UAE companies that provide health and education services can reclaim value added tax from the Government, the Ministry of Finance has said.
The companies would pay a zero rate of value added tax (VAT), meaning they can recover any VAT they pay on goods and services they purchase.
This zero-sum process is known as “netting out”. Both sectors were previously expected to be fully exempt from the tax, in which case they would not have been able to reclaim it.
The ministry’s announcement serves to avoid any confusion on the matter after an initial blueprint of the country’s VAT plan was released on March 20.
“Growth in demand for healthcare and education services will remain largely contingent on population growth, and cost in these sectors could go up if demand exceeds supply, which may be particularly relevant for education,” said Dima Jardaneh, the head of economic research for the Middle East and North Africa at Standard Chartered Bank in Dubai.
“The only factor relevant from the VAT standpoint is that these services would not have to raise prices to pass the cost of the VAT to consumers as they are not impacted by it after netting out is done.”
The Arabian Gulf countries are yet to release a list of medicines and medical equipment that will be zero-rated. Life insurance products are to be exempt from VAT.
Goods and services would attract 5 per cent VAT unless exempted or zero-rated from January 1.
In its March 20 blueprint, the ministry said that businesses providing taxable goods or services with annual revenue of more than Dh375,000 need to register.
In the UAE, VAT could generate Dh12 billion in its first year and Dh20 billion in its second year, according to the Ministry of Economy.
The Government has begun holding awareness sessions across the country on the impending tax.
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