Understanding Insurance Premium Tax Prepayments in Italy

Daniela Dinkova
September 27, 2022

Continuing our IPT prepayment series, we take a look at Italy’s requirements. In previous articles we have looked at Belgium, Austria, and Hungary.

All insurers authorised to write business under the Italian regime have a legal obligation to make an advance annual payment for the following year.

What is the prepayment rate in Italy?

The amount of prepayment is calculated as a percentage of the total IPT and Anti-Racket contribution made in the previous year, deducting any IPT paid in respect of Motor Third-Party Liability business. The IPT prepayment rates increased from 85% for tax year 2020 to 90% for 2021 and 100% for tax year 2022 onwards.

All insurers writing non-life insurance risks in Italy need to pay 100% of their 2021 tax bill in November 2022 as a 2023 prepayment, in anticipation of their future tax liabilities. Once settled, the prepayment can be offset against IPT liabilities (excluding Motor third-party liabilities) arising from February 2023, when the January 2023 tax liabilities are due. Businesses can use excess prepayment to offset tax liabilities in the next period or offset against the next prepayment.

When is the prepayment due?

Prepayment is due by 16 November each year. No prepayment is required if the insurance company deregistered for IPT purposes prior to the prepayment deadline. Penalties and interest for late payments are strictly applied by the Italian tax authorities. They are time sensitive and calculated daily and payable alongside tax liabilities/prepayments.

How can prepayment be recovered?

Where the prepayment for the year is not fully utilised, balances can be carried forward to offset against future liabilities or used towards next year’s prepayments. If a company is no longer writing business in Italy and doesn’t expect further premiums to be received, they should formally file for a reclaim of any prepayment credits. Recovery is made through a formal reclaim and takes significant time (a few years) for the authorities to process and return the funds.

Why is Italian prepayment painful?

Although prepayment shouldn’t represent an additional cost to insurance transactions, it can pose some cash flow considerations for insurers. It’s Important to note prepayment is due on a historical basis and cannot be settled based on an estimate of future tax liabilities. The legal obligation to pay the prepayment doesn’t cease, even if the insurance company foresees termination of their insurance risks in Italy. This creates issues for insurance companies winding down their Italian exposures, starting underwriting Italian risks through EU based subsidiaries, or when closing the business.

Most UK insurers changed their company structure due to Brexit. A special application for transferring the prepayment credit needs to be made to the Italian tax authorities for mergers or portfolio transfers and a response or approval from the tax office can take significant time.

When an insurer is exiting Italy, be it due to Brexit or any other reason, being aware of their current and ongoing prepayment obligations is key to minimising unnecessary pain in the future.

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Author

Daniela Dinkova

Daniela joined Sovos in 2017. As a manager of one of the compliance services teams, she oversees the delivery of IPT compliance services for a large portfolio of clients and specializes with Captive insurers. Daniela holds a professional diploma in Accounting and has over five years of experience in premium taxes across all European territories.
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