If you want to stay on the right side of compliance, you need to stay ahead of changes in the Insurance Premium Tax (IPT) landscape. You’ll learn more on Italy – Statute of limitation period, EU submission requirements, UK Insights and 2024 updates and what to expect in 2025. Don’t miss out on this opportunity to gain valuable insights and ask your burning questions to our expert panel. Join us and empower your business with the knowledge to navigate IPT successfully!
In Italy, the insurance premium tax (IPT) code (which is being revised as of the date of this blog’s publication) and various other laws and regulations include provisions for taxes/contributions on motor hull and motor liability insurance policies.
This article covers all you need to know about this specific indirect tax in the country.
As with our dedicated overviews of the taxation of motor insurance policies in Spain, Norway and Austria, this blog will focus on the specifics in Italy. We also have a blog covering the taxation of motor insurance policies across Europe.
In Italy, there are four types of charges payable on motor insurance policies:
Whilst motor insurance policies can include various coverages as add-ons, this blog’s main focus is on motor hull and motor liability.
Calculating taxes on land vehicles, i.e., motor hulls (Class 3), is simple. There is only IPT at 12.5% and CONSAP at 1%.
The taxable premium is the basis of these taxes. Both taxes are declared in the annual IPT return and payable monthly.
The taxation of insurance policies against civil liability arising from the circulation of motor vehicles is more complex.
The IPT rate (so called Responsabilità Civile Auto or RCA tax) is determined on a provincial level. Legislative Decree 6 May 2011, No. 68 quotes that the rate of the RCA tax is equal to 12.5%. However, this can be increased or decreased by the province or metropolitan city by a maximum of 3.5%. That is why RCA tax rates are sometimes referred to as a tax with a rate ranging from 9-16%.
In Italy, there are 20 regions, each with one or more autonomous provinces or cities. To complicate matters further, the province or city can modify the tax rates within the tax year.
CONSAP does not apply on motor liability policies, however EMER is at a rate of 10.5% with an additional 2.5% required for RAVF.
RCA and EMER are declared in the annual IPT return, and payments are due monthly.
Although RAVF is also declared annually, the declaration process differs, and there is also a prepayment obligation. The actual amount of RAVF depends on the management fee set annually by the Italian insurance supervisory body (IVASS) – the percentage of which is published during November for the next year.
As previously stated, IPT/RCA regulations are undergoing major renewal (during 2024). The legislation governing the tax provisions on private insurance and life annuities (Law 29 October 1961, No. 1216) is part of the Italian Government`s tax reform initiatives.
According to the available draft legislation, the IPT law will be divided into three parts:
The government extended the deadline for enactment of the new regulation to the end of 2025.
There are not many exemptions available for IPT/RCA tax, nor for CONSAP, EMER and RAVF. However, cars registered in Italy to NATO Allied Force benefit from an exemption from IPT/RCA.
If you still have questions about the taxation of motor insurance policies or IPT in Italy, speak to our experts.
On 21 May 2024, the Italian tax authority published a ruling (No. 110/2024) on the IPT treatment of warranty services provided in relation to the sale of used vehicles.
The ruling dealt with a scenario in which a company (the ‘Applicant’) provided warranty services to dealers within the same company group, with the latter offering these warranties to the purchasers of the vehicles. The Applicant also separately entered into insurance contracts with an insurance company to obtain coverage for the costs it incurred in repairing the vehicles sold when required under the terms of the warranty.
The insurance contract concluded between the Applicant and the insurance company would only be subject to IPT in Italy if the policyholder’s relevant establishment was located in Italy, in line with the location of risk rules.
More significantly, however, the ruling also addressed the warranty services provided by the Applicant to the dealers. For these, the ruling assessed that guarantees such as these do not satisfy the requirements of an insurance contract with an insurance company as the contracting party. The VAT treatment of this arrangement was outside the scope of the ruling, but it was conclusive in outlining that IPT does not apply to such an arrangement.
Comparing this ruling to the position in Germany highlights the possibility of a lack of harmonisation in this area without an EU-wide position.
Read our blog on general matters of IPT in Italy for additional information.
Following the publication of various circulars by the Federal Ministry of Finance in Germany in 2021, rules on the taxation of guarantee commitments were made effective 1 January 2023. This blog explains how this affects insurers and other suppliers.
The Ministry of Finance published its initial circular in May 2021. This was in response to a Federal Fiscal Court judgment. It concerned a seller of motor vehicles providing a guarantee to buyers beyond the vehicle’s warranty.
