There are some countries across Europe where declaring and settling insurance premium tax (IPT) and parafiscal charges on time is not enough to prevent late payment penalties. You may ask why. Or you may say it’s unfair. The answer is simple.
Some European countries collect insurance premium tax and parafiscal charges or part of them in advance before they become due for payment. We call these prepayments, advance payments or provisional payments. And missing the deadline for the prepayment can be penalised by the tax offices.
This blog will give you an overview of how prepayment regimes work. At the end of this blog, we’ll list the countries where prepayment rules are in place without detailed requirements. In later blog posts, we will discuss the detailed prepayment rules in these countries in depth.
How do IPT prepayments work?
Prepayment or advance payment in the taxation world is a payment that is paid before the tax is due. Therefore, when a prepayment is paid, it’s unknown how much the actual tax will be.
There are various prepayment tax calculation methods. In IPT, the most common calculation is when the prepayment amount is based on the tax amount paid for the previous reporting period. Either the same tax amount or maybe a certain percentage of this tax is required to be paid in advance. However, there are other methods used.
For example, in Poland, there is a quarterly prepayment obligation. The prepayment amount is based on the premium amounts collected in the current quarter. Another example is in Austria, where there is a unique prepayment approach. According to the regulation, you can opt not to pay the prepayment if you pay the IPT liabilities for the November period one month earlier than the standard deadline, so not by 15 January but on or before 15 December instead.
There are similarities in the legislation on how the amount of the prepayment is considered in the final tax due. In most cases, insurers can offset the prepaid tax amount against the future period`s tax obligation. But there are differences in the “how”.
For example, in Belgium, the prepayment made in December can be offset against the December liability. Also, in January and February (the Belgian Tax Offices recently added these two months), periods’ liabilities and the remaining should be reclaimed. In Italy, the prepayment made in November can be fully offset against the next year’s IPT liabilities and against the following tax years’ liabilities until it is used up entirely. Alternatively, insurers can also reclaim it from the Italian tax authority.
If we take a closer look at the calculation of the prepayment, we can conclude that it’s usually based on the tax amount of the same tax type. However, in Italy, the basis of the IPT prepayment isn’t only the paid IPT but also what has been paid for the 1% Consap parafiscal charge.
When do IPT prepayments need to be made?
The due dates to pay prepayments vary across Europe. Some due dates fall at the end of the year, such as Austrian IPT and the Italian IPT. However, for the Italian Hunting Accident Victims’ Fund (HAVF) and Road Accident Victims’ Fund (RAVF) and the Spanish Fire Brigade Tax (FBT), the advance payment is due in January. The advance payment for the Hungarian supplemental IPT is due in November and May. On the other hand, the prepayment is due every quarter regarding the Polish Ombudsman fee.
Where do IPT prepayment regimes exist in insurance taxation?
Without pursuing completeness, here is a list of the prepayment regimes across the EU:
- Hungarian supplemental IPT
- Belgium IPT
- Italian IPT
- Austrian IPT
- Spanish FBT
- Italian HAVF
- Italian RAVF
- Polish Ombudsman fee.
Contact our team of experts today for help with IPT compliance or download our e-book Indirect Tax Rules for Insurance Across the World.