Saudi Arabia: VAT guideline for Insurance and Reinsurance Activities
23 June, 2021
In brief
The Zakat, Tax and Customs Authority (‘ZATCA’, formerly known as GAZT) has published a new guide to provide further clarifications in relation to insurance and reinsurance activities and related VAT implications. The guide highlighted the services that will be recognized under insurance/ reinsurance activities and provided the applicable VAT treatments in relation thereto.
ZATCA also clarified VAT implications of insurance claims, and principles relating to input VAT deductibility.
The guide can be accessed through the following links: Arabic version / English version.
In detail
On 14 June 2021, ZATCA issued a new VAT guideline (the “guide”) on the application of VAT on the insurance and reinsurance activities undertaken by businesses in the Kingdom of Saudi Arabia (“KSA”).
The guide first explains the types of services that can be recognized when it comes to insurance and reinsurance activities along with the related VAT treatments. Examples are summarized in the the table below:
Type of activities |
Types of |
General Insurance |
Life Insurance |
||
Within KSA |
Within KSA |
||||
Insurance activities |
Premium that is paid/owed by the policyholder to the insurer as a consideration |
Insurer will apply VAT at the standard rate on supply of insurance services Making the supply should give the Insurer entitlement to input VAT deduction as per the applicable procedure |
Supply of insurance service by insurer will be exempt from VAT Exempt supply should not give the Insurer entitlement to input VAT deduction in principle |
||
Brokerage commission that is paid/owed by the insurer to the insurance broker as consideration for brokerage services |
Brokerage commission will be subject to VAT at the standard rate Insurer would be entitled to recover the input VAT incurred as per the applicable procedure |
Brokerage commission will be subject to VAT at the standard rate Insurer should not be entitled to recover the input VAT incurred in principle |
|||
Type of activities |
Types of |
General Reinsurance |
Life Reinsurance |
||
KSA resident insurer and reinsurer |
KSA resident insurer / non-KSA reinsurer |
KSA resident insurer and reinsurer |
KSA resident insurer / non-KSA reinsurer |
||
Reinsurance activities |
Reinsurance premium paid by the insurer |
Resident reinsurer will charge VAT at the standard rate Resident Insurer would be entitled to recover the input VAT incurred as per the applicable procedure |
Resident insurer needs to report premium paid under Reverse Charge Mechanism |
Supply would be exempt from VAT Exempt supply should not give the Insurer entitlement to input VAT deduction in principle |
Resident insurer is not required to report under Reverse Charge Mechanism |
Reinsurance commission received by the insurer |
Insurer will charge VAT at the standard rate Reinsurer would be entitled to recover the input VAT incurred as per the applicable procedure |
Reinsurance commission will be subject to VAT at the zero rate of VAT (conditional to fulfillment of Article 33 provisions) |
Insurer will charge VAT at the standard rate Reinsurer would not be entitled to recover the input VAT |
Reinsurance commission will be subject to VAT at the zero rate of VAT (conditional to fulfillment of Article 33 provisions) |
|
Insurance claims
The guide also explains the VAT implications of services provided in respect of insurance claims. The following examples are listed in the guide to consider while identifying which party may be entitled to recover VAT incurred on such services:
- Which person instructs the supplier in connection with the supply of goods or services;
- Which person enters into a contract with the supplier; and
- Which person has the power to compel the supplier to perform and comply with their contractual obligation in connection to the supply of goods or services.
The guide explains that it is presumed that policyholders will be the recipients of such services (and potentially able to recover the VAT incurred) unless this is expressly evidenced otherwise. The guide progresses to provide examples of where this may be the case and the insurer should be treated as the service recipient, potentially allowing the insurer recovery of the VAT incurred.
VAT deduction
The guide also explains the VAT deduction criteria, such as the necessary link to the undertaking of economic activities and input VAT apportionment / partial deduction principles.
The Takeaway
Taxpayers engaged in insurance and reinsurance activities are encouraged to read this guide to ensure that the treatment being followed for insurance/ reinsurance activities, claims etc. is in accordance with the applicable legal provisions. Expert opinion should be sought in case of any unclear position.
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Maher ElAawar
Partner, Middle East Indirect Tax and Fiscal Policy, PwC Middle East
Tel: +971 (0) 56 216 1109
Chadi Abou Chakra
Middle East Indirect Tax Network Leader, PwC Middle East
Tel: +966 11 211 0400 Ext: 1858
Ebrahim Karolia
Partner, International Tax and M&A Services, PwC Saudi Arabia
Tel: +966 11 211 0400 ext. 1771
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