RIYADH — The Saudi Central Bank (SAMA) has instructed all motor insurance companies to include the rate of value added tax (VAT) in the compensation while settling claims to the third party liability.

The SAMA directive came in the wake of complaints about the failure on the part of some motor insurance companies in the payment of VAT while settling the third party liability.

In a circular, the Central Bank directed that the insurance companies shall compensate the amounts paid as VAT based on repair invoices issued in accordance with the requirements of the competent authority, in addition to the compensation amount based on the repair costs issued by the Vehicle Damage Assessment agencies.
 

According to the circular, a copy of which was obtained by Okaz/Saudi Gazette, the insurance company, when settling vehicle claims to the third party, must clarify his eligibility to obtain compensation for the amount of VAT and explain the compensation mechanism for it.

SAMA indicated that the circular comes in order to ensure the fairness of the compensation mechanism for the third party in accordance with the regulations related to VAT issued by the competent authorities. There are about 30 insurance and reinsurance companies licensed by the Saudi Central Bank in the Kingdom and these include general insurance, protection and saving insurance, and health insurance.

In this context, Dr. Adham Gad, an economic consultant for insurance and reinsurance, said that the SAMA circular tend to eliminate the excuses of some insurance companies, which fail to pay VAT and only pay the cost of repair. “It was explicitly clear in the circular that the third party liability involves cost of repair plus the cost of VAT if the invoice for the repair costs contained approved rate of VAT,” he said.