02 / FROM THE SOURCESWhat the official documents say.
Most core banking and financial services — interest-based lending and the operation of accounts — are VAT-exempt. No VAT is charged, but the provider also cannot fully recover its input VAT.
Where a financial service is paid for by an explicit fee or commission rather than by an interest margin or spread, that fee is usually subject to 5% VAT.
Life insurance is treated as exempt, while general insurance — motor, property, health and marine cover — is standard-rated at 5%.
Islamic finance products are taxed by their economic substance, so a Sharia-compliant structure is treated the same way as its conventional equivalent.
Because financial institutions mix exempt and taxable activities, they must apportion their input VAT and recover only the portion that relates to taxable supplies.
03 / THE KEY FACTSThe figures, with their sources.
| Fact | Value | Source |
|---|---|---|
| Core financial services VAT treatment | Exempt — no input tax recovery | FTA — Financial Services Guide VATGFS1 |
| Explicit fee-based financial services | Standard rated at 5% | FTA — Financial Services Guide |
| Life insurance VAT treatment | Exempt | FTA — Insurance VAT Guide VATGIN |
| General insurance VAT treatment | Standard rated at 5% | FTA — Insurance VAT Guide |
| Islamic finance instruments | Treated as equivalent to conventional equivalents | FTA — Financial Services Guide |
04 / SOURCES & DOWNLOADSKnow what this guide rests on.
Legal basis: 2 primary source documents. Laws change; verify with the issuing authority before acting.