The South African Revenue Service (SARS) recently issued BGR 14 in respect of the VAT treatment of supplies made and received by short-term insurance companies. BGR 14 is scheduled to come into effect on 1 November 2013. Insurers will need to make the necessary adjustments to their systems and processes to ensure compliance with the new VAT ruling.
What it entails
The salient features of the ruling are:
- Clarification on the time of supply in the short-term insurance industry and related transactions – a deviation from the existing position
- Clarification regarding the issue of tax invoices, debit notes and credit notes where the policy documents contain certain information – changes could necessitate documentary changes
- Guidance on when an insurer may issue recipient-created tax invoices and debit or credit notes
- Guidance on the zero rating of insurance relating to international transport, marine, hull insurance and insurance relating to fixed and movable property in an export country – read with the documentary requirements, it contains a deviation from the existing position
- Guidance on the VAT treatment of excesses a critical deviation from the existing position
- Clarification of the VAT treatment for group accident insurance where the employer acts as an agent or as principal
- Guidance on the documentary proof required in respect of zero-rated supplies and for the claiming of input tax deductions – read in conjunction with the SARS Interpretation Note, this could require critical changes for the insurer.
BGR 14 addresses many issues relating to VAT on short-term insurance which was not addressed previously and is welcomed in this regard. SARS should definitely be recognised for their work and effort into its creation.
BGR 14, however, does not contain transitional measures, especially considering the effective date of 1 November 2013 which leaves little time to effect changes to documentation and processes. BGR14 also implicitly relies on current VAT provisions relating to dual rate supplies which may not be practically implementable.
BGR 14 does not specifically address a number of situations, including inward policies where the insured is not on board the ship or aeroplane; hull policies to South African residents where they only temporarily enter South Africa; hull policies to non-residents where the ship or airplane does not meet the technical definition of "foreign going..."; and policies in respect of movable goods situated outside South Africa where it may re-enter South Africa temporarily. Of interest is also that BGR 14 does not contain guidance on the principles of section 11(2)(l) of the VAT act which is the cornerstone of the zero rating of services.
It should be realised by the industry that BGR 14 will impose substantial administrative and process burdens on some insurers.
- Will the principles of BGR 14 remain unchanged?
- Will the implementation date of 1 November 2013 remain unchanged?
- How does BGR 14 and general VAT principles interrelate?
- How will this impact us?
How we can help
- assess insurers' current systems and recommend changes to be implemented to the systems
- advise on documentary requirements to ensure compliance of VAT treatment
- assist in ensuring correct timing of VAT accounting
- assist in gathering information required for applying for a specific VAT ruling.
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.