SOUTH AFRICA: OFFSHORE SHORT-TERM INSURANCE, DEDUCTIBLE RESERVES

Controlled foreign companies (CFCs) that are engaged in offshore short-term insurance will be allowed to deduct reserves related to their “short-term insurance business” conducted outside South Africa, once an amendment to the Insurance Act, 2016 is promulgated.

For a CFC to be eligible for this deduction (which is similar to deductions available for domestic insurers), the reserve amounts must:

• Be required by the “short-term insurance” law of the country where the CFC is subject to tax by virtue of residence, domicile or place of effective management; and
• Be consistent with the liabilities under section 32 of the Short-Term Insurance Act, as if incurred in South Africa.

With enactment of these measures, section 32 of the Short-Term Insurance Act would no longer apply. Consequently, certain “superfluous” subsections in section 28 of the Income Tax Act (intended to equalize the tax treatment of domestic and offshore short-term insurers) would be removed.

CFCs conducting short-term insurance business outside South Africa would claim the deductions using the new provisions of section 28(3) of the Income Tax Act.