The recent introduction of Cabinet Decision No. 44 of 2024 by the United Arab Emirates (“UAE”), effective 15 June 2024, introduces new instances where abortions are legally permissible, subject to meeting certain conditions and requirements.
Before 15 June 2024, instances where abortions are legally permissible were limited to the following two instances (subject to meeting certain conditions) in accordance with Article 16 of the Federal Decree-Law No. 4 of 2016 on Medical Liability:
- If continuing the pregnancy poses a risk to the life of the pregnant woman; and
- If fetal deformity is confirmed.
Effective from 15 June 2024, the following additional instances where abortions are legally permissible have been introduced (subject to meeting certain conditions):
- If the pregnancy is the result of intercourse against the woman’s will or without her consent, or with consent that is not legally recognized.
- If the pregnancy is caused by a parent (or a grandparent) of the woman or a family member she is forbidden to marry.
- Upon the request of the spouses and with the approval of the competent committee.
As a natural effect of the above, the demand for abortion services in the UAE is expected to surge, especially for the third instance introduced via Cabinet Decision No. 44 of 2024, which allows abortion “Upon the request of the spouses and with the approval of the competent committee”. While the surge in demand for abortion services in the UAE is not likely to mirror the 150% expansion, it is undoubtful that the demand for abortion services in the UAE will significantly increase, potentially to even more than 150%.
This surge in demand for abortion services in the UAE requires explicit and detailed clarity in respect of the VAT liabilities arising in respect of the provision of abortion services for the purposes of the Federal Decree-Law No. 8 of 2017 on Value-Added Tax, and its amendments (“VAT Decree-Law”), and its Executive Regulation. This is also the case for instances where the abortion services are done in violation of the governing legal provisions.
This article aims to provide clarity and details to businesses engaged, or considering engaging, in the provision of abortion services within the UAE.
International Perspective
Internationally, the VAT treatment prescribed for the supply of abortion services in VAT-implementing states (or states that implement a similar sales tax) appears to generally favor excepting such services from the imposition of the standard rates of VAT, largely due to categorizing such services as healthcare services of an essential nature.
As for the states of the Gulf Cooperation Council (“GCC”) – which include the UAE – , we refer to the Common VAT Agreement of the States of the GCC (“GCC Agreement”), which states in Article 29(1)(b) that “Each Member State may exempt or tax at zero-rate the following sectors in accordance with the conditions and provisions set by that Member State […] Health sector”.
However, the GCC Agreement does not dive into further details on what services fall under the zero-rating umbrella for the ‘Health Sector’ for VAT purposes. Instead, it defers powers to each of the member states (including the UAE) to determine which services qualify for zero-rating under the ‘Health Sector’ zero-rating umbrella, as well as to determine any conditions or requirements for such zero-rating.
UAE’s Tax Legislation
While the UAE’s legislation does not explicitly state the UAE VAT treatment of supplies of abortion services, it does regulate the zero-rating of healthcare services. The corner-stone provision is that of Article 45(14) of the VAT Decree-Law, which zero-rates the “supply of preventive and basic healthcare Services and related Goods and Services”, with reference to further details specified in the VAT Decree-Law’s Executive Regulation.
In accordance with the reference to the Executive Regulation within Article 45(14) of the VAT Decree-Law, Cabinet Decision No. 52 of 2017 on the Executive Regulation of the VAT Decree-Law, and its amendments (“VAT Executive Regulation”) provided further details and provisions that regulate the VAT treatment of the supply of ‘healthcare services’.
Clauses 1 – 3 of Article 41 of the VAT Executive Regulation regulate the zero-rating of the supply of healthcare services, as follows:
- Clause 1 defines what ‘healthcare services’ are.
- Clause 3 lists exclusions from the term ‘healthcare services’.
- Clause 2 states conditions for zero-rating healthcare services.
Each of these clauses is analyzed in detail in respect of abortion services below.
It is important to note that the below analysis must be conducted for each abortion service separately in order to determine the correct UAE VAT treatment of that services. Different abortion services may well be subject to different VAT treatments depending on the extent to which they meet the legislative requirements.
A key note to take into consideration prior to applying the below analysis is that zero-rating provisions are exceptional in nature, and must be interpreted and understood narrowly and strictly. Where a business is satisfied that it meets all the requirements for zero-rating the supply of abortion services, it must retain solid documentation and evidence supporting its view prior to zero-rating such supplies.
Clause 1 – Defining Healthcare Services
Article 41(1) of the VAT Executive Regulation defines the term ‘Healthcare Services’ 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.”
In light of such definition, the following requirements can be concluded for the purposes of considering ‘abortion services’ as ‘healthcare services’:
- The supply has to be a supply of ‘services’ rather than a supply of ‘goods’:
In accordance with the provisions of Article 3(1) of the VAT Executive Regulation, it appears evident that ‘abortion’ generally constitutes a ‘service’ for UAE VAT purposes. Therefore, ‘abortion’ appears to meet this requirement with nearly no contention.
