services will be zero-rated; whereas in certain other cases, the 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 business to business is taxable at the standard rate.
We would like to add a note here that Emirates Chartered Accountants Group has taken the same stand from the beginning of the year 2018; from the first day of adoption of VAT in the UAE; which is in connection with the latest public clarification issued by the FTA.
“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.”
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 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, the supply of healthcare services will be zero-rated.
In certain circumstances, the provider of healthcare services may enter into a 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 the laboratory for availing the healthcare services to their patients. The question is whether such business-to-business healthcare services are eligible for zero-rating.
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 people, 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.
A doctor Mr. X agreed with a hospital named XYZ LLC to consult the patients who visit the XYZ LLC hospital. XYZ LLC Hospital collected AED 30,000/ as consultation charge from different patients for the month of September 2019. The monthly professional fee Mr. X agreed to charge XYZ LLC is AED 20,000/.
30,000/ charged by XYZ LLC is zero-rated supply (provided all other conditions are met) since the service is done to the patients.
However, AED 20,000/ charged by Mr. X to XYZ LLC is standard rated (5%), because the contractual obligation of the doctor is to Hospital not with the patients.
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 15,000/ as consultation charge from different patients referred by XYZ Hospital LLC for the month August 2019.
AED 15,000/ 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.
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.
In this scenario, patients will be charged by the hospital and maybe zero-rated. However, the amount charged by the Lab to the hospital will be taxed at 5%.
The hospital XYZ Hospital LLC agreed into a contract with EFG Specialist Hospital LLC, to provide advanced treatment to the patients referred by XYZ Hospital LLC. XYZ LLC Hospital collected AED 60,000/ as healthcare service charge from different patients for the month of September 2019. EFG Specialist Hospital LLC charged XYZ LLC is AED 45,000/ for the treatment given to the patients from XYZ Hospital LLC.
60,000/ charged by XYZ LLC is zero-rated supply (provided all other conditions are met) since the service given to the patients.
However, AED 45,000/ charged by EFG Specialist Hospital LLC to XYZ Hospital LLC is standard rated (5%), because the contractual obligation of the specialist hospital is with another hospital; not with the patients.
A supply of healthcare services may only be zero-rated if the recipient of the supply is also the person who receives the treatment.
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