In these circumstances, the circular confirmed that the guarantee is not an ancillary service to vehicle delivery but is deemed to be an insurance benefit. As such, it would attract IPT instead of VAT – unless the guarantee is considered a full maintenance contract.
The circular did not prompt immediate concern within the insurance sector. Markets outside the motor vehicle industry weren’t concerned either. The presumption was that it was limited to the specific context of the motor vehicle industry.
Matters changed the following month. The Ministry of Finance clarified that the tax principles it outlined in fact applied to all industries. As a result, the scope of these rules became potentially limitless in Germany. All guarantees provided as additional products to goods or services sold are now within the scope of the application of IPT.
The clarification could impact industries like those organisations selling electrical items and household appliances.
The effect on traditional insurance companies should be relatively limited as they do not usually provide guarantees as part of the sales of goods and services. There could arguably be a significant impact on other suppliers that do provide such guarantees.
First and foremost, there is a potential increase in the cost of providing the guarantees caused by the application of IPT. Unlike input VAT, a supplier cannot deduct IPT from its taxable income – it must either increase prices to compensate or accept a less favourable profit margin.
Any companies that purchase the guarantees cannot reclaim the IPT either, as they can do with VAT. The standard IPT rate of 19% in Germany is high compared to most European countries. This exacerbates these issues.
There are also practical considerations to bear in mind for suppliers obliged to settle IPT with the tax authority. They are presumably required to be registered for IPT purposes like insurers, although the Ministry of Finance has not formally confirmed this.
Perhaps more difficult is the issue of licensing. The Ministry of Finance circulars focus on taxation, leaving it unclear whether other suppliers are now required to obtain a license to write insurance under German regulatory law.
Looking for more information on general IPT matters in Germany? Our German IPT page can help.
Climate-related events are an issue that impacts all industries, and the insurance industry is certainly no exception.
Beyond the challenges that insurers face in assessing the likelihood of weather-related events and natural disasters, there are also difficulties affecting Insurance Premium Tax (IPT) as countries look at ways to ensure they can fund responses to the consequences of these events. Some of these are not direct IPT measures but inevitably impact IPT, whereas others are direct IPT-related measures.
Natural catastrophe coverage is often an optional add-on to property insurance. In some countries, however, that is not the case – such coverage is mandatory. France and Spain are examples of this, with regimes in place involving the Caisse Centrale de Réassurance (CCR) and Consorcio de Compensación de Seguros (CCS), respectively.
Against a background of increasing costs due to natural disasters, recent months have seen other European countries follow suit with similar laws or proposals. Italy, for example, passed a law in late 2023 which requires companies to take out insurance policies by the end of 2024 to cover natural disasters occurring in the country. The government has authorised an Italian insurer to provide reinsurance of such risks like CCR in France, up to certain limits.
Germany and Slovenia have also seen resolutions or proposals for similar laws. In Germany, the Federal Council has called on the government to introduce mandatory natural catastrophe insurance. This is in light of the insurance protection gap relating to such coverage of properties. It remains to be seen whether the government will act based on this.
The increasing costs of weather-related events have triggered Slovenia’s national programme for protecting against natural disasters in the coming years, and a discussion of mandatory state insurance was recommended.
Additional premium amounts paid for natural catastrophe insurance can be expected to attract IPT and any applicable parafiscal charges due in these countries.
Weather-related events have also been cited as a reason for various premium taxation changes. In France, the additional premium rates due on risks which trigger natural catastrophe coverage (property and fire, as well as certain motor coverage) are increasing. Most notably, for property and fire risks, the premium rate is increasing from 12% to 20%. As IPT is due on this additional premium, this will significantly increase the IPT due on these policies.
Climate-related issues have had a major impact on levies used to fund emergency services due on property insurance in some states in Australia, specifically New South Wales and Tasmania. There is increasing pressure to reform the levies (with mixed success) due to the spiraling costs of responding to natural disasters. The levies result in huge increases to premium values, so the Insurance Council of Australia, amongst others, has urged the states to find a more sustainable way to fund emergency services.
Sovos actively monitors changes that impact IPT and is best positioned to advise if you have any IPT queries. Contact our experts today for more information.
The taxation of insurance premiums in Hungary is unique, both in terms of the technique used to calculate the tax and how it is governed.
