The 2025 VAT Law Amendments Impacting The Short-term Insurance Industry

The 2025 tax amendments have (at long last) been promulgated. 

Important to the short-term insurance industry are the amendments, which took effect from 1 April 2026, aimed at:

1. redefining or limiting the VAT concept of “insurance”, based on the following new definition of insurance: “insurance or guarantee against loss, damage, injury or risk of any kind whatever, whether pursuant to any contract or law, and includes reinsurance; and‘contract of insurance’ includes a policy of insurance, an insurance cover, and a renewal of a contract of insurance: Provided that a premium is paid in respect of such insurance, guarantee or reinsurance: Provided further that nothing in this definition shall apply to any insurance specified in section 2” [i.e. life insurance]; and
2. introducing the definition of a “premium”, being: “any direct consideration given or to be given, whether partially or fully subsidised, in return for an undertaking to meet insurance liabilities under a ‘contract of insurance’”.

The amendments posited in the draft legislation on which public comment was sought in 2025 did not contain any proposed definition of “premium”.

Why the amendments were introduced

While the final version of the explanatory memorandum that should have accompanied the legislation adopted has not (yet) been published, in our view, the very likely intention of the amendments is to “correct” a perceived mismatch or imbalance created by the well-reasoned judgment of the Constitutional Court in Capitec Bank Limited v CSARS, where the Constitutional Court confirmed that:

• Insurance supplied by the bank to clients for no express consideration was nevertheless a supply made in the course or furtherance of the bank’s taxable enterprise and therefore a “taxable supply”.
• The bank was accordingly entitled to claim a deduction under section 16(3)(c) of the VAT Act, 1991, upon settlement of claims under the “free” insurance, based on the proportion that taxable fees bore to the total consideration for the overarching arrangement, despite section 16(3)(c) not expressly permitting or requiring an apportionment of this kind.

Practical impact and our recommendations

A key operational impact of the amendments is that the VAT analysis for determining the VAT obligations and entitlements that arise from products or arrangements with “insurance-like” features will now also require a view on whether there is a “direct consideration” for the undertaking to meet insurance liabilities, and whether that consideration can properly be characterised as a “premium” (including where it is paid by someone other than the insured, or is subsidised).

While it is not possible for us to produce a closed list of the specific types of arrangements likely to be impacted (given the bespoke arrangements that exist in the market), if you are party to arrangements that have features of what is referred to below, it is a good indicator that your arrangements require a VAT review:

• “Free” or “complimentary” cover, i.e. cover for which there is no separately stated premium
• Products that permit premium holidays, discounts and/or “cash backs”
• Embedded or bundled cover e.g. public liability cover
• Third-party paid/recovered or subsidised premiums
• Binder/outsourced distribution models and commission/fee structures where consideration is received from different sources
• Guarantees

A meaningful VAT review requires an analysis not only of the accounting/reporting of a particular arrangement, but careful consideration of the legal terms entered into, binding policy documents (internal and external) and the “softer” features of the arrangement such as client marketing.

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.