Reinsurance services and how they relate to corporate tax in the UAE

Hey there! Let's dive into the world of reinsurance services and how they relate to corporate tax in the UAE. 

What Are Reinsurance Services?
Reinsurance services involve an insurance company transferring part or all of its risk to another insurer, known as the reinsurer. This process is regulated under UAE Federal Law No. 6 of 2007. In simple terms, it’s insurance for insurance companies. The reinsurer agrees to cover certain risks in exchange for a portion of the insurance premiums.

Qualifying Activities in Reinsurance
Activities considered part of reinsurance services include:

 - Underwriting Premiums: Evaluating and accepting insurance policies transferred by insurers.
 - Salvage and Subrogation Recoveries: Recovering money from the sale of salvaged goods or from a third party responsible for a loss after paying out claims.
 - Claim Handling: Managing and processing claims when they arise.
 - Loss Adjusting: Determining the amount of loss and coordinating claim settlements with the original insurer.

Ancillary Activities
Ancillary activities are those that support the main reinsurance activities and naturally complement them. These can include:

 - Investing Activities: Investing premiums received in various financial instruments until claims need to be paid out.
 - Actuarial Services: Evaluating and forecasting future risks and losses, which can also be offered to clients.
 - Risk Management: Providing risk management solutions to other insurance companies.

Practical Examples
Example 1: Company L’s Reinsurance Services

Company L, a Free Zone Company, provides reinsurance services to a life insurance firm, Company Y. They agree to take on 10% of the risk for every policy Company Y underwrites in exchange for 10% of the premiums.

Premiums: Company L receives AED 2,000,000 from Company Y (20,000 policies at AED 1,000 each, with a 10% share).
 - Investments: Company L invests the premiums and earns AED 300,000 from dividends and interest.
 - Risk Consulting: Company L offers risk assessment services, earning AED 60,000.
 - Claim Handling: Assists with claim settlements, earning AED 20,000.

Total revenue from reinsurance activities is AED 2,380,000. The main reinsurance activities and the ancillary services (investment income, risk consulting, and claim handling) are all considered qualifying activities.

Example 2: Company M’s Reinsurance Services

Company M, a Free Zone Person, provides reinsurance for Company Y’s automobile insurance policies, covering claims over AED 50,000.

Accident and Claim: Mr. Z, insured by Company Y, gets into an accident causing AED 100,000 in damage. Company Y pays the full amount and recovers AED 50,000 from Company M.
Salvage Recovery: The damaged car is sold for AED 15,000 at a salvage auction, split equally between Company Y and Company M (AED 7,500 each).
Subrogation Recovery: Company Y sues the at-fault party and is awarded AED 10,000, split equally (AED 5,000 each).
Company M’s income from salvage and subrogation recoveries (AED 7,500 and AED 5,000) is considered income from qualifying activities as they are part of its reinsurance business.

How Fastlane Can Help
Navigating the complexities of reinsurance services and corporate tax can be challenging, but Fastlane is here to help. We offer 'Smart Compliance' solutions to manage your corporate tax obligations smoothly. Our services include:

 - Advising on reinsurance activities and tax implications.
 - Ensuring compliance with regulatory requirements.
 - Handling tax filings and documentation.

With Fastlane, you can focus on growing your reinsurance business while we take care of the intricate details of corporate tax compliance. Schedule a free consultation with us to see how we can help your business thrive in the UAE.
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