What is the current situation for insurance for businesses?

Until the Covid-19 pandemic in March 2020, the view was that businesses provide insurance such as Employers’ Liability during normal day-to-day operations. Employers’ Liability insurance is compulsory, protecting a company’s employees and workplace visitors for accidents where a claim needs to be settled.

Following the Covid-19 pandemic, the definition of a workplace has changed. It’s no longer solely an office or factory, now a workplace is likely to include an employee’s home.

Although the world has gotten used to Covid-19, it is something we’ll all have to live with for the foreseeable future. Therefore, all employers have had to consider what future working arrangements they need to have in place based on the type of business.

Companies primarily office-based before the pandemic have taken the opportunity to discuss these future arrangements with employees. Many have adopted hybrid working which includes a combination of office and home working where possible. It does seem very unlikely that in the short-term there will be a move for people to return to working in the office full-time.

How could this change in working arrangements affect the insurance businesses’ needs?

Companies will need to consider the events they will need insurance for and how this will impact their current insurance policies.

This means that while they’ll still need mandatory insurance, such as Employers’ Liability, some requirements will likely have a greater impact on the insurance coverage and premiums moving forward.

This could include regular home Health and Safety checks to ensure employees’ working environment meets the company’s rules and regulations. Insurers could require all employers to provide evidence that their employees have passed annual health and safety tests to ensure ongoing compliance. Having this information on file ready to present to insurers if an accident happens at home to an employee during their working day would provide comfort to businesses for future claims that they won’t be rejected.

It’s also worth pointing out that the working day has changed for many, from a strict ‘9 to 5’ to more flexible arrangements to accommodate childcare and other responsibilities. This change in working hours should be taken into consideration by employers and insurers for accident claims that in pre-Covid times would have been outside regular working hours.

The other types of insurance policies likely to be affected by changes in working arrangements are:

What are the next steps for companies?

Businesses should review all their current insurance policies to ensure they have the necessary coverages in place to protect against these changes in working arrangements. The implications of not getting insurance coverages right could be serious for the company. If this isn’t something they’re looking at already, they should start the process sooner rather than later to avoid potential future problems for themselves and their employees.

Talk to our experts

Speak to our tax experts for help with business insurance compliance.

Insurance Premium Tax (IPT) in Germany is complex. From IPT rates to law changes, this quick guide will help you navigate the challenges of German IPT. For an overview about IPT in general, read our Insurance Premium Tax guide.

What is the filing frequency for IPT declarations in Germany?

Based on IPT declarations made for the year 2022:

Below €1,000.00 – annually

Between €1,000.00 and €6,000.00 – quarterly

Above €6,000.00 – monthly

What is the filing frequency for Fire Brigade Charge declarations in Germany?

Based on FBC declarations made for the year 2022:

Below €400 – annually

Between €400 and €2,400.00 – Quarterly

Above €2,400.00 – monthly

What is the IPT rate in Germany?

Different IPT rates are applicable in Germany, depending on the type of insured risk provided to the policyholder. Sovos’ IPT Managed Services ensures your company complies with the latest Insurance Premium Tax requirements in Germany.

Are life and sickness policies exempt from German IPT?

Yes. Life and sickness policies are exempt from German IPT.

What is the basis of a German IPT calculation?

German IPT is a charge to the policyholder in addition to the premium. The taxable premium is the total amount paid by the policyholder to obtain the cover. The Insurance Tax Act specifically includes charges and other ancillary costs within the scope of the definition.

What are the challenges of German IPT?

The main challenges in Germany regarding IPT relate to two areas:

Updates on German IPT

Insurance Tax Act reforms in Germany, effective from 10 December 2020, have continued to cause some uncertainty in the insurance market.

The main area of concern relates to the location of risk for Insurance Premium Tax (IPT) purposes. The reform can impact a policy taken out with either an EEA or non-EEA insurer where the policyholder is established in Germany, i.e., a German enterprise, permanent establishment, or corresponding institution, or an individual habitually resident in Germany, where the policy covers non-EEA risks.

These changes affect all classes of business and are irrespective of the physical location of any insured risk.

Double taxation in Germany with policies written by EEA insurers

If a policy for the German policyholder includes non-EEA countries, then German IPT is due on the premium allocated to Germany and to premiums allocated to non-EEA countries. This could be in addition to any applicable premium taxes due in non-EEA countries.

Therefore, double taxation is a possibility. However, if the policy includes other EEA countries, then German IPT cannot be charged on premiums allocated in these EEA countries.

Double taxation in Germany with policies written by non-EEA insurers

If a policy for the German policyholder includes both other EEA and non-EEA countries, then German IPT is due on the premium allocated to Germany and to 100% of the premiums allocated to all the other countries. This could be in addition to any applicable premium taxes due in all these countries. Therefore, again, double taxation is a possibility.

What is a ‘permanent establishment’ or ‘corresponding institution’ for German IPT purposes?

The law reforms did not specifically clarify at the time what a ‘permanent establishment’ or ‘corresponding institution’ was that would bring a non-EEA risk within the scope of German IPT. The primary concern related to global policies such as liability and miscellaneous financial loss risks that are not considered ‘special risks’ (i.e., don’t relate to fixed property, vehicles and travel). These types of global programmes for German policyholders, in particular financial institutions, are common in the insurance market.

1 January 2023

On this date, rules from Germany’s Federal Ministry of Finance on the taxation of guarantee commitments were made effective. The initial circular in May 2021 was published in response to a court judgement concerning a seller of motor vehicles providing a guarantee to buyers beyond the vehicle’s warranty. It confirmed that the guarantee is deemed to be an insurance benefit, meaning it would attract IPT instead of VAT.

Find out more about the application of IPT to guarantee commitments in Germany.

7 September 2021

The BMF subsequently resolved this matter. They published a further decree confirming that for policies taken out by a German policyholder with an EEA insurer not relating to ‘special risks’, any premium apportioned to a non-EEA subsidiary is not subject to German IPT. This is because the Fiscal Code of Germany does not consider a subsidiary to be within their definition of a permanent establishment for tax purposes.

20 July 2021

The BMF issued a new version of their general leaflet on insurance tax and fire protection tax for EU/EEA insurers. This included a flowchart showing the changes in taxability of policies as a result of IPT law reforms, but the non-EEA subsidiary question was not specifically answered here.

28 April 2021

The German Insurance Association (GDV) issued a Frequently Asked Questions (FAQs) document to help insurers understand the reforms in several areas, including answering some questions around the treatment of non-EEA subsidiaries.

Whilst the answers appeared to provide hope that these subsidiaries did not constitute a permanent establishment, there was a caveat at the beginning of the FAQs document. It said it was non-binding, and that every insurer could interpret and apply the statutory provisions (and the associated BMF letter from 4 March 2021) at their discretion.

This meant if insurers decided not to tax non-EEA subsidiaries based solely on this guidance, they could be subject to tax assessments later, where German IPT has not been charged.

4 March 2021

Guidance from the Federal Ministry of Finance (BMF) published confirmed that a non-EEA branch of a German policyholder would be deemed to constitute a permanent establishment. But it was silent on whether the same applied to a non-EEA subsidiary. Also included in this guidance were several scenarios to aid insurers and brokers with taxing policies correctly, but unfortunately there wasn’t one for this subsidiary scenario.

Need to learn more about IPT?

Want immediate help for IPT in Germany?

Need to ensure compliance with the latest IPT regulations? A managed service provider can help. Get in touch with our tax experts today.