Regarding calculating Insurance Premium Tax (IPT), Hungary is the only country in the EU where the regime uses the so-called sliding scale rate model. It applies to both IPT and the extra profit tax on insurance premium amounts (EPTIPT), also known as the supplemental insurance tax.
The insurance premium tax law (Act of 102/2012) includes the rules of IPT. However, this law can be amended by a government decree. Government Decree of 197/2022 regulates the EPTIPT. The Hungarian Tax Office has issued guidance about the rules of insurance premium taxation, and both IPT and EPTIPT are declared on the same return template.
In Hungary, insurance premium tax (IPT) and extra profit tax (EPTIPT) are levied on the premium amounts collected by the insurance companies.
In Hungary, it is almost impossible to determine the rate and amount of the insurance premium tax for a single policy, because IPT and EPTIPT are levied on the aggregated amount of the collected insurance premium.
The sliding scale regime considers:
For IPT, the threshold is HUF 20 billion since April 2024. It was HUF 8 billion prior to that. EPTIPT has no such taxable premium threshold.
For IPT, the scale is:
For IPT, the only exception from the sliding scale regime is the Class 10 motor third party liability insurance (MTPL) premium. IPT on MTPL premium is calculated differently, hence MTPL premium amount is not part of the aggregated taxable premium. The tax rate for MTPL premium is 23%.
EPTIPT’s scale differs from those of the IPT. Although the EPTIPT computation for non-life and life policies differs, the same scales apply. The EPTIPT scale is:
The rates, as of 2024, are:
The taxable basis is the insurance premium. The insurance premium is defined by the IPT Law (point 1 article 7 of Act 102/2012) as:
“The gross premium accounted for by the insurer based on accounting regulations for insurance services, including values not accounted for as gross premiums but considered as the countervalue for insurance services as coverage for insurance services, excluding premium income received from reinsurance taken from another insurance company, which is accounted for as gross income.”
MTPL premium amounts should not be considered for IPT’s sliding scale. However, the premium collected for MTPL is included in the EPTIPT non-life aggregated premium amount.
Life policies are exempt from IPT, but EPTIPT is payable on premium amounts collected by insurance companies from life policies.
Sickness insurance is exempt from both IPT and EPTIPT.
Another notable exemption is the premium amount collected on certain agricultural policies.
Currently, the biggest challenge in Hungarian Premium Taxation is the legal environment. The Constitution and the law on special measurements in case of catastrophic environments allow the government to amend tax rules – including IPT – via governmental decrees, instead of actually changing the relevant tax law.
For example, in 2022, a governmental decree introduced a new tax: the extra profit tax on insurance premium amounts (known as supplemental IPT or EPTIPT). In 2024, the government published another decree to change the applicable brackets of the sliding scale for the IPT regime.
The Act on Insurance Premium Tax No 102/2023 was not changed in either of these cases.
Hungarian IPT regulation is regularly changing. To keep yourself in the know, subscribe to Sovos’ tax alerts.
Here’s a brief timeline of changes to IPT in Hungary:
February 2024: Change for filing and payment of EPTIPT
March 2024: Hungary changes IsPT rates
These resources can help you navigate the intricacies of Insurance Premium Tax:
Sovos’ IPT Determination solution enables you to confidently calculate and apply IPT rates at quotation. Real-time tax updates ensure tax rates and tax applicability are always accurate.
Want to ease the burden on your tax teams? Sovos’ IPT Managed Services provides support from our team of local language regulatory specialists who monitor and interpret IPT regulations around the world, including in Hungary, so you don’t have to.
Norway has an indirect tax that applies to elements of coverage under a motor insurance policy. This blog details everything you need to know about it.
As with our dedicated Spain IPT overview, this blog will focus on the specifics in Norway. We also have a blog covering the taxation of motor insurance policies across Europe.
In 2018, Norway replaced the collection of traffic insurance tax with a new fee known as the Traffic Insurance Fee (TRIF). This fee is collected by the insurance companies on behalf of the Norwegian State, together with the premium for third-party motor liability insurance coverage.
The annual insurance tax needed significant administration. As such, implementing a new tax scheme on mandatory automobile third-party liability insurance policies aimed to streamline and speed up tax and excise administration. With the new approach, insurance companies must invoice TRIF together with the premium amount sent to registered vehicle owners. The fee is clearly stated on the invoice in a distinct line aptly named “Traffic Insurance Fee”.
