German IPT – Law on Modernization of Insurance Tax

Elliot Shulver
February 9, 2021

Towards the end of last year, the German federal parliament (Bundestag) published the law on the modernisation of insurance tax. This law included several changes that affected Insurance Premium Tax (IPT). It will become mandatory to file tax returns online.

This change will take effect from 1 January 2022 and encompasses all tax debtors. Currently, it’s possible to file hard copy paper tax returns however from 2022 this option will not be available. It’s unclear if this will affect fire insurance tax returns though we think it’s likely.

What the changes mean for IPT in Germany

The law also includes amendments to the location of risk rules for German policyholders. As we understand, a German policyholder insuring a non-EU/EEA risk with an EEA insurer could be subject to German IPT.

This could have the effect of double taxation where German IPT could apply as well as local taxes where the risk is located, if a double taxation agreement for insurance taxes is not in place. For example, a property in the US being insured with an EEA insurer with a policyholder located in Germany could pay German IPT as well as US insurance taxes.

If a German policyholder takes out insurance with a non-EU/EEA (third country) insurer for a third country risk, we understand this could also be subject to German IPT and again could lead to double taxation should local taxes also apply.

It should be noted that following Brexit, the UK has become a third country. This means these new location of risk rules could affect any German policyholders taking out insurance with UK insurers.

Additionally, the reduced rate of 3% for hull insurance for sea going vessels has been widened. Previously, for the reduced rate to apply vessels were required to be registered in the German register of shipping companies. This has now been removed and has been retroactively applied, effective from 1 January 2013.

Another notable change is the limitation of the IPT exemption for personal insurance such as illness, occupational disability, or reduced earning capacity. From 1 January 2022 the IPT exemption will only be applicable where the insurance benefits the “person at risk” or close family members directly or indirectly. We understand the “person at risk” to be the natural person for whom the insured risk materialises.

Lastly, the law has also provided clarity on the tax calculation for values in a foreign currency. Where a foreign currency needs to be converted into euros for a tax declaration, the average rate for the month in which the tax is due is to be used, published by the ministry of finance. The central tax office may permit a conversion using a daily exchange rate, as evidenced by a bank quotation.

It’s important to understand these changes and how they could affect day-to-day business, for insurers who transact in Germany as well as German policyholders.

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Author

Elliot Shulver

Consulting Manager, IPT compliance for indirect taxes at Sovos. A chartered accountant with 6 years’ experience of indirect tax, including IPT, VAT and Gambling Duties, Elliot is responsible for our Consultancy practice, as well as providing regulatory updates for our global compliance solution suite.
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