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
Clarification regarding the issue of tax invoices, debit notes
and credit notes where the policy documents contain certain
information – changes could necessitate documentary
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
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
It should be realised by the industry that BGR 14 will impose
substantial administrative and process burdens on some
Will the principles of BGR 14 remain unchanged?
Will the implementation date of 1 November 2013 remain
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
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.
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Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
In response to information provided by FIRS, NSE has sent letters to publicly listed companies, who were purportedly identified by FIRS as non-compliant.
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