KSA Guide: What is Impact of VAT on Insurance Sector?
With the implementation of VAT in Saudi Arabia, the Government has recently launched guidance on relevant rules for the modern insurance sector. The rules and regulations regarding the insurance sector indicate that a distinction should be made between General Insurance providers and Life Insurance providers. Saudi Arabia exempts from VAT the provision and transfer of life reinsurance and insurance contracts.
The contracts are considered financial services and are explicitly exempt from value-added tax. With regards to the VAT legislation, the ‘life insurance’ contracts benefit from the VAT exemption. Under such regulations, all insurance contracts and products in Saudi Arabia are taxable at a 5% standard rate with the life insurance contracts’ exception.
What Do Non-Exempt Activities Include?
The non-exempt activities comprise insurance products and contracts that are classified by SAMA or Saudi Arabian Monetary Authority as health insurance or general insurance and reinsurance contracts and products. It also includes insurance brokerage services and services pertaining to the modern insurance hub.
All products categorized as life insurance by SAMA are to be exempted. Moreover, individuals and consumers need to pay the VAT on additional fees or any commission due to insurance brokers, irrespective of whether fees pertaining to services (public, life, or health insurance).
Outsourcing under Vat in Saudi Arabia
Payments from insurance companies to insured persons are not subject to VAT. However, according to the VAT for insurance sector in Saudi Arabia, outsourced services (like IT services and shared accounting) are subjected to VAT at a standard rate.
A restriction of input tax claims can get noticed where these outsourced services get used for the provision of life insurance contracts. It increases the business cost. VAT is the self-assessed tax where every taxable person requires reporting and paying VAT to the State by submitting the returns on a daily basis.
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