VAT on Healthcare in KSA: Rules, Exceptions, Rates, and Key Insights

The Saudi Arabian healthcare industry is rapidly changing, as the country is pursuing a wider economic diversification agenda. Among the major developments in the area is the imposition of VAT on Healthcare in KSA which is dependent on the nature of the service offered as well as the recipient. Although the zero-rating is beneficial in terms of some of the essential healthcare services, the others are subjected to the standard 15 percent VAT bracket. This distinction is significant to hospitals, clinics, and insurers to know because it affects pricing, billing, and compliance. Healthcare is a right of the people and is a business, and so, it is important to learn about VAT requirements among all stakeholders.

Simultaneously with tax reforms, Saudi Arabia has undertaken the digital transformation by introducing such initiatives as E-invoicing in Saudi Arabia, which requires all taxable individuals to implement structured electronic invoices. To healthcare providers with operations in the major cities, E-invoicing in Riyadh is especially crucial since there is more monitoring and regulatory attention. These rules are still changing and therefore both the public and the privately owned health institutions have to adjust their financial and operational systems to fit these changes. This blog will examine the different VAT treatments of healthcare services, government and private care, VAT treatment of medical goods and equipment and invoicing under the current regulations.

Definition of Healthcare in Saudi Arabia

In Saudi Arabia, healthcare can be defined as the preventive, therapeutic, and rehabilitative services that would enhance the well-being of individuals and communities. It entails primary, secondary and special care, which is provided by qualified practitioners like doctors and nurses. There is also the supply of medication and medical supplies that are directly connected with the delivery of these health services by the definition.

Kinds of Healthcare Service Providers in Saudi Arabia

Healthcare Provider: Government:

The government healthcare in Saudi Arabia encompasses hospitals and clinics operated by the government such as Ministry of Health. These are establishments that provide crucial medical services and they are normally exempted based on the VAT on Healthcare in KSA laws to Saudi nationals.

Personal health care provider:

The Ministry of Health has licensed the following types of the private healthcare in Saudi Arabia: the hospitals, polyclinics, and the specialty centers. Depending on the type of treatment or service that is to be received, these services attract 15% VAT on Healthcare in KSA.

VAT Treatment for Government Healthcare Providers

Subject of Public Services to Rule of No VAT:

Public healthcare offered by the government agencies does not receive VAT on Healthcare in KSA because they are not economic projects.

Non-Healthcare activities:

Task activities such as paid parking by the public hospitals are considered as taxable services under VAT on Healthcare laws in KSA.

Government Supplies VAT Suppliers:

In the guidelines of VAT on Healthcare in KSA, suppliers who have to supply goods or services to government institutions are required to apply VAT.

VAT Treatment for Private Healthcare Providers

VAT with regards to Private Healthcare Services:

Any of the services rendered by the healthcare service providers in Saudi Arabia are grouped under economic activities. Thus, according to the VAT on Healthcare regulations in KSA, these services will be collected as a rule at the standard rate of 15 percent.

Mixed Billing for Services and Medicines:

In the case where the medical services are provided together with the qualifying goods such as the approved medicines or devices that are provided by the private providers, the invoice is to show clearly the distinction between the two. The portion of the product that is eligible should be zero-rated, whereas the portion of the service will have a VAT on Healthcare in KSA of 15%. As an example, in dental care, the treatment is subjected to taxation, whereas artificial tooth can be zero-VAT.

Invoicing Requirement of Private Institutions:

• Transactions in Regard to Patient:

The healthcare billing plans ought to be issued directly to the client where treatment is administered.

• Insurer Based Agreements:

Whereas care is supplied under insurance or third-party agreement, the invoicing should be made to the third party, according to VAT on Healthcare in KSA requirements.

VAT on Healthcare in KSA Insurance and Third Party Claims

In determining whether VAT is reclaimable by an insurer or a third party, it is important first of all to determine who the law refers to as the customer of the medical service. It is also vital to know this difference within the context of VAT on Healthcare in KSA, particularly on the issue of healthcare costs in relation to insurance.

