The “Healthcare Products” Category: Why Confusion Persists

Even with official definitions, real-world products aren’t always black-and-white. The UAE healthcare market includes many items that support health or hygiene but are not outright medicines or major medical devices. Think of dietary supplements, vitamins, herbal remedies, antiseptics, medical-grade cosmetics, and personal protective equipment (PPE) like masks and gloves. Are these “medications,” “medical equipment,” or something else? This gray area has been a source of confusion.

New Pharmaceutical Law and Categories

 In 2019, the UAE introduced a new law (Federal Law No. 8 of 2019 on Medical Products, the Profession of Pharmacy, and Pharmaceutical Institutions) which actually created a third category of medical products. Under that law, medical products are classified into (a) medicines, (b) medical devices, and (c) “healthcare products.” The “healthcare products” category was added to cover products used to protect or promote general health but which are not intended for diagnosing, treating, or preventing diseases and typically do not require a prescription. These are essentially the everyday health and wellness products – often called over-the-counter (OTC) products – that you can buy in pharmacies or even supermarkets, which aren’t quite medicines in the clinical sense. Examples of “healthcare products” under this definition include things like dietary supplements, general vitamins, probiotics, herbal health tonics, antiseptic hand sanitizers, medicated soaps or cosmetics, etc. They may have ingredients that affect the body (like a vitamin boost or antibacterial effect), but they are not classified as medicines that cure or prevent specific illnesses.

The important point is: UAE VAT law (as of now) only explicitly recognizes two categories – medicines and medical equipment – for zero rating. That third category, “healthcare products,” did not exist in the VAT legislation and thus defaults to standard-rated unless they independently qualify as a medicine or device. This mismatch between the broader regulatory categories and the narrower VAT categories is a root cause of confusion.

Registration vs. Classification

Prior to the 2019 law, many of these OTC health products were still regulated by MOHAP in some form. In fact, MOHAP had a registration category called the General Sale List (GSL) for “simple pharmaceutical products with limited medicinal usage, which cannot be considered medicines”. The GSL would include items like dietary supplements, medicated cosmetics, antiseptics, disinfectants, etc. – products that may contain pharmaceutical ingredients but are not classified as prescription medicines. Businesses often assumed that if a product had any MOHAP registration or certificate, it could be treated like a medicine for VAT (hence zero-rated). Industry practice since VAT’s inception was frequently to zero-rate many medical and healthcare products if a MOHAP certificate was available as evidence of the product being “health-related”. Similarly, pharmacies and retailers often followed pharmaceutical suppliers’ lead on whether an OTC product was taxed at 0% or 5%.

This practice, however, wasn’t strictly aligned with the law. The FTA made it clear (in early seminars and later clarifications) that having an MOHAP registration certificate is not sufficient – the product must also squarely meet the definition of a medicine or medical equipment. Many “healthcare products” under the new classification (or GSL items) do not meet those definitions, and thus should be standard-rated at 5%. For example: a high-dose vitamin supplement might be registered with MOHAP (because it’s something people ingest for health), but if it’s not intended to treat or prevent a specific disease (it’s more for general wellness), the FTA would not consider it a “medication” for VAT purposes. Likewise, an antiseptic hand gel might kill germs, but since it works by a chemical action, one might think it’s like a medicine – yet if it’s marketed for general public hygiene and not as a prescribed treatment for patients, it might fall under “healthcare product” rather than a VAT-zero-rated medicine.

PPE and Other Gray Areas

The COVID-19 pandemic brought some of these classification issues to the forefront. During the pandemic, items like face masks, gloves, and sanitizers became essential health supplies. The UAE government responded by temporarily zero-rating certain medical supplies (PPE) for a defined period. Specifically, from 1 September 2020 to 31 December 2021, a Cabinet Decision allowed face masks, single-use gloves, disinfectants, and similar PPE items to be treated as zero-rated, and the FTA issued Public Clarifications (VATP023 and later VATP025) to clarify this policy. This raised an interesting question: Why was a special decision needed to zero-rate those items – weren’t they already “medical equipment” by nature? The answer was not obvious. It appeared that under normal definitions, many PPE items were not automatically considered medical equipment (perhaps because they’re also used in non-medical contexts or were not registered as such). The temporary zero-rating was a policy choice to support healthcare efforts, not an acknowledgment that masks and gloves inherently fell under the existing zero-rate categories. Once the temporary period ended, those items reverted to 5% VAT unless, for example, a particular product is actually an MOHAP-registered medical device (some high-grade surgical masks or disinfectants might be registered, but many generic ones are not).

The PPE example underscores a larger point: there has been ambiguity in classifying certain health-related products, and businesses must be careful. The FTA itself noted this as a “larger issue on classification and applicable VAT rate on healthcare products that may be registered with MOHAP but may not necessarily qualify as medicine or medical equipment”. In other words, just because something is sold in a pharmacy or has a health purpose does not guarantee it falls in the zero-rated list.

To recap this section

UAE’s regulatory environment now differentiates medicines, medical devices, and general healthcare products, but the VAT law only zero-rates the first two. Many items in pharmacies (OTC pain relievers vs. dietary supplements, medical devices vs. health gadgets, therapeutic cosmetics, etc.) straddle these lines. This is why confusion arises on “what to treat as medicine or not.” The onus is on businesses to classify correctly under VAT rules – which leads us to how to ensure compliance.