In Norway, the TRIF is charged for all registered cars that weigh under 7,500 kg. The Norwegian Tax Office collects the so-called weight-year tax on heavier vehicles, in which the TRIF is not due.
Norway charges the fee for insurance contracts on compulsory third-party liability insurance regarding motor vehicles registered domestically. The fee also applies to the sum received by the Norwegian Motor Insurers’ Bureau for uninsured motor vehicles or when the new owner has not taken out insurance for the motor vehicle.
There is no insurance premium tax on insurance policies covering Class 3 policies.
As stated above, insurance companies collect TRIF at the same time as the premium, so the fee is distributed in accordance with the frequency of premium payment. This can be monthly, quarterly, semi-annually or annually.
TRIF is a daily fee based on the type and usage of the vehicle. Vehicles are classified into five classes, from a) to f).
The new rates take effect on 1 March each year. This means that if the policy is issued or renewed on or after this date, the new rates will apply. The rates for 2024 range from NOK 0.37 (approx. EUR 0.032) for group e) to NOK 9.11 (approx. EUR 0.80) for group b).
Exemptions from TRIF occur based on the car’s usage or the owner. For example, motor vehicles registered at the Nordic Investment Bank that are used for official bank operations are exempt from TRIF. Vehicles registered at NATO or NATO headquarters, forces or personnel, as defined by international agreements, are also excluded. The exemption also applies to stolen cars.
The Ministry has the authority to issue regulations for implementation, delimitation and exemption criteria.
It is also worth mentioning that if liability insurance is not compulsory to take out, for example, in the case of the Norwegian state, municipalities or local institutions, the person responsible for the motor vehicle will be considered “self-insured”. In these circumstances, TRIF is not due.
Read our IPT Guide to learn more about Insurance Premium Tax compliance.
Have questions about the taxation of motor insurance policies or IPT in Norway? Speak to our experts.
Liechtenstein is one of many countries with Insurance Premium Tax (IPT) requirements, specifically the Swiss Stamp Duty and Liechtenstein Insurance Levy.
This blog provides an overview of IPT in Liechtenstein to help insurance companies remain compliant.
In Liechtenstein, there are two types of taxes that apply to premium amounts received by insurance companies:
These taxes complement each other. LIL is only applicable if CHSD is not applicable.
Swiss Stamp Duty is applicable in Liechtenstein based on Customs Union Treaty of March 29, 1923, which regulates the federal rules of stamp duties. Liechtenstein levy on Insurance premium amounts only applies if the Swiss stamp legislation does not apply.
It is necessary to highlight that Liechtenstein is a member of the EEA. As a result, the Location of Risk provisions outlined in the Solvency II Directive apply to LIL.
Therefore, to determine whether a premium amount triggers LIL, the rules of the referred Directive should be applied. This is not the case for Swiss Stamp Duty.
Premium payments made by Liechtenstein resident policyholders and/or to insurance companies based in Liechtenstein are generally subject to Swiss Stamp Duty.
Premiums on non-life insurance policies are taxable at the rate of 5% and life policies at a rate of 2.5%, unless one of the exemptions listed in the regulations apply. These rates and exemptions apply to both CHSD and LIL.
Examples of exemptions include:
For the Liechtenstein Insurance Levy, the taxable basis is the premium payments based on an insurance relationship created by an insurance policy where the location of risk is deemed to be in Liechtenstein.
Whereas, for the Swiss Stamp Duty, the taxable basis is the premium payments for insurance:
CHSD is filed on a quarterly and paid alongside the submission of the tax return. On the other hand, LIL is due biannually.
Each return is due within 30 days following the last day of the reporting period.
In case of late payment, a default interest should be paid on the amounts paid late. The interest rate is determined by the Swiss Federal Department of Finance.
The main challenge is to determine which tax is due, CHSD or LIL. Secondly, it is challenging to determine whether the premium amount and the risk covered are exempt from taxation. The list of exemptions is long.
If LIL is due, these returns can only be filed by a fiscal representative based in Liechtenstein. It can be challenging to find one locally.
Read more about IPT in general here: IPT Guide
Find your solution: Complete IPT Compliance for Insurers
Questions on location of risk? Download our Location of Risk Rules eBook
Contact our team of experts today.
Monaco is one of many countries with Insurance Premium Tax (IPT) requirements, specifically the Special Annual Tax and Fire Brigade Tax. This blog provides an overview of IPT in Monaco to help insurance companies remain compliant.
