Eye Care and UAE VAT : A Case Study Based Analysis

CA Shrey JoshiCA Shrey Joshi    16 February 2020
Eye Care and UAE VAT : A Case Study Based Analysis

EYE-CARE AND UAE VAT: A CASE STUDY BASED ANALYSIS

This article aims to look at the goods and services supplied by eye-care professionals, and their possible treatment under the VAT Law.

Relevant Provisions of The Law Applicable for Healthcare Services:

FEDERAL DECREE LAW NO. (8) OF 2017
Clause 14 to Article (45) [Supply of Goods and Services that is Subject to Zero Rate] of the Federal Decree Law No. (8) of 2017 deals with supply of zero-rated services for healthcare, states that the Zero Rate shall apply to the following goods and services:

The supply of preventive and basic healthcare Services and related Goods and Services according to what is specified in the Executive Regulation of this Decree-Law.


EXECUTIVE REGULATIONS
Article (41) [Zero-rating Healthcare Services] of the Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax, states that:


1. The phrase "healthcare services" means 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.


2. A supply of healthcare services shall be zero rated on the condition that the supply shall:
a. Be made by a healthcare body or institution, doctor, nurse, technician, dentist, or
pharmacy, licensed by the Ministry of Health or by any other competent authority.
b. Relate to the wellbeing of a human being.


3. “Healthcare services” do not include any of the following:
a. Any part of a supply that relates to staying in or attending an establishment the principal purpose of which is to provide holiday accommodation or entertainment such that any healthcare service is incidental to the provision of the accommodation or entertainment.
b. Elective treatment for cosmetic reasons other than prescribed by a doctor or medical professional for treating or prevention of a medical condition.

4. A supply of Goods is zero-rated if it is a supply of:
a. Any pharmaceutical products identified in a decision issued by the cabinet.
b. Any medical equipment identified in a decision issued by the cabinet.

c. Any other Goods not covered by paragraphs (a) and (b) of this Clause which are supplied in the course of supplying a Person with zero-rated healthcare services that are necessary for the supply of such healthcare services.

The Cabinet has issued Decision No. 56 of 2017 on “Medications and Medical Equipment Subject to Tax at Zero Rate”. For any product to qualify for zero-rate of VAT, the following tests have to be satisfied:


1. The medication/equipment should be registered with the MoHP and imported with its permission; and
2. The goods should meet the definition of ‘medication’ and ‘medical equipment’.


The Cabinet Decision further defines "Medications" and "Medical Equipment" as follows:


Medications: Every product containing a substance(s) which achieves the intended objective in or on the human body via biological effect, which is produced, sold or offered for use in cases relating to diagnosing, treating, healing, relieving or preventing diseases, or renewing, correcting or rehabilitating the function of body organs.


Medical Equipment: A medical product containing a substance, device, instrument, motor, implant, detector or system, including its accessories and operating software, which achieves the intended objective in or on the human body without medicinal, immunological or metabolic effect, which is produced, sold or offered for use in cases relating to diagnosing, treating,relieving, controlling or preventing diseases, injury or disability.


ASPECTS OF EYE-CARE:
Usually there are three types of eye care providers or professionals that one may come across. Their profiles are briefly provided below.


Optometrist: An optometrist may perform an eye exam and write a prescription for corrective lenses.
Optician: An optician may fill the prescription given by an optometrist i.e. fixing the relevance
Ophthalmologist: An ophthalmologist is a medical doctor who specializes in all aspects of eye care including diagnosis, management, and surgery of ocular diseases and disorders.


CASE STUDIES:
Let us look at a few cases to understand the complexities of the VAT Law faced by the eye-care industry.


Case A: Ophthalmologist - VAT treatment for general eye test and checkup:
The patient visits the ophthalmologist for general eye tests and checkups. As per article (45) of the UAE VAT law, the supply of goods and services are subject to zero-rate when it is the supply of preventive and primary healthcare services and related goods and services. It includes basic healthcare services,diagnostic services, and other connected services. An eye checkup may be considered to be a diagnostic service and therefore subject to zero-rate of VAT.


Case B: Infection detected and an eye drop prescribed:
Part 1: Diagnosis of Infection:
Incase during the examination, the patient is diagnosed with an infection in the eye, which can be cured using a specific eye drop, the ophthalmologist would then prescribe an eye drop for the patient. This diagnosis should fall within the scope of a zero-rated supply of service.


Part 2: Filling the prescription of the diagnosis:
The supply of any pharmaceutical goods identified by the cabinet is classified as a zero-rated good. It may be possible that the pharmaceutical good or eye drops prescribed are not covered but are supplied for and are necessary for the treatment of the recipient. In such a case it is possible that the supply of eye-drops may be treated as zero-rated.


