"A first annual install may result from an app’s first-time install, a reinstall, or an update from any iOS app distribution option — including the App Store," [0]

So update do counts it just in a year (12 months) install, reinstall and update is counted as one. But once user bought a paid app and installed it then next year if that user update app developer will have to pay for this update

[0] https://developer.apple.com/support/core-technology-fee/