In Monaco, there are two types of taxes that apply to premium amounts received by insurance companies. These taxes apply to domestic as well as foreign insurance companies who write business in Monaco, whether or not they have a branch office there.
It is necessary to highlight that Monaco is not a member of the EU/EEA. As a result, the Location of Risk provisions outlined in Directive 2009/138/EC, often referenced as the Solvency II Directive, do not apply. Therefore, determining whether a premium amount triggers Monegasque insurance premium tax or not requires understanding the local territorial rules.
The Monegasque insurance premium taxes are:
SAT rates vary based on the risks covered. The lowest rate is 0.20% for policies covering export credit risks, while the highest rate is 25% for policies covering property risks with a fire element. Most taxable insurance is subject to a 7% rate.
There are various exemptions from SAT, such as life insurance and related contracts, reinsurance, and risks located outside of Monaco.
There is a fixed rate of 9% for Fire Brigade Tax.
The taxable premium is the taxable basis for both SAT and FBT. It is defined as the sum stipulated for the benefit of the insurer, including any extra fees or charges paid directly or indirectly by the insurer. The taxable basis for FBT can be different from SAT.
SAT and FBT are filed quarterly on one return. The payment must be made alongside the filing. The settlement deadline is the tenth day of the third month after the reporting period ends.
In addition to the quarterly return obligation, insurance businesses must file an annual return by 31 May of the year after the reporting year.
Penalties are imposed for payment delays, as well as inaccuracy, omission, inadequacy, or any other violations that may cause damage to the Monegasque treasury.
The late payment interest rate is 6%, and is charged on the entire month, regardless of when in the month the late payment becomes due. For every other error, the default penalty is EUR 150 or EUR 1,500. The latter applies if the violated legal provision is punishable.
The fiscal representation regulations are the most difficult aspect of Monegasque insurance premium taxation. A foreign insurance business must have a representative authorised by the Minister of State to declare taxes in Monaco.
This representative should be a private individual and is fully liable for the payment of any Monegasque duties and fines. In addition, a certain amount of guarantee is payable if the representative is not based in Monaco.
There is a wide variety of indirect taxes and parafiscal charges that apply to the different elements of coverage that can be included under a motor insurance policy in Spain. You can read our blog to learn more about taxation of motor insurance policies in Europe, this blog focuses on some of the specifics to consider in Spain.
The application of Insurance Premium Tax (IPT) and a surcharge to finance winding-up activity are common across all classes of insurance typically found in a motor insurance policy, with the latter being declared to Consorcio de Compensación de Seguros (“Consorcio”). For coverage such as roadside assistance and legal protection, this is likely to be the extent of the taxes due.
Additional Consorcio surcharges are due on other elements of the cover. For example:
Most motor insurance taxes and parafiscal charges are calculated as a percentage of the taxable premium. These taxes are then added to the premium and charged directly to the insured.
There are some exceptions including direct damages surcharge and fixed fees. The direct damages surcharge applicable to accident coverage is a percentage that applies to the sum insured rather than the taxable premium.
Additionally, there are fixed fees due to Consorcio on motor damage and motor third-party liability coverage that vary based on the type of vehicle. Categories with their own fixed fee include mopeds, passenger cars, and industrial vehicles, amongst many others.
The fixed fee for the Green Card should be treated as insurer-borne and is therefore not a cost directly passed onto the insured.
Spain has a fairly narrow scope for any IPT exemption under a motor insurance policy in comparison to other European jurisdictions.
As a rule, there are currently no exemptions that apply to particular categories of vehicle but there is an exemption for certain international coverage. In the case of any goods in transit insurance relating to cross-border transport that is included under a motor policy, that portion can be treated as exempt from IPT. The Consorcio Surcharge to Finance Winding-up Activity would remain applicable in these circumstances though.
Still have questions about taxation of motor insurance policies or IPT in Spain? Speak to our experts.
Join our insightful Insurance Premium Tax webinar where Sovos’ IPT experts James Brown and Khaled Cherif delve into the lesser-known, insurer-borne taxes in Belgium, France and Ireland. These taxes, whilst not directly charged to policyholders, can significantly impact insurers’ bottom lines.
Explore the intricate landscape of the following areas, considering the impact that they can have on insurers’ financials:
Discover the background to these taxes and how you can ensure compliance with their requirements to mitigate business risk and maximise profitability. Don’t miss this opportunity to shed light on the hidden financial burdens that can significantly affect your insurance business.
