It’s time to return to Insurance Premium Tax (IPT) prepayments – a continuation of our blog series on this important IPT topic. You can find the first entry in our blog series here.

Throughout Europe’s different countries and jurisdictions, IPT is declared and settled in different ways. Monthly, quarterly, biannually – this varies across Member States – and some jurisdictions request prepayments to ensure the liabilities due from insurance companies are collected in good stead.

Belgium is one country that states within its legislation that IPT prepayments are required.

What is a prepayment?

You can learn more about IPT prepayments in this blog however for those who missed our coverage on the topic, prepayments can be defined as a tax payment credit made to a tax authority before the payment is actually incurred.

This prepayment tax will be deducted to cover the tax liabilities until the total credit is used up and then current liabilities must be paid by the basis applied in each jurisdiction.

IPT prepayments in Belgium

Each jurisdiction uses a different method to apply prepayments and we explain how this is legislated in Belgium.

The prepayment is due no later than 15 December each year. The tax base for the prepayment will be the amount paid in November of the current year, that is based on the tax liabilities of the October period.

It’s important to follow the state on the Belgium tax law in order to pay and submit the return within the deadline because when the tax hasn’t been paid within the deadlines set out previously, penalties will automatically be due to the Belgium tax authority from the day the payment should have been made.

The previous prepayment will be deducted during the next tax period (December, January, February and March) correspondingly submitted in January, February, March and April.

Unused prepayments

What happens if an insurance company paid the prepayment but during the three first months, the insurance company has not used that credit, perhaps because no policies were subscribed and therefore no submission or payment was due?

In these cases, the entire, or part of the prepayment is still pending to be deducted and a formal reclaim should be requested to the tax authority in order to obtain the unused prepayment.

Although this appears to be a simple process, not following the rules or not processing the returns, payments, or refunds within the correct deadlines can see the insurance company receive penalties or obtaining the refund for the unused prepayment could be prevented.

Take Action

Speak to our team today for advice on how to navigate this often confusing tax procedure.

Insurance is a dynamic sector in constant flux to accommodate with insured’s needs. An increase in holidays abroad following WWII saw the need for Assistance insurance for any unforeseen events that occurred away from the insured’s home country. Council Directive 84/641/EEC regulated Assistance insurance for the first time, and a new class of insurance was created. This was in addition to the 17 previously regulated classes outlined in Directive 73/239/EEC of non-life insurance and was called Assistance (Class insurance 18).

Travel insurance evolution

Initially, the insured was covered by a policy that provided aid for any event travelling abroad (loss of passport, assistance with any problem in the car etc). The insurer created a range of support with call centres, supplier networks and additional services to help solve difficulties when travelling abroad.

Subsequently, following the insured’s requirements, insurance companies and travel agents created travel insurance that includes a wide range of services. These consist of several protections within different classes of business. This is where the tax complexity of travel insurance policies begins. It’s an amalgamation of coverages, and the application of the correct fiscal treatment needs to be analysed in each territory.

Correct tax treatment in travel insurance

When weighing the correct application of tax for travel insurance, businesses must consider the following: location of risk (LoR), class of businesses and the correct tax approach.

Location of risk: Directive 2009/138/EC Article 13 must be followed in the following circumstances:

Class of business affected: As mentioned previously, one of the complexities of travel insurance is determining the classes of business affected. It’s common to see, in these policy types, multiple coverages such as medical assistance cover, loss or damage to baggage, travel delays or cancellations, loss of documents or money, personal accident, repatriation etc. Insurers must adequately identify these coverage details to ensure the compliant tax treatment is used.

Taxability: This step is crucial. The correct treatment of the policies could vary the liabilities to be paid, the different taxes and/or levies and parafiscal charges to be included in the tax calculation. This means that the tax treatment can change by country. It’s necessary to identify the tax liability or exemption based on the class of business and the geographical location.

Insurers must understand the importance of the vital details associated with travel insurance. Determining LoR, class of business affected and taxability ensures the correct amount is paid and submitted to the proper jurisdictions.

Take Action

Download out IPT Compliance Guide to find out more about how to stay compliant or get in touch with our IPT experts.