SARS May 2025 VAT Rulings: Apportionment Guidance for Insurers, REITs, and Holding Companies

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SARS has issued a trio of key VAT rulings clarifying how mixed supply vendors, especially in the insurance, real estate, and holding company sectors, should apply apportionment. These updates offer more flexibility, greater accuracy, and potentially increased VAT recovery.

1. VAT Ruling 010 – Input-Based Apportionment for Credit Insurers

   This ruling affects short-term insurance companies offering domestic and international trade credit insurance.

   VAT apportionment is essential when a business makes both taxable and exempt supplies. Input VAT must be split so that only the portion related to taxable supplies can be claimed back. For example, an insurer earns income from taxable sources (like admin fees) and exempt sources (like interest). On R1 million in expenses, only a percentage tied to taxable income is claimable.

   What changed?

   SARS approved a modified input-based method excluding VAT on reinsurance recoveries and salvage costs from the apportionment calculation. This change increases potential VAT recovery for insurers by removing costs not directly linked to taxable supplies.

2. VAT Ruling 011 – Turnover-Based Apportionment for REITs

   This ruling affects JSE-listed Real Estate Investment Trusts (REITs).

   VAT apportionment is essential as REITs mix taxable rental income with exempt dividend/interest income. Turnover-based apportionment ensures fair VAT claims.

   For example, a REIT earns R50m from rentals and R30m from dividends. The VAT apportionment ratio ensures VAT is only claimed for the rental-linked portion.

   What changed?

   SARS allows:

   • The inclusion of greater of actual or margin-based interest on foreign loans.

   • Five-year average of forex and derivatives gains.

   • A proportion of dividends based on interest margins.

   Exclusions: Operational bank interest, non-hedged forex gains, and unrealised value changes.

   These updates offer a precise, formula-driven method to boost VAT recovery without overstepping compliance.

3. VAT Ruling 012 – Turnover-Based Apportionment for Holding Companies

   This ruling affects holding companies in engineering and manufacturing. These companies often earn both taxable rental and exempt dividend income. Apportionment ensures only VAT linked to taxable income is claimed.

For example a holding firm earns R10m from rentals and R20m from dividends. Only one-third of shared expenses should be used to claim VAT.

SARS clarified that:

• A portion of dividend income can be included in the apportionment formula.

• Certain income streams should be excluded: interest from local bank accounts used for daily operations, foreign exchange gains/losses not tied to hedging activities, and profits or losses from share trading.

This method offers a clearer VAT path for complex corporate structures, ensuring fairness and compliance.

What Accountants Should Do

• Review client income streams for mixed supply structures.

• Recalculate apportionment ratios using SARS-approved methods.

• Ensure exclusions are correctly applied.

• Help clients boost VAT claims within legal limits.

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