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The South African Revenue Service (SARS) has issued a binding general ruling (BGR) dealing with the zero-rating of international travel insurance under South Africa's Value-Added Tax (VAT) Act.
SARS confirmed that the supply of travel insurance while the insured is transported as part of an international journey qualifies for zero-rating under Section 11(2)(d) of the VAT Act. However, that section does not extend zero-rating to insurance cover provided during the period that the insured is transported to and from the insured's original South African point of departure; and not being transported while on the international journey (for example, while the insured stays in a hotel).
The BGR pointed out that those insurance services would therefore have been subject to VAT at the standard rate, if not for the fact that, under the VAT Act's Section 72, insurers are allowed to regard the supply of international travel insurance as a single supply if a single premium is charged (irrespective of whether the insured is being transported or not).
It was stressed that this arrangement will only apply if the cover is provided under a single outbound or inbound policy levying a single premium. In instances where the local and international travel are covered by separate policies, only the supply of international travel insurance qualifies for zero-rating, whereas the local travel insurance is subject to VAT at the standard rate.
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