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.
IPT is declared and settled differently throughout Europe. Monthly, quarterly, or biannual declarations – the frequency varies across Member States – and some jurisdictions request prepayments to ensure the liabilities due from insurance companies are collected in good stead.
Hungary is one country where legislation states prepayments are required. However, the prepayment obligation is a new requirement, introduced alongside the so called ‘extra profit tax’ or supplemental IPT, which is payable on an annual basis. No prepayment is required in relation to the ‘normal’ insurance premium tax paid monthly.
What is a prepayment?
Prepayments are 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, then current liabilities must be paid by the basis applied in each “jurisdiction“.
You can learn more about IPT prepayments in our blog.
IPT prepayments in Hungary
Before the introduction of extra profit tax, or supplemental IPT, prepayment for IPT in Hungary wasn’t a requirement. The ‘normal’ IPT is paid monthly with no prepayment obligation and there is no need to submit an annual return.
In Hungary the prepayment concept is used for taxes where there is an annual declaration obligation, such as in the case of corporation tax.
Regarding IPT, the prepayment obligation was introduced with the extra profit tax regime. Extra profit tax or supplemental IPT is an annual tax. This might be the reason for the introduction of the prepayment obligation for this tax type.
Supplemental IPT prepayment is due on 30 November 2022 regarding 2022 (bi)annual supplemental IPT, while for 2023 the prepayment is due by 31 May 2023.
Based on the original concept, the basis of the prepayment for 2022 was the premium collected during the period between July 2021 and June 2022, applying the rates applicable for 2022. However, this was modified shortly after the issuance of the Government Decree of 197/2022 on extra profit taxes.
This adjustment most likely occurred as the original concept would have generated a substantial overpayment since the base period to calculate 2022 prepayment is one year and the supplemental tax is due only for the second half of 2022. According to the updated rules the basis of the 2022 prepayment remained the same but the applicable rates were changed from 2022 rates to the rates normally applicable for 2023. The 2023 rates are half of the 2022 rates, decreasing the prepayment amount by reducing the rate instead of changing the base period from one year to half year.
Regarding 2023, the calculation of the prepayment is equal to the supplemental tax paid for 2022 in January 2023.
The tax office confirmed that any overpayment regarding the extra profit tax/supplemental IPT can be offset against the ’normal’ IPT and vice versa. This is because the extra profit tax has the same tax code (number 200) and is payable to the same bank account as the IPT.
For example, if the prepayment for 2022 is higher than the 2022 extra profit tax there will be an overpayment on the 200 tax account at the end of January. This overpayment can be offset against the January 2023 IPT liabilities which are payable by 20 February 2023. Or if the insurance company has an IPT overpayment at the end of November 2022, this overpayment can be used to cover the extra profit tax/supplemental IPT prepayment obligation.
Get in touch with our tax experts today for advice on how to navigate this often confusing IPT procedure.