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.
Which taxes are payable in relation to motor insurance policies in Norway?
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”.
How is TRIF on motor insurance policies calculated in Norway?
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).
Group a) covers passenger cars, vans, camper vans, buses, combination cars, lorries, and tow trucks with a maximum total weight of 3,500 kg or higher
Group b) covers diesel-powered automobiles out of group a) that do not have a factory-installed particulate filter
Group c) comprises annual tests identifying markings for motor vehicles
Group d) covers motorcycles
Group e) covers other vehicles, including taxis, mopeds, tractors, vehicles that transport disabled people and vehicles that are over 30 years old
Group f) covers electric-powered vehicles
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).
What vehicles are exempt from tax in Norway?
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.
What kind of taxes are applicable in Liechtenstein on insurance premium amounts?
In Liechtenstein, there are two types of taxes that apply to premium amounts received by insurance companies:
Swiss Stamp Duty (CHSD)
Liechtenstein Insurance Levy (LIL)
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.
What are the tax rates in Liechtenstein?
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:
Policies covering accident
Transport of goods
Unemployment insurance
Hail insurance
Livestock insurance risks
Reinsurance policies
What is the basis of a CHSD and LIL calculation in Liechtenstein?
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:
based on a domestic portfolio of a domestic Liechtenstein insurer
that are paid by a domestic policyholder having an insurance contract with a foreign insurer
What are the CHSD and LIL filing and payment frequencies in Liechtenstein?
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.
What are the penalties and interest for CHSD and LIL in Liechtenstein?
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.
What are the challenges for Insurance Premium Tax in Liechtenstein?
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.
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.
What kind of taxes are applicable in Monaco on insurance premium amounts?
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.
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.
What is the basis of SAT and FBT calculation in Monaco?
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.
What are the SAT and FBT filing and payment frequencies in Monaco?
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.
What are the penalties and interest for SAT and FBT in Monaco?
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.
What are the challenges for Insurance Premium Tax in Monaco?
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.
Which taxes are payable in relation to motor insurance policies 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:
Personal accident coverage attracts a separate surcharge for direct damages to person.
Motor damage and motor third-party liability insurance entail the application of fixed fees on a per-vehicle basis.
Contributions to the Motor Guarantee Fund in Spain (also administered by Consorcio) are currently due on compulsory motor third-party liability coverage. It is worth highlighting that this obligation should cease for insurers writing on a freedom of services or establishment basis in light of Directive 2021/2118, subject to domestic implementation of the Directive expected by 23 December 2023.
The Green Card regime applies to compulsory motor third-party liability coverage per Green Card issued. If no Green Card is issued, this does not apply.
How are taxes on motor insurance policies calculated in Spain?
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.
What vehicles are exempt from tax?
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.
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:
Belgium: INAMI Taxes
France: MRPF (Major Risk Prevention Fund)
Ireland: Stamp Duty
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.
Guarantee Fund Contributions Are Not Payable by Foreign Insurers
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.
Effects of the amendment
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.
Insurance coverage in Europe on motor-related risks
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:
Land motor vehicles
Land vehicles other than motor vehicles
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.
Which taxes are payable in relation to motor 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:
INAMI Red Cross contributions in Belgium
The green card fee in Spain
The Emergency Fund (EMER) and Road Accident Victims Fund (RAVH) in Italy
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.
How taxes on vehicle insurance policies are calculated
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.
What vehicles are exempt from tax?
Most countries exempt premium amounts from policies covering motor hull or MTPL risks based on the following:
Who uses the vehicle
Why the vehicle is used
Environmental reasons
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.
How Sovos can help with Insurance Premium Tax on vehicle tax
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.
Are you in search of a new Insurance Premium Tax (IPT) provider? Need guidance on making a smooth transition? Join our exclusive live Q&A webinar, “Choosing a New IPT Provider,” where we’ll address all your inquiries and help you confidently navigate this important decision.
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.
Join Sovos’ IPT experts Bev Gunner, Sudhan Ramesh and Dawn Rowlands, as well as Allianz’s Andreas Kessler for an insightful session where we’ll dive into the intricacies of selecting a new IPT provider and answer your burning questions about the transition process. Don’t let uncertainty hold you back – empower yourself with the knowledge you need to make a well-informed choice.
