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Are you an intermediary in the short-term insurance industry? Here's how you must apply Vat

by , 10 September 2013
Are you in the insurance industry? Do you receive commission on the business you generate? If so, you're probably a financial intermediary. Don't make the common mistake of assuming you're covered by the financial services' Vat exemption. Here's how Vat applies to short-term insurance intermediaries.

Financial services are exempt from Vat.

But this exemption excludes financial service related fees, commissions, merchant discounts or similar charges.

The Practical Vat Loose Leaf Service explains that this is because these aren't included in the definition of a financial service. Also excluded from the exemption are fees and commissions charged by financial intermediaries like stock brokers and agents.

So how do you apply Vat if you're an intermediary in the short-term insurance industry?

Do you zero-rate your services to short-term insurers on the basis that the premiums collected on behalf of an insurer are subject to Vat at the zero-rate?

If so, you're in the wrong!

Since you and the company supplying the short-term insurance to the insured are separate, you can't zero-rate your supplies solely on the basis that the premiums charged by the insurer are zero-rated.

You must charge Vat at the standard rate currently set at 14%.

Here's an example: InsureCorp, (the insurer) insures goods situated outside South Africa. The insurance premiums paid by Client (Pty) Ltd (the insured) may be zero-rated in terms of the Vat Act.

But as the local broker, you render services to InsureCorp and not Client (Pty) Ltd. This means these services can't be zero-rated.

As a broker, the only time you can zero-rate your supplies is if you comply with the zero-rating provisions in the Vat Act

You may only zero-rate if the goods and passengers are transported:

  • From a place in South Africa to a place outside South Africa;
  • From a place outside South Africa to a place inside South Africa; and
  • From a place outside South Africa to another place outside South Africa.

Here's an example: Swift Exports (Pty) Ltd, a local company, insures goods exported from South Africa to the UK.

This means:

  • Swift Exports may zero rate the export of goods from a place in South Africa to a place outside the country.
  • Swift Exports' insurer may zero-rate insurance premiums charged for the insurance of the goods.
  • As the broker, you may also zero-rate its services for arranging the insurance for the goods.

Well there you have it. Make sure you follow the above to treat Vat if you're an intermediary in the short-term insurance industry. 

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