Ensuring Correct VAT Treatment: Compliance Tips for Pharma Businesses

Given the complexity, pharmaceutical and healthcare businesses in the UAE should adopt a systematic approach to VAT classification. Here are some high-level guidelines and best practices:

Apply the Two-Tier Test

As highlighted, always verify (1) the product’s nature/use against the official definitions and (2) its MOHAP registration status. Both criteria must be satisfied for zero-rating. If a product is not clearly a qualifying medicine/device or lacks official approval, default to 5% VAT. For each product SKU you deal in, document whether it has a MOHAP registration number as a medicine or medical device. For example, prescription drugs will have Ministry authorisation as pharmaceuticals (and thus qualify), whereas a general wellness supplement might have at best a GSL registration (which does not make it a medicine for VAT).

Do Not Rely Blindly on Supplier/Industry Practice

Ensure your own VAT classification for each item rather than copying what another company does. The FTA has made it clear that the responsibility lies at each stage of the supply chain – a VAT-registered business cannot simply rely on the tax treatment applied by its supplier. If a distributor sells you a product at 0% VAT, you should ask for evidence why it’s zero-rated (e.g. a copy of the MOHAP certificate and reasoning that it meets the definition). If you’re not convinced it qualifies, you may need to charge 5% on your onward sale even if your supplier didn’t. In an FTA audit, you will be responsible for any undercharged VAT if the item was misclassified, regardless of industry practice. This has been a real issue especially for OTC products where some pharmacies incorrectly treated certain items as zero-rated initially. Avoid the herd mentality and base your decisions on the law and official guidance.

Maintain Documentation

For every product you zero-rate, keep a file of supporting documents. This may include the MOHAP registration certificate/number, import permits, official product descriptions, or even a letter/opinion from a consultant if obtained. During an audit, you want to demonstrate that you had a reasonable basis for treating a supply as 0%. For instance, if you zero-rated a medical device, you should produce evidence that it’s registered with MOHAP as a medical device and arguably fits the Cabinet Decision definition. Conversely, for products you standard-rated, that documentation is less critical, but it’s still good to note why (e.g. “Product X – vitamin supplement – not a medication per Cabinet Decision definition, treated at 5%”). Clear classification records will make it easier to review and update treatments if laws change.

Train Staff and Update Systems

Ensure that your accounting/billing systems are configured with the correct VAT rates for each category of product you sell. Train your sales and finance teams on the differences. A small mistake at the point of sale (like charging 0% on a non-qualifying item) could compound over hundreds of transactions. Many pharma businesses maintain a VAT classification matrix mapping each product or product category to the appropriate tax rate (0% or 5%). Such a matrix should be regularly reviewed and updated, especially if you introduce new products.

Consider FTA Clarifications for Ambiguities

 If you genuinely are unsure about a particular product’s treatment – for example, a new kind of healthcare device or supplement that doesn’t clearly fall in existing definitions – consider seeking a private ruling/clarification from the FTA. The FTA allows businesses to submit clarification requests for complex matters. As one advisory notes, “in cases of ambiguity, it is always advisable to opt for a private clarification” – an incorrect tax position can lead not only to having to absorb 5% VAT that wasn’t collected from customers, but also to administrative penalties. While awaiting clarification, a conservative approach (charging 5% and later refunding or adjusting if a ruling allows zero-rate) might be safer than zero-rating upfront without confirmation. Remember, if you zero-rate incorrectly, you cannot go back to the customer later to collect the VAT – it becomes your liability.

Monitor Updates from Authorities

Stay informed on any new public clarifications, guides, or law amendments from the FTA or UAE government regarding medical goods. VAT laws can evolve. For instance, the temporary zero-rating of PPE was communicated via Cabinet Decisions and Public Clarifications in 2020. More recently, updates to the Executive Regulations or new public clarifications (like those addressing healthcare service scenarios, or changes in definitions) can be issued. Make sure someone in your tax or finance team reviews FTA releases and tax authority newsletters. The FTA’s official website and reputable tax news sources (Big 4 firms, legal bulletins) are good places to watch. Being proactive will help you adjust promptly if, say, the government reclassifies certain medical products or introduces new VAT relief measures.

Importation Considerations

If your pharmaceutical business imports medicines or medical equipment, ensure you utilize the MOHAP approvals at customs to get the zero VAT rate on import. At UAE customs, typically, if you import an item that is zero-rated by law, you must declare it properly (often customs codes and documentation will indicate the product is a medicine/medical device with MOHAP approval). If everything is in order, no import VAT will be charged. If import VAT is mistakenly levied (perhaps due to a classification issue), you would pay 5% at import but then be able to recover it in your VAT return (since it’s a business expense) – however, that’s a cash flow cost and paperwork hassle. So it’s best to coordinate with your customs broker and ensure the product descriptions and HS codes align with a zero-rated medical product. Conversely, do not try to misdeclare a product as a medicine/medical device if it isn’t – that could be seen as customs/tax evasion. Use the MOHAP import permits where applicable, and ensure consistency between your import records and sales records (e.g. if you imported something as standard-rated, you should likely be selling it standard-rated).