When considering motor insurance, it’s worth remembering that everything is high – from tax rates to the amount of administration required.
This blog includes general information about the taxation of motor insurance policies in Europe, covering the types of applicable taxes, how they are calculated, vehicle exemptions and more. We also have blogs for some of the more complex taxation requirements in the region, written by our regulatory experts.
Update: 2 November 2023 by Edit Buliczka
The Amendment to the Sixth Motor Insurance Directive, also known as the “MID,” was published in the Official Journal of the European Union on 2 December 2021. MID relates to insurance against civil liability in relation to the use of motor vehicles and the enforcement of the obligation to insure against such liability.
The measures of the Directive 2021/2118 (the “Amendment”), which was signed on 24 November 2021, must be transposed into national law by 23 December 2023, at the latest.
Among other important measures, this Amendment is relevant to insurance premium taxation. Two new articles were added to the MID regarding the contributions that may be payable by the insurance companies to the national guarantee funds.
According to Article 10a and Article 25a, every EU Member State is required to ensure that there are sufficient resources available to compensate injured parties in a motor vehicle accident where the relevant insurer is subject to bankruptcy or winding-up proceedings. The insurers may be required to contribute financially to these funds, but only insurance companies authorised by the Member State that imposed the payments may be subject to these levies.
In practice, the measures mean that contributions to the national guarantee funds related to compulsory third-party motor liability insurance policies cannot be collected from foreign insurers that write businesses on a freedom of services (FoS) basis. Since there is a requirement for the implementation of these measurements coming into national law by 23 December 2023, legally no guarantee fund contributions are payable by foreign insurers as of 24 December 2023.
Some governments, including Denmark and Ireland, have already started to draft the necessary regulations and incorporate them into their national laws. Others will likely follow shortly as there are under two months available for the implementation of these rules, at the time of the publication of this update. Perhaps several annual budgets will include the necessary legislative changes to comply with the measurements of the Amendment.
If you would like to receive further information about the guarantee fund contributions, please contact our IPT experts.
According to Annex 1 of the Directive 2009/138/EC of the European Parliament and of the Council of the EU, often known as the Solvency II Directive, motor vehicle insurance policies are classified as Class 3 Land vehicles (other than railway rolling stocks).
This business category covers any damage or loss to:
Class 10 Motor Vehicle Liability is another business class that covers motor-related risks. This business class covers all risks associated with liabilities deriving from the operation of motor vehicles on land.
A third-party motor vehicle insurance coverage guarantees that if an accident happens and/or damage occurs to another person’s vehicle, the expenses of the accident or damage are covered by the insurer of the person who caused the accident or damage.
We must not forget Directive 2009/103/EC on civil liability insurance for motor vehicles which governs mandatory motor insurance policies throughout Europe. One of the directive’s main principles is that all motor vehicles in the EU must have third-party liability insurance.
We should also mention that the European Parliament and the Council adopted the Directive (EU) 2021/2118 on 24 November 2021, aiming to modernise and amend the aforementioned directive with a deadline for the transposition of 31 December 2023.
In this blog, we outline the main characteristics of the taxation of motor-related insurance policies.
Premiums derived from motor-related policies are often subject to several types of insurance premium taxes. Class 3 risks are primarily subject to insurance premium tax (IPT), whereas mandatory third-party liability (MTPL) policies are subject to a wide range of taxes.
This may include IPT and/or payments to guarantee funds, as well as additional levies, charges, or contributions such as:
There is also the traffic safety fee, Automobile Rente (CAR) payment, automobile insurance bureau levy and rescue tax. This list goes on.
The disclosure and payment rules are also diverse. These fees can be paid yearly, monthly, quarterly or in instalments – with or without prepayments or final adjustments.
If IPT is charged on the motor hull or the MTPL policies, it is typically based on the premium amounts received, with the tax being a percentage of the premium. This is not the case in Austria, for example, where the computation of MTPL taxes is complicated.
The tax is calculated based on the engine’s horsepower and CO2 emissions. It also varies depending on the registration date of the vehicle, the frequency of payment and whether the 2017/1151 EU law applies to the vehicle. On top of that, no payment is due if the size of the engine does not reach 24kW or 65 kW. Contrary to the Austrian example, the IPT rate in Hungary is 23% – based on the premium amount.