Nevertheless, careful analysis must be undertaken in respect of the provisions governing single composite supplies and supplies of goods (and/or services) related to the supply of abortion services.
- The supply has to be generally accepted in the medical profession as being necessary for the treatment of the Recipient of the supply including preventive treatment:
Unlike the first requirement pertaining to whether the provision of abortion is classified as a supply of goods or services, this requirement is of a somehow subjective nature. In an interesting attempt to utilize artificial intelligence applications, we have submitted the following prompt to Open AI’s Chat GPT:
“Are abortion services generally accepted in the medical profession as being necessary for the treatment of the Recipient of the supply including preventive treatment?”
In response, Open AI’s Chat GPT stated the following inter alia:
“In summary, while there may be diversity of opinion among healthcare providers and variations in legal frameworks, abortion services are generally accepted in the medical profession as necessary for the treatment and preventive care of individuals seeking such services”.
While this conclusion may appear satisfactory to businesses engaged, or considering engaging, in the provision of abortion services within the UAE, such businesses are encouraged to carefully assess each case individually to determine whether a specific instance warrants zero-rating abortion services for UAE VAT purposes.
For example, an abortion service provided in the instance of “If continuing the pregnancy poses a risk to the life of the pregnant woman” would very likely qualify as “generally accepted in the medical profession as being necessary for the treatment of the Recipient of the supply including preventive treatment”, due to preventing serious harm to the pregnant woman. However, an abortion service provided in the instance of “Upon the request of the spouses and with the approval of the competent committee” may not qualify as “generally accepted in the medical profession as being necessary for the treatment of the Recipient of the supply including preventive treatment”, but rather, an act stemming from a personal choice for personal considerations.
Clause 3 – Exclusions from ‘Healthcare Services’.
Article 41(3) of the VAT Executive Regulation excludes two instances from the term ‘healthcare services’. Where any of such instances exists, zero-rating would not be applicable due to non-qualification of the abortion service as a ‘healthcare service’. These two instances are reproduced below:
- “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.”
- “Elective treatment for cosmetic reasons other than prescribed by a doctor or medical professional for treating or prevention of a medical condition.”
Taking the above into consideration, as well as the non-cosmetic and non-entertaining nature of abortion services, we are of the view that it is extremely unlikely that the provision of abortion services would be excluded from the term ‘healthcare services’ under Article 41(3) of the VAT Executive Regulation.
Nevertheless, taxable persons providing abortion services must carefully assess each case individually to determine whether or not the provision of abortion services in that specific case may fall within the ambit of Article 41(3) of the VAT Executive Regulation, and hence, be excluded from the term ‘healthcare services’.
Clause 2 – Conditions for zero-rating Healthcare Services.
Once a taxable person is satisfied that the provision of abortion services in a specific instance qualifies as a supply of ‘healthcare services’ under Clauses 1 and 3 of Article 41 of the VAT Executive Regulation, it must assess whether the supply of abortion services in that specific instance meets the conditions of Clause 2 of the said Article.
Under Article 41(2) of the VAT Executive Regulation, for a supply of abortion services to qualify as a zero-rated supply of healthcare services, both of the following conditions must be met:
- The supply must 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.
This condition is best viewed as two folded:
- The abortion service must be provided by a healthcare body or institution licensed by the Ministry of Health or a competent authority.
- The abortion service must be provided (or supervised) by a natural person licensed by the Ministry of Health or a competent authority.
It is likely that the licensing required for zero-rating purposes is not merely a general license to provide medical services. Instead, the license must specifically cover the permit to provide abortion services in the UAE. This view is further supported by Article 5(1) of Cabinet Decision No. 44 of 2024 on the Determination of Permissible Abortion Cases, which states that “The healthcare facility performing the abortion procedure must comply with the following requirements […] The healthcare facility must be authorized to perform abortion procedures by the competent health authority, in accordance with regulations specified by a decision of the Minister after coordination with the relevant health authorities”.
Accordingly, prior to providing any abortion services, businesses must resort to the competent regulatory authority to ensure obtaining (and maintaining) a valid permit that specifically covers the provision of abortion services.
- Relate to the wellbeing of a human being.
As is the case with the second portion of the definition of ‘Healthcare Services’ stated in Article 41(1) of the VAT Executive Regulation, this requirement is of a somehow subjective nature. Different arguments can be raised in respect of this requirement, some of which are summarized below:
- All abortion procedures relate to the wellbeing of the pregnant woman (a human being), whether mental or physical wellbeing. Hence, this condition is deemed met in all abortion cases.
- Only abortion procedures that relate to the physical wellbeing of the pregnant woman (a human being) would satisfy this condition, and accordingly, qualify for zero-rating. However, where there is no threat to the life of the pregnant woman, the supply of abortion services might not qualify for zero-rating.
