In UAE, the majority of healthcare services like basic and primary healthcare services, diagnostic and other connected services are zero rated. This zero rating allows healthcare service providers to charge VAT at zero percent with eligibility to recover VAT on associated costs.
In terms of Article 45 of VAT Law, for a healthcare service to be zero rated, it should be accepted in the medical profession as being necessary for the treatment of the ‘recipient of supply’, including any preventive treatment. However, from VAT liability point of view, identifying the exact ‘recipient’ becomes a challenge in a situation where the hospital outsources its diagnostic clinic services to an outside party. This may be because of the investment and infrastructure costs associated with running such specialized diagnostic clinics.
Diagnostic clinics provides services to both:
1. Individual patients
2. Hospitals
In case an individual patient approaches the clinic directly for some medical tests etc, the contract is directly between the clinic and the patient. The test results are shared with the patient by the clinic.This is subject to VAT at Zero Percent.
In the latter case where the hospital has a tie up with the diagnostic clinic for carrying out such medical tests for patients who are being treated at the hospital, the clinical results are shared by the diagnostic center with hospital and not with patient. In such a situation, the “ recipient” can be:
• Hospital , as the clinical results are received by the hospital and the associated fees is also by the hospital and not directly by the patient; or
• The actual patient who is undergoing the medical treatment
In the context of VAT, a recipient of goods and services is determined on the basis of following parameters:
• Who enters into a contract with supplier of goods & services;
• Who directs the supplier for delivery of goods & services;
• Who consumes the goods & services supplied; and
• Who can sue the supplier, if need be.
Based on above parameters, an interpretation is possible that the hospitals are the actual recipients of the diagnostic services and since healthcare services are zero rated only when they are for the treatment of the recipient, services of the clinic should not be zero rated and should be subject to VAT at standard rate of 5%.
Another possible interpretation could be that medical benefit of diagnostic clinic services is always received by the patient under going treatment at the hospital, so such services of diagnostic clinics should be zero rated.
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