Tax levied on premiums compromises Emirati insurers’ profitability

According to local insurers, the introduction of a 5% VAT on insurance premiums is likely to impact their profitability and dry up market’s liquidities. The tax, in force as of January 1, 2018, also applies to business underwritten during 2017 and whose validity expires in 2018. This tax will, nevertheless, be calculated on the risk prorata temporis basis in the course of 2018.

This measure raises a problem for the insurers who will be compelled to pay VAT on the policies written in 2017 and for which they have not applied any mark-up. VAT may, consequently, be totally borne by insurance companies.

It is noteworthy that VAT applies only to non life class of business while the life business remains tax exempt.

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