While both arguments are legally acknowledgeable, for the purposes of this condition, taxable persons are encouraged to exercise caution in zero-rating the provision of abortion services. This can take the form of electing for either or both of the following options:
- Only zero-rating the provision of abortion services that relate to the physical wellbeing of the pregnant woman, subject to retaining credible evidence (possibly in the form of medical reports) to substantiate the importance of abortion for the physical wellbeing of the pregnant woman.
- Zero-rating the provision of abortion services that relate to the mental wellbeing of the pregnant woman, subject to retaining credible evidence (possibly in the form of medical reports) to substantiate the importance of abortion for the mental wellbeing of the pregnant woman.
Supplies of Abortion Services in Violation of the Law
It is foreseeable that some individuals may enter into illicit arrangements for the purposes of the provision of abortion services in instances where the legal requirements are not satisfied as they should be. Without prejudice to the potential criminal liability resulting from such acts, it must be noted that the tax legislations do not exclude the illicit or non-compliant provision of abortion services (or any other services) from the scope of taxation.
Therefore, even where a rendered abortion service does not satisfy the regulatory requirements under the governing medical legislations, this does not preclude the taxable person providing the abortion service from fulfilling its tax-related obligations under the UAE VAT legislations.
Adopting a Conservative Approach
When determining whether an abortion service is subject to VAT at the standard rate of 5% or 0%, businesses may choose to adopt a conservative approach and apply VAT at the standard rate of 5% rather than 0% to avoid unforeseen tax liabilities and relevant administrative penalties. However, adopting such a conservative approach may give competitors an edge, permitting them to benefit from lower prices due to zero-rating their abortion services. Moreover, businesses may still be penalized for other violations, such as the submittal of an incorrect tax return to the FTA.
Considering the above, businesses are encouraged to seek tax advice on the VAT treatment of their abortion services to ensure compliance with the law without giving competitors an unnecessary advantage in the market.
Navigating the complexities of VAT application on abortion services can be quite challenging, especially in light of the subjective nature of some of the requirements. While the option to apply a standard VAT rate of 5% might appear as the safest bet, it is of critical importance to consider the bigger picture. Businesses leaning towards a conservative 5% rate to mitigate tax pitfalls might inadvertently enable competitors to shine brighter with competitive pricing through zero-rating.
For businesses striving for both compliance and competitiveness, seeking advice from competent consultants, coupled with rigid legal advice and potential liaison with the FTA can prove extremely valuable over the long run.
Conclusion
The introduction of Cabinet Decision No. 44 of 2024 has significantly expanded the instances where abortions are legally permissible in the UAE, thereby likely increasing the demand for abortion services. This expansion necessitates clear and detailed guidance on the VAT liabilities associated with providing these services under the VAT Decree-Law and its Executive Regulation.
Internationally, the VAT treatment of abortion services often excludes such services from standard VAT rates, categorizing them as essential healthcare services. The UAE’s legislation, while not explicitly addressing the VAT treatment of abortion services, does zero-rate preventive and basic healthcare services. Providers must carefully analyze whether their services meet the specific criteria for zero-rating, considering the subjective nature of some requirements and the strict interpretation of zero-rating provisions.
Taxable persons must assess each abortion service individually, ensuring compliance with Clauses 1 and 3 of Article 41 of the VAT Executive Regulation and meeting the conditions for zero-rating under Clause 2. Compliance also requires that providers obtain specific permits to perform abortion services from the relevant health authorities.
Even for non-compliant or illicit abortion services, tax obligations under UAE VAT law remain enforceable.
Businesses should adopt a cautious approach to determining VAT applicability, potentially favoring the standard 5% rate to mitigate risk. However, this must be balanced against the competitive advantage that zero-rating could provide.
Given the complexities and potential competitive implications, businesses are strongly advised to seek professional tax and legal advice. Liaison with the FTA and competent consultants can help navigate these challenges, ensuring both compliance and competitiveness in the developing landscape of abortion services in the UAE.
This Article is prepared by Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes, and Marwan Alnooryani, Senior Tax Associate, at Habib Al Mulla & Partners Law Firm.
Seek Legal Counsel
Our expertise in tax law and regulations allows us to provide clients with effective and accurate tax advice, taking into consideration their unique circumstances and needs. Additionally, our experience and knowledge in handling tax disputes enable us to represent clients in discussions with tax authorities, as well as in court proceedings.
Our track record of successfully resolving tax disputes and helping clients minimize their tax liabilities has likely earned us a reputation as a trusted and reliable tax advisor. Our tax and financial crimes team, led by our Head of Tax and Financial Crimes, Mohamed El Baghdady, has successfully advised and represented clients across various industries, including, but not limited to, consumer goods and retail, services, real estate, oil & gas and banking and finance, before the government authorities, tax tribunals and courts. Our clients have been successful in multiple tax disputes before the committees and courts.For further information, please contact, Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes, on mohamed.elbaghdady@habibalmulla.com or any of the members of our team.
