How will vat affect auto insurance?

It is common news for UAE expats and nationals that they will be welcoming the new year 2018 with a 5% Value Added Tax (VAT) tax applied on almost all goods and services. The government will be imposing taxes on non-life insurance products that will have a significant effect on health and auto premiums. Life insurance is currently going to be exempt from VAT.

Where it is simple to understand that the new insurance premium will be subject to 5% VAT; businesses and individuals are confused about those insurance and cleaning contracts that have been purchased in advance and extend well into 2018. Moreover, since UAE has never before experienced any form of tax, businesses are struggling with the introduction of the correct language for their tax clause. The tax clause should be comprehensive and cover all aspects of the new tax imposition for the customer to clearly understand all tax implications that they will face after 1st January, 2018.

Legal experts have urged businesses and individuals to go through their contracts to verify provisions for tax under the new law. A silent contract that does not mention VAT will deem the customer exempt to pay the taxes for the services paid for in advance. Also, a contract clearly mentioning that “prices are inclusive of VAT” will also render the customer on the winning side. However, those companies that have done their homework well would have most likely included the term of “exclusive of VAT” in their new contracts of 2017. Hence, for these companies the entire tax burden will fall on the customer who would be legally liable to pay for the extra VAT cost on the prepaid insurance and cleaning services purchased.

Since VAT is a new occurrence in the UAE, businesses and individuals will both be learning from their mistakes until they get the hang of VAT regulations entirely.