Contributions to the Guarantee Fund are typically calculated as a percentage of the premium, as in France, Greece or Sweden. However, this fee can also be fixed as it is in Denmark, for example.
Most countries exempt premium amounts from policies covering motor hull or MTPL risks based on the following:
If the vehicle is operated by the authorities – such as police vehicles, fire trucks, or ambulances – or the armed services, it is typically exempt. Cars driven by disabled individuals and buses used for public transportation are likewise excluded in most cases. Insurance policies covering electric or hybrid vehicles may be excluded as well.
Sovos can provide advice on motor-related insurance premium taxation. Our compliance team may be able to help you in settling IPT in various countries across Europe, contact us today.
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Changing IPT providers can be a daunting process, but we’re here to simplify the transition for you with our industry expertise and hands-on experience. Our team has successfully assisted numerous clients in finding the right IPT solution that aligns with their needs, and we’re excited to share our knowledge with you.
Much of the discussion on the Location of Risk triggering a country’s entitlement to levy insurance premium tax (IPT) and parafiscal charges focuses on the rules for different types of insurance. European Union (EU) Directive 2009/138/EC (Solvency II) set out these rules. However, a related topic of growing importance in this area concerns territoriality, i.e. the geographical scope of taxing policies and the different approaches taken by countries in Europe.
It is important to note that this topic should not lead to double taxation for policies involving EU insurers and EU risks becoming an issue as this would be in contravention of Solvency II. It is more that a lack of consistency of geographical scope application across Europe could lead to cases of insurers being unsure of whether some policies should be taxed and where this should be.
There are several fixed energy installations that are commonly situated offshore from a given country. Examples of these are oil rigs, gas platforms and wind farms. The current push towards renewable energy sources could see countries increase their use of wind power in particular. This could lead to an increase in fixed energy installations in future.
These types of offshore installations are expensive forms of property and there is a need for insurance to provide coverage for any damage suffered. Coverage would also typically include associated liability, business interruption, and other financial loss coverage.
Based on the rules at EU level, insurance relating to offshore installations is generally interpreted as taxable in the country the property is situated. This is because they fall within the definition of being a building if they’re fixed to the seabed. This raises the question of when to consider an offshore installation as situated in a country.
In some European countries, the position is fairly clear. For example, for IPT purposes the territorial scope of the United Kingdom (UK) consists of Great Britain, Northern Ireland, and waters within 12 nautical miles of their coastline (its territorial sea). As such, insurance for installations within this territorial scope is taxable in the UK, whereas anything beyond the 12 nautical miles is not.
Some countries like Germany refer in their IPT law to the country’s exclusive economic zone (EEZ). The United Nations Convention on the Law of the Sea establishes this zone, mandating it can be no more than 200 nautical miles from a country’s coastline. Again, the taxability in these countries is simple based on an application of the limit in place.
There has been a lack of clarity in those countries where the IPT legislation does not make reference to any geographical scope. In the past insurers may have interpreted this as a country’s decision not to tax offshore risks. There are obvious concerns with this presumption if the tax authority becomes aware of insurance provided within its territorial sea or EEZ but without any tax payment. The waters are further muddied if legislation for other taxes (like VAT) refer to one of these limits as there is an argument that this limit could be extended to apply to IPT as well.
We are aware of an ongoing court case within an EU jurisdiction on the applicability of IPT to policies covering offshore installations. It may be several years before the outcome of the case is known if it goes through the appeals procedure, potentially up to the European Court of Justice. In the meantime, insurers may consider taxing offshore policies even where the geographical limit of a country is not defined in its IPT law. This is with a view to avoiding any such dispute themselves.
Need to discuss IPT and territoriality further? Sign up for our webinar IPT: Location of Risk and Territoriality in the EU on 8 June 2023.
Drone usage has increased significantly in recent decades, far beyond their initial use in the military.
They can be expensive themselves and, equally, can also cause damage to other parties or property, which is why many people and companies choose to insure them. This blog considers the insurance premium tax (IPT) and parafiscal charge treatment of drone insurance.
Sometimes called an unmanned aerial vehicle or UAV, a drone is an aircraft without any human pilot, crew or passengers on board. People can use drones for either commercial or recreational purposes.
Drone insurance is an example of packaged insurance and can include coverage under many regulatory non-life insurance classes.
