VATP on Financial Services and Insurance

VATP on Financial Services and Insurance

The FTA has issued Public Clarifications on specific financial services and insurance scenarios.

Common Topics Covered

1. Margin-based services: Whether the margin on foreign exchange and securities trading is exempt or zero-rated.
2. Islamic finance: Whether specific Islamic finance products (e.g., Murabaha, Ijara) are exempt or taxable.
3. Life insurance: Whether life insurance policies are exempt in all cases or if cross-border policies are zero-rated.
4. General insurance: Whether premiums and commissions are standard-rated at 5%.
5. Investment management: Whether fund management services are exempt or zero-rated.
6. Digital banking services: Whether online banking fees are standard-rated or exempt.

Margin-Based Services Clarification

The FTA has clarified that for margin-based financial services (e.g., foreign exchange):

• The margin (spread) is the taxable amount.
• If the service is supplied to a person outside the GCC: may be zero-rated.
• If supplied within the UAE: exempt.

Islamic Finance Clarification

The FTA has clarified that Islamic finance products are treated the same as conventional financial products:

• If the equivalent conventional product is exempt: the Islamic product is exempt.
• If the equivalent conventional product is taxable: the Islamic product is taxable.

Cross-Border Financial Services

The FTA has clarified that certain financial services supplied to persons outside the GCC implementing states may be zero-rated, subject to conditions:

• The recipient must be outside the GCC.
• The service must not be caught by the special place of supply rules.
• Documentation must prove the recipient's location.

Worked Example

A Dubai bank provides fund management services to a UK-based investment fund. The bank searches for a VATP clarification on cross-border investment management. The FTA has clarified that investment management services to persons outside the GCC may be zero-rated if the recipient is registered for VAT in their jurisdiction and documentation is maintained. The bank zero-rates the service and recovers input tax.