Bahrain: VAT treatment of medical coverage provided by insurance companies to their employees

Bahrain: VAT treatment of medical coverage

The Bahrain value added tax (VAT) law has a specific “related-party” provision governing the “employer-employee” relationship.


Under an employment contract in Bahrain and the region, it is common for the employer to provide various “benefits-in-kind” to employees in addition to monetary compensation. One such benefit is the medical insurance coverage provided by insurance companies to their employees. Generally, insurance companies self-issue medical insurance policies to their employees without having to obtain them from an external insurance company. In this situation, the premium associated with the policies becomes part of the production register of the insurance company in the applicable tax period. Insurance companies may either issue the policies in their names (employer’s name) or in the name of the employee.

VAT implications

In order to qualify as a supply, there must be an exchange of goods or services between two parties for consideration. If there is no consideration, the transaction can still qualify as a supply if it is deemed to be a supply under Article 10 of the Bahrain VAT law.

Further, the Bahrain VAT law restricts companies from recovering input VAT on goods and services used by employees free-of-charge and for their personal use—unless it is a requirement to provide such goods or services to employees. However, since the service provided is used by employees predominantly for their personal use especially when the health insurance coverage also includes their dependents or that the coverage is beyond what is required by applicable laws in Bahrain, a proportion of the input tax credit may not be recoverable.

Given the ambiguities regarding the VAT implications on the provision of medical coverage provided by insurance companies to their staff, other considerations include:

  • Can it be argued that there is no deemed supply if the medical insurance policy is provided “internally” by an insurance company on the basis that input VAT incurred on medical insurance policies provided to an employee is recoverable by a taxable person?
  • Can it be argued that there must be no requirement for specific attribution of costs associated with employee medical insurance policies on the basis they are recoverable anyway if mandatorily required by the applicable laws in Bahrain?

Read a November 2020 report [PDF 277 KB] prepared by the KPMG member firm in Bahrain

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