Is Business Insurance Vatable and Tax-Deductible?




When starting your own business, there are many variables and components to consider. You want your new business to hit the ground running as soon as possible. To do that, you need to make sure that you cover all your bases and protect the factors that are most valuable to your business.

That’s why it is so important to have business insurance. Your business insurance will help you deal with issues such as tax on your assets and claims.

You want to have business insurance on the policies that are tax-vatable and tax-deductible to avoid unnecessary costs.

insurance tax

What is Business Insurance?

Let’s first take a look at business insurance. It is an integral part of any business plan and it is crucial for business owners, both old and new, to know the value of having good business insurance.

A business needs to have reliable and affordable insurance when starting up. Insurance is essential to ensuring that a business’s most prized assets and expenses are covered, should anything unexpected happen.

Regardless of the size of your business or how much profit you make, insurance is a secure way of building your business without having to worry about what may happen in the future.

It is important for any business owner to know that there are different types of business insurance that you can take out, and it is also important to know what each type covers.

You also want to know which of your business insurance claims are tax-deductible to avoid incurring high expenses.

business tax

 Types of Business Insurance

Property Insurance

  • This protects your business property and assets against fires and other accidental damage

Workers Compensation

  • A policy that covers staff members against death/sickness and ensures that the families are taken care of.

Key Person

  • This covers key members of the business (CEO, Directors) should anything happen to them.

Vehicle Insurance

  • Ensures that company vehicles are protected, especially if used by multiple company members.

Business Interruption

  • Keeps a business afloat should anything catastrophic occur and the business is no longer operational (e.g, pay salaries, cover expenses)

Public Liability

Each insurance policy you choose to take out for your business will cover certain expenses. The more insurance types you have, the greater your chances are of being protected against any unforeseen circumstances.

insurance vatables

Is Business Insurance Vatable?

All business insurance is vatable. This means that you pay VAT on your insurance premiums.  However, in South Africa, we operate differently in terms of how short-term and long-term insurance is taxed.

Short-term insurance comprises consumption and should therefore be subject to VAT, however long-term insurance does not comprise immediate consumption and is exempt from VAT.

Premiums paid under a long-term insurance policy are regarded as a financial service and are therefore exempt from VAT. No VAT can therefore be claimed in respect of these premiums, and you do not pay VAT on the premiums.

The South African VAT service exempts financial services on postponed financial consumptions, such as debt and equity supplies. The supplier of the exempt financial services is considered the last supplier, and the business does not need to claim VAT on those incurred expenses if they become a cost.

Any premiums paid by a business over the lives of the directors or employees will be exempt from VAT, with the result that no input credit will arise on the premiums paid under such a policy.

Business Insurance Tax

Many people aren’t aware, but your insurance claims can sometimes be taxed by SARS. Which would see your business paying out a portion of what you receive from your insurance company.

You do not want to have unnecessarily high insurance claims that can be highly taxed or only reduced minimally, so it is important to have the right insurance to avoid high tax payables

Below is a guide on understanding how business vatables and tax deductibles work and knowing which insurance claims will help your business avoid high costs. This will show you the ins and outs of business tax and ensure that you know how to deal with it.

We’ll take a look at which insurance policies are VAT-taxable and also how your insurance company can help with your tax-deductible claims.

Is Business Insurance Tax Deductible?

If you have to pay tax on certain insurance claims, can you then claim tax deductions on insurance premiums?

The short answer to this question is yes. Business insurance in South Africa is tax deductible in most cases.

If you, as a business owner, provide medical and health insurance to your workers out-of-pocket, those expenses are tax-deductible. A tax professional can help you determine whether you can deduct insurance premiums and what the standard deduction would be, based on your financial situation.

Once you’ve got comprehensive insurance coverage, you can work with a tax professional to determine exactly how to get tax deductibles from your insurance based on what assets and expenses you’ve listed as ‘business expenses’.


Final Thoughts

Insurance tax is often forgotten about until it has to be dealt with. It is up to you as a business owner to make sure that you have the best possible insurance to protect your most valuable assets.

When it comes to insurance vat, you want to know exactly what process you need to follow to be secured and to manage your tax deductibles and vatables.

It helps if you know what types of business insurance policies you need for your business. There are plenty of good insurance companies in South Africa that can help you find what you need.

We recommend using a business insurance calculator paired with a comparative view of the best-suited policies. This can easily be done by getting a list of business insurance quotes from different insurers.

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