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UAE VAT :B2B Medical services -Public clarification

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VAT Public Clarification: Business-to-Business Supplies of Healthcare Services

Issue

Depending on the circumstances, a provider of healthcare services may be contractually supplying these services to another provider of healthcare services.

For example, a doctor may have contracted with a hospital to provide certain healthcare services from the hospital’s premises. Alternatively, a hospital may have contracted with a laboratory or another hospital for conducting tests or medical procedures for the hospital’s patients.

The question is whether such business-to-business healthcare services are eligible for zero-rating.

Summary

A supply of healthcare services may only be zero- rated if the recipient of the supply is also the person who receives the treatment.

Detailed discussion

VAT treatment of healthcare services:

Most goods and services supplied in the UAE by a taxable person are subject to VAT at 5%.
In accordance with Article 41 of Cabinet Decision No. 52 of 2017 on the Executive Regulations of the Federal Decree-Law No 8 of 2017 on Value Added Tax (“Executive Regulations”), healthcare services may be zero-rated if certain conditions are met. For the purposes of the Article, “healthcare services” are defined as: “any Service supplied that is generally accepted in the medical profession as being necessary for the treatment of the Recipient of the supply including preventive treatment.”

The above definition makes it clear that the recipient of the supply must also be the patient that receives the treatment. Where the patient and the recipient of the supply are not the same person, the services should therefore be subject to VAT at 5%.

As a consequence, where a supply of services is made by a healthcare provider, the provider has to consider who the recipient of the supply is in order to be able to determine if the supply shall be zero- rated.

In determining the identity of the recipient of the supply, the starting point should be to consider the contractual position between the parties and, specifically, who is contractually entitled to the services supplied. Thus, although the contractual agreements between parties are not always conclusive in determining the direction of a supply, they should in most circumstances be taken as reflective of the economic and commercial reality of the supply (unless the contractual terms are so artificial that they do not reflect the reality of the transaction).

It should also be noted that the facts that a person may have initiated the supply, may have some interest in the supply, or is required to pay for the supply, are not in themselves determinative that the person in question is the recipient of the supply.

Examples:

Below are some of the examples of the application of the zero-rating provision to different healthcare scenarios. These examples are for indicative purposes only, and each supplier should consider the application of the VAT rules to their individual circumstances.

1. A doctor has contracted with a hospital to see patients who visit the hospital:

1st Supply: The doctor is providing services to the hospital. Even though the services benefit, and relate to the health of, patients, they are not “healthcare services” within the meaning of Article 41(1) of the Executive Regulations because the doctor’s contractual obligations are to the hospital. As a consequence, the services cannot be zero-rated.
2nd Supply: the hospital is providing “healthcare services” within the meaning of Article 41(1) of the Executive Regulations to the patients and therefore these can be zero- rated.

2. A hospital refers a patient to a laboratory for a medical test. The patient enters into a separate agreement with the laboratory for the supply of the medical test.

Although the patient was referred to the laboratory by the hospital, the laboratory makes a supply directly to the patient. As a consequence, the supply of services by the laboratory falls within the definition of “healthcare services” in Article 41(1) of the Executive Regulations.

3. A hospital is required to perform a specialised procedure for its patient. The hospital contracts with another hospital to perform the procedure.

1st Supply : The specialist hospital provides its specialist services to the hospital which is treating the patient. Since the recipient of this supply is not the patient, the services are not “healthcare services” and the supply cannot be zero-rated.
2nd Supply: The hospital which is treating the patient is providing zero-rated “healthcare services” to the patient.