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.

 

Take Action

To read more about the insurance landscape, download Trends: Insurance Premium Tax and follow us on LinkedIn and Twitter 

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Edit Buliczka

Edit is a senior regulatory counsel. She joined Sovos in January 2016 and has extensive IPT knowledge and experience. Her role ensures the IPT teams and systems at Sovos are always updated with legislative changes. She is a Hungarian registered tax expert and chartered accountant and has worked for companies in Hungary including Deloitte and KPMG and as an indirect tax manager she worked for AIG 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.
Share this post

North America ShipCompliant
February 22, 2024
Is Beverage Alcohol Self-Distribution the Next Big Thing?

A number of recent lawsuits filed by beverage alcohol producers have raised new interest in self-distribution rights, an often-overlooked area of the industry. Self-distribution is when a supplier of alcohol, such as an importer or domestic manufacturer, is authorized to sell directly to retailers without having to work with a wholesaler to get their products […]

February 20, 2024
Why the Market is Ready for the Sovos Compliance Cloud

The emergence of digital transformation fundamentally changed how many governments and tax authorities around the world handle modern tax and compliance. What is unique about this process is that each individual government operates under its own set of rules, and global businesses are expected to keep up. In their efforts to address compliance, ironically, many […]

North America Tax Information Reporting
February 16, 2024
ACA Reporting Deadlines and More for Tax Year 2023

Affordable Care Act (ACA) reporting has started for tax year 2023. ACA reporting can quickly become complicated and costly with IRS penalties if your business does not have an efficient process in place. Although regulations have generally stayed the same for this reporting season, there are some important updates all businesses should be aware of […]

North America Unclaimed Property
February 16, 2024
Consequences of Non-Compliance with Unclaimed Property Laws

Building and maintaining a program to ensure compliance with the ever-changing unclaimed property laws is challenging, costly and time consuming. As a result, many companies put off or delay coming into compliance or do not put enough resources into creating a robust program. Those delays, erratic reporting and even ignorance that unclaimed property laws exist […]

North America ShipCompliant
February 16, 2024
Most Popular Wine Varietals Shipped in 2023 and More

Last month, Sovos ShipCompliant and WineBusiness Analytics released the 2024 Direct-to-Consumer Wine Shipping Report, marking the fourteenth consecutive collaboration between the two companies. Alex Koral and Andrew Adams presented an overview of the data and analysis from the report, highlighting key trends and statistics. Here, we summarize some of the noteworthy findings starting with the […]