Although not an exhaustive list, some of the classes of insurance set at the European Union (EU) level that we may see in such insurance are:
As an example of a packaged insurance policy, drone insurance is taxed based on each element of cover. Insurers should therefore apportion their premiums and tax each element accordingly, potentially resulting in many different tax rates in a given country.
First and foremost, it is essential to determine the registered territory of the drone – if it has one. If registered, the location of risk is reasonably straightforward under EU rules. Any IPT or parafiscal charges due will be in the Member State of the registration of the drone because it is considered a type of vehicle, namely an aircraft.
The issue is more complicated when a business or individual has not registered a drone in any country. This is the case with most drones used for commercial purposes if they are under a specific weight threshold. Parallels can be drawn with space insurance here, as the policy can have different risk locations for different coverages.
Any liability or miscellaneous financial loss coverage is taxed where the policyholder has their habitual residence or in the case of legal persons where they have their establishment.
Property coverage, including the storage of a drone in a building for more than the market practice of 60 days, is taxed where the property is situated.
Any coverage relating to the transportation of a drone to and from different locations is a goods in transit risk. The location of risk depends on whether a business or individual is using the drone for commercial or recreational purposes.
If used for commercial purposes, the location of risk should be where the policyholder has their habitual residence or establishment. If used for recreational purposes, then – under EU location of risk rules – the drone should theoretically be treated as movable property taxable in the Member State where it is situated – if it is contained in a building there.
Looking for more information on drone insurance? Speak to our expert team.
The ever-changing Insurance Premium Tax rules and regulations can be challenging to keep up with, so staying on top of the latest developments in IPT compliance is key.
Join Sovos’ Edit Buliczka, Senior Regulatory Counsel, and Christopher Branch, Junior Regulatory Counsel in a webinar on regulatory analysis, where they will cover the recent updates and changes in IPT in Europe.
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Find out more about the impact of these regulatory changes on your IPT obligations and how to ensure compliance with the latest regulations.
For more information see this overview about e-invoicing in Poland or VAT Compliance in Poland.
Following the publication of various circulars by the Federal Ministry of Finance in Germany in 2021, rules on the taxation of guarantee commitments were made effective 1 January 2023. This blog explains how this affects insurers and other suppliers.
The Ministry of Finance published its initial circular in May 2021. This was in response to a Federal Fiscal Court judgment. It concerned a seller of motor vehicles providing a guarantee to buyers beyond the vehicle’s warranty.
In these circumstances, the circular confirmed that the guarantee is not an ancillary service to vehicle delivery but is deemed to be an insurance benefit. As such, it would attract IPT instead of VAT – unless the guarantee is considered a full maintenance contract.
The circular did not prompt immediate concern within the insurance sector. Markets outside the motor vehicle industry weren’t concerned either. The presumption was that it was limited to the specific context of the motor vehicle industry.
Matters changed the following month. The Ministry of Finance clarified that the tax principles it outlined in fact applied to all industries. As a result, the scope of these rules became potentially limitless in Germany. All guarantees provided as additional products to goods or services sold are now within the scope of the application of IPT.
The clarification could impact industries like those organisations selling electrical items and household appliances.
The effect on traditional insurance companies should be relatively limited as they do not usually provide guarantees as part of the sales of goods and services. There could arguably be a significant impact on other suppliers that do provide such guarantees.
First and foremost, there is a potential increase in the cost of providing the guarantees caused by the application of IPT. Unlike input VAT, a supplier cannot deduct IPT from its taxable income – it must either increase prices to compensate or accept a less favourable profit margin.
Any companies that purchase the guarantees cannot reclaim the IPT either, as they can do with VAT. The standard IPT rate of 19% in Germany is high compared to most European countries. This exacerbates these issues.
There are also practical considerations to bear in mind for suppliers obliged to settle IPT with the tax authority. They are presumably required to be registered for IPT purposes like insurers, although the Ministry of Finance has not formally confirmed this.
Perhaps more difficult is the issue of licensing. The Ministry of Finance circulars focus on taxation, leaving it unclear whether other suppliers are now required to obtain a license to write insurance under German regulatory law.
Looking for more information on general IPT matters in Germany? Speak to our expert team. For more information about IPT in general read our guide for insurance premium tax.
Sovos’ IPT expert Hector Fernandez takes a deep dive into Spain’s Insurance Compensation Consortium (Consorcio de Compensación de Seguros, or CCS). Hector provides valuable information for insurance professionals interested in staying up to date with the latest developments in CCS regulations and their impact on Insurance Premium Tax.
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