How to Calculate Hungarian Insurance Premium Tax

Edit Buliczka
May 22, 2019

Many insurance premium taxes (IPT) and levies exist throughout Europe and, due to the lack of tax harmonisation, there are no general rules governing how the tax is calculated.  There are a number of different ways to calculate these taxes that are used across the EU including percentage rate, fixed amounts, sliding scales and other complex models. 

The percentage rate model is the simplest.  Here the tax is calculated by using a percentage of the premium or the sum insured.  Fixed amounts models are also simple to use if the taxed unit, usually the number of particular policy types written within a certain period, is known.  However, applying the correct sliding scale and the complex calculation models do require several details about the insurance contract itself or the total revenue figures of the insurance company to be known.

The most notable sliding scale method applied in the EU used to calculate Hungarian IPT. If an insurer’s taxable premium income during the previous calendar year is less than HUF 8 billion (approximately EUR 25 million) the sliding scale regime will apply for the current calendar year.  The amount of tax due will then depend on the revenue generated by the insurance company during the monthly reporting period.  

The applicable tax rate is either 10% or 15% depending on the risk covered by the insurance contract which should then be adjusted according to the table, below, with the exception of compulsory motor third party liability insurance which attracts a rate of 23% and is capped at HUF 83 per day.

Revenue Generated in the Reporting Period

Tax Rate Modifier

For the first HUF 100 million (EUR 310,000)

25% of the applicable IPT rate

For the revenue that falls between HUF 100-700 million  

50% of the applicable IPT rate

For the revenue above HUF 700 million

100% of the applicable IPT rate

Hungarian IPT is an insurer borne tax which is built into the underwriters’ margins.  So, knowing how much IPT to build in when pricing an individual policy is challenging.  The effective rate of tax will not always be known until the month has closed when the total amount of revenue generated during the reporting period can be finalised.

Insurers need to factor this uncertainty in when pricing Hungarian risks to ensure profit margins are protected whilst at the same time ensuring their premiums remain competitive.

 

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Author

Edit Buliczka

Edit Buliczka is a client manager for indirect tax at Sovos. She is a Hungarian registered tax expert and chartered accountant. Edit has worked for companies in Hungary including Deloitte and KPMG and as an indirect tax manager she worked for AIG at the Service of Excellence Centre in Budapest. She graduated with an economist degree from Budapest Business School, faculty of finance and accountancy and also she has a postgraduate diploma from ELTE Legal University in Budapest.
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