Case C: The patient is detected with Hyperopia or Myopia or requires progressive lenses:
Part 1: Diagnosis of Hyperopia or Myopia:
The optometrist or ophthalmologist examines the patient, and the patient is diagnosed with either Hyperopia(far-sightedness) or Myopia(near-sightedness). Thereafter, the optometrist or ophthalmologist will provide the patient with an eyewear prescription. This supply of service may be considered to fall within the parameters of Zero-Rated Supply of Services under the VAT Law.


Part 2: Filling the prescription of the diagnosis:
The patient can take such a prescription to an optician to have it filled. There are divergent views whether the supply of such corrective eyewear or lenses can be treated to be within the scope of zero- rated goods as contemplated under the Federal Decree Law and Executive Regulation provisions mentioned above.


One opinion is that spectacles or corrective lenses fall within the scope of medical equipment as contemplated under the aforementioned Cabinet Decision as it is an instrument which relieves/ controls a disability.


Another opinion is that such spectacles or lenses should be treated as a supply of standard rated goods as they may have an element of being designer or cosmetic in nature and/ or have additional features such as being photochromic and therefore not strictly medical in nature.


A cursory look can be taken at the treatment of the same in other countries to gain an insight on possible treatments for the same under UAE VAT Law. In the UK, Ireland and Estonia spectacles are treated as supply of basic goods and thus are provided to the public at a standard rate. Whereas, in Luxembourg, spectacles, spectacle lenses, and contact lenses are subject to a super-reduced VAT rate of 3%, compared to its standard VAT rate of 17%.

Case D: A Cataract Operation prescribed and performed by the Ophthalmologist:
Cataract operation also called lens replacement surgery, where the cloudy or opaque lens is surgically replaced with an intraocular lens. Here, there's a use of lenses (supply of goods), and service is provided by the ophthalmologist, for which he will charge his fees. The operation is a curative treatment to cure or instead extract the cataract from the patient's eyes. The surgery has not taken place for any cosmetic reason; instead the service provided was necessary for the treatment, relates to the well-being of the patient. The above case should meet the criteria of zero-rated supply of service and goods.


Case E: A Laser Vision Correction treatment performed by the Ophthalmologist:
Laser eye surgery is also known as laser vision correction, is a type of operation for the correction of myopia or hyperopia or astigmatism. The surgery is performed by people who are unhappy with their vision using glasses or contacts, and the operation was prescribed to them by the doctor to allow them to achieve even better eyesight. The surgery reshapes the surface of the eye to correct its curvature.Thus, it may be considered as curative care and may be subject to a zero-rate of VAT.


An alternative view for the same is that many patients would opt for the surgery purely for cosmetic reasons. Also, many health insurance companies consider it to be an elective surgery and it may be considered as cosmetic and not medically necessary. Therefore, there is a possibility that the same may also be considered by the authorities to be a standard rated supply of goods and service.


Case F: Accessories for lenses:
The treatment for accessories such as lens cleaning fluid and or cases for spectacles is directly related and consequential to the treatment for spectacles and lenses itself. If the stand is taken that such lenses or spectacles are zero rated then supply of such accessories should also be treated as zero-rated. Similarly, if it is opted to treat the spectacles and lenses as standard rated supplies, then such accessories would also be treated as standard rated.


Case G: Repairing of spectacles:
In case spectacles of a patient are broken and the same need to be repaired, then such repair services may be subject to a standard rate of 5%, as it is an additional supply may not be considered as directly related to the well-being of the patient.


Case H: An individual prefers to wear eyeglasses even though the doctor hasn't prescribed it:
An individual, even though having perfectly healthy eyesight may prefer to wear eyeglasses due to long working hours on a computer. It remains questionable if the purchase of eyeglasses by the individual should be zero-rated as it is a preventive measure. Having a reflective surface in front of eyes reduces the quantum of light reaching the eyes, thus safeguarding your eyes any damage. For example, UK taxation laws provide for deduction for eyewear for employees who may be exposed to the computer screen for long hours. Further clarity may be required to know if such a liberal definition would be acceptable to the Federal Tax Authority.

CONCLUSION:
Preventive treatment is a broad term and depending on the facts and circumstances of the case may or may not qualify as zero-rated supplies. Presently the Law does not have a comprehensive definition for what would constitute as preventive treatment. The authorities may hold a completely different point of view and may choose to apply the definition in a strict manner. Therefore, in some cases, it may be considered prudent to charge and collect VAT at the standard rate (and of course declare and pay the same to the Government through the VAT return) in case of any ambiguity regarding the tax treatment of supply of goods or services. The option of filing a clarification with the authorities must also be considered by the tax registrants to ensure that they are following the law as interpreted by the Federal Tax Authorities.


The article has been authored by Shrey Joshi- Founder and CEO of Ascent Auditing of Accounts;  shrey@ascentauditing.com

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