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
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
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
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.
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