11 - INSURANCE

Summary

INTRODUCTION

An insurance company is a financial intermediary whose main line of business is the sale of a particular type of contingent contract, called an insurance policy. Under this contract, [in return for the premium], the insurer promises to pay some amount to the policy-holder, or to some other beneficiary, following the occurrence of an insured event.

For VAT purposes, most countries lump together insurance and financial services rendered by financial institutions. The typical pattern is to include insurance within the definition of exempt financial services. There are some exceptions.

Israel taxes insurance companies under a system administered by the income tax department. The Israeli tax is calculated under an addition method that includes wages and profits but does not allow any deduction for VAT paid on business inputs. New Zealand taxes insurance other than life insurance under its Goods and Services Tax (GST). South Africa and some other southern African countries follow the New Zealand pattern of taxing property and casualty insurance on the margin between premiums received and claims paid. Australia also is taxing property and casualty insurance under its new GST but departs from the New Zealand approach with respect to input credits available to insurers on claims paid.

The following is a nonexclusive list of insurance-related transactions that may be taxed, zero rated, or granted exemption from tax.