Dubai – Mubasher: The UAE has put the value-added tax into effect as of 1 January 2018, which is likely to have an adverse impact on the insurance market, according to a report released by Standard and Poor’s Global.

General insurers have to recover over AED 700 million in VAT liability on policies written last year and maturing in 2018. 

Perhaps insurers can collect a portion of their tax liabilities from their corporate customers that may claim this VAT on their tax returns as an “input tax”, S&P Global’s data showed.

However, it would be impossible for insurers to reach out to hundreds of thousands of retail customers to recover the applicable VAT given the large number of insurance policies, which were sold to individual retail customers.

“But Even if insurers decide to reach out to all of their clients, most insurance policies sold in 2017 did not include any clause for a retroactive claim on VAT”, the New York-based company revealed.

Therefore, a customer is not obliged to pay this portion of the VAT, unless it is a tax-registered entity, which can claim the VAT paid to insurers as input tax.

In 2018, insurers in the UAE are expected to incur a big portion of taxes, which can, no doubt, compromise their profitability, S&P Global commented.

While some sectors in the UAE can offer their products at prices similar to the pre-vat era, insurers face a tough price competition amid over-crowded sector.

“Under these conditions, if insurers decide to absorb VAT, they could add to price competition and put their underwriting performance at stake,” the report concluded.