Remaining IPT compliant in a changing landscape of Insurance Premium Tax is paramount for all insurers. In this webinar, Sovos’ IPT experts are delving into the critical aspects Location of Risk rules and territoriality in the EU.
Join Sovos’ IPT experts for insights into the legal framework around Location of Risk and territoriality within the EU. They will also delve into the relevant European Court of Justice cases that have shaped their application within the EU.
Register today to find out about the different approaches taken by Member States in handling the geographical scope of taxing insurance policies. Additionally, find out about the potential issues that arise for insurers as a result of these varying approaches.
Join us as our experts uncover the key points your business needs to consider around complex IPT topics. There will also be a change to ask your questions at the Q&A section at the end.
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.
Why is territoriality important?
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.
What is the approach to taxing offshore insurance policies?
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.
Are there any changes in the pipeline in this area?
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.
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.
What is a drone?
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.
What does drone insurance cover?
Drone insurance is an example of packaged insurance and can include coverage under many regulatory non-life insurance classes.
Class 5– Aircraft: For damage to the drone in the event that it constitutes an aircraft (see below).
Class 7– Goods in transit: For any coverage relating to the transportation of the drone to and from different locations.
Class 8– Fire and natural forces: For fire-related risks to the drone.
Class 9– Other damage to property: For coverage relating to other damage to or loss of the drone.
Class 11 – Aircraft liability: For the liability of the drone for the damage it causes to third parties in the event that it constitutes an aircraft (see below).
Class 13– General liability: For the liability of the drone for the damage it causes to third parties, e.g. professional indemnity coverage.
Class 16 – Miscellaneous financial loss: E.g. any business interruption cover in the event that a drone is damaged.
How do you tax drone insurance?
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.
How do you determine the location of risk?
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.
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.
Register for our webinar to discover more information about:
Hungary and extra profit tax – amounts to declare vs pay
France and its National Agricultural Catastrophe Fund’s rate change
Poland’s Ombudsman Charge – what does the new regime mean?
Find out more about the impact of these regulatory changes on your IPT obligations and how to ensure compliance with the latest regulations.
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.
Scope of the rules for guarantee commitments
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.
Effect on insurers and other suppliers
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.
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.
Attend the webinar for:
An introduction to CCS
The functions performed and different types of surcharges
Reporting to CCS: Mandatory and additional information
This guide to Insurance Premium Tax (IPT) is for insurers, brokers and anyone needing to understand IPT compliance. From tax managers to financial controllers and compliance managers, this guide provides information and advice for all those working in tax compliance.
Tax Experts
Finance Experts
Insurance Experts
What this guide contains
Insurance Premium Tax is complex. The fragmented rules and requirements of different jurisdictions makes calculating and settling IPT accurately and on time a significant undertaking.
This guide will:
Help you understand Insurance Premium Tax
Discuss the key elements of calculating Insurance Premium Tax
Calculating Insurance Premium Tax varies by country. There are multiple ways to calculate it, including percentage rate, fixed amounts, sliding scales and other models.
Use our Guide to IPT to understand all the elements of it and how to navigate complex territories.
Who needs to register for IPT?
In the UK insurers and intermediaries who receive taxable insurance premiums must register and account for Insurance Premium Tax. Registration requirements vary by country so it’s important to comply with country specific registration requirements.
How to register for Insurance Premium Tax?
Registering for it country to country. It’s important to follow the registration process, checking timelines and required documentation ahead of time to avoid delays and potential penalties.
We know that IPT rates are complicated and always changing. Why not ask our experts for questions?
Just need answers? Here are the most important questions answered:
What happens when Insurance Premium Tax rates increase?
Insurance Premium Tax rates can increase for different reasons. When announcing a rate increase, tax authorities will provide information about when the new rate comes into effect and any other changes that affect IPT payments and submissions.
How to Solve IPT: Insurance compliance solutions
Sovos’ IPT Determination solution is the first virtual end-to-end IPT compliance solution that enables you to confidently calculate and apply global IPT rates at quotation. Real-time tax updates ensure tax rates and tax applicability are always accurate.
Learn more about how IPT Determination can help insurers that are