SARS issued Binding General Ruling 14 (BGR14) on 22 March 2013, which deals with the VAT treatment of supplies in the short-term insurance industry. The short-term insurance industry has up to now relied mainly on rulings issued by SARS in 1991 which formed the basis of a VAT and short-term insurance manual issued in June 1992.
The short term insurance industry is currently faced by a number of VAT challenges. One set of challenges has been introduced by BGR14 which was planned to come into effect on 1 July 2013 but which will now come into effect on 1 November 2013.
BGR14 introduces a number of challenges or changes when comparing it to the current (pre 1 November 2013) position. These include a slight change on the time of supply; documentary requirements (which may not necessarily have been brought about solely by BGR14); zero rating of certain insurance services; and the treatment of insurance excesses for VAT purposes. Short-term insurers currently account for VAT on the supply of insurance when they or the intermediaries receive the premium, namely on the cash basis.
Currently, the accounting for VAT is postponed to the next VAT period where premiums are received after the 15th of the month. This differentiation for VAT timing purposes of premiums received pre and post the 15th of the month is not catered for in BGR14. It is unsure whether this change will have a material impact on the industry as a whole. Intermediaries account for VAT on its services when it receives payment for its services or where the invoice or tax invoice issued for the insurance or the intermediation precedes payment, the insurer or intermediary must account for VAT when the invoice or tax invoice is issued.
BGR14 allows the insurer to not issue a tax invoice for the insurance where the policy contains:
- the insurer's and insured's name, address and VAT registration number (where applicable) and policy number;
- the premium amount and either the value of supply, amount of VAT and the consideration for the supply, or where the VAT is calculated by applying the tax fraction, the consideration and either the VAT, or a statement that it includes the VAT and the rate of the VAT;
- a statement confirming BGR14's direction; and
- a statement informing the insured vendor that it must be in possession of the policy and proof that the premium has been paid to claim a VAT deduction.
BGR14 also provides that the bordereau or commission statement relating to the intermediation does not have to contain the words "tax invoice".
Insurers who determine the consideration for the intermediation may issue recipient-created tax invoices which comply with the VAT Act. A bordereau or commission statement issued by the insurer does not have to contain the word "tax invoice" and insurers must comply with SARS' Interpretation Note 56.
The VAT Act contains four main zero rating provisions which applies to short-term insurance. These include insurance of international transport; insurance of land or improvements outside South Africa; insurance of goods situated outside South Africa; and insurance services supplied to non-residents. BGR14 read in conjunction with SARS' Interpretation Note 31 (IN31) gives guidance on the documentation required to apply and substantiate the zero rate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.