Determining the Customer in Healthcare Transactions

In order to understand the real recipient of health care service, some factors have to be considered. The person identified as customer is the customer that:

• Signs an agreement with the medical provider.
• Gives orders regarding the types or the time of service provision.
• Can exercise control so that the provider attends to their mandate, including provision of treatments.

This decision directly affects eligibility and deductions with regard to VAT eligible companies, and VAT on Healthcare in KSA.

VAT Deduction Based on Customer Status

When the bill is paid by a third party or by the insurance company but the patient is the one who has arranged the treatment directly, the patient is still considered a customer. This is based on the principle that the deduction of VAT is based on the legal status of a customer.

Example: In case Ahmed makes his own arrangement of physiotherapy and sender of the bill is Ahmed despite the fact he pays the cost financed by his insurer, then the latter cannot get VAT reimbursement, under VAT on healthcare in KSA.

VAT Deductibility for Contracted Insurers

In situations whereby the healthcare services are contracted directly by the insurer and the patient acts according to the guidelines of the insurer, the insurer is the customer. In case the invoice is in the name of the insurer, then he can claim the VAT provided that his regulatory provisions are fulfilled.

Example: Noura goes to a physiotherapy clinic that her insurance company recommends and that is contracted by the insurance company. As the provider leaves the message to the insurer, and presents the bill to the insurer, then the VAT can be deducted by the insurer under VAT on Healthcare in KSA.

The obligation of VAT and Issue of Invoices

The one who enjoys or commission healthcare service is the one obligated to pay VAT. This means that appropriate VAT application is dependent on identifying the person who initiated the treatment or instructions.

Invoice Practices:

• The invoices should be made on the name of the patient whenever a patient institutes the service.
• In case the insurer has a direct contract, then the bill can be sent to the insurer.
• In case of the proportion paid by the insurer, healthcare providers can add a statement in the invoice mentioned.

Specific Invoicing Scenarios and VAT Rules

• Low Rates of Insurance:

In case providers extend prices with insurers at a discounted profit, VAT is to be computed on the reduced price.

• Rejections of insurers:

In case when a claim is denied and the patient is bound to pay it, VAT should still be paid regarding the value of services.

• Unpaid Invoices and Bad Debts:

Under VAT on Healthcare in KSA, assessing the VAT output away can take place where the bill fails to be paid after a period of 12 months, although all bad debt alleviation factors are met by the providers.

Special provisions in Saudi nationals in private medical care

Following a Royal Order, the Saudi government covers VAT on Healthcare in KSA on Saudi nationals who are under treatment by the privately owned establishments. Medical establishments have to send out VAT-free invoices to Saudi citizens and keep this paper. In the case of non-Saudis, a 15 VAT is to be charged and reflected in a cost invoice and reported in VAT records.

VAT Rules of Medicines and Medical Equipment

Medical goods in Saudi Arabia are taxed depending on their classification. Under the VAT on Healthcare in KSA, approved drugs and equipment are zero-rated and miscellaneous non-approved products are charged at 15%. Imports which are zero-rated will not attract VAT but custom duty can be incurred. To be compliant the suppliers must issue the correct invoices and maintain a supporting record.

Conclusion:

To sum up, it is necessary to comprehend the structure of VAT Healthcare in KSA by all who would be interested in providing and receiving public and nonpublic health services and insurance companies and suppliers. The treatment of VAT also differs greatly according to the nature of the service and its recipient as well as the nature of goods that are involved. Whether it is zero rated medicine or standard rated private service or service provided by the healthcare specialists the classification and billing are important elements to ensure compliance and non-penalty.

In addition, the adoption of digital compliance processes and measures such as e-invoicing requires the companies to converge their systems with the present VAT regulations. Be it, Saudi nationals, a third-party insurer, or an import business, a compliance with the most current regulations concerning VAT on Healthcare in KSA is necessary to make financial operations successful, recover the VAT correctly, and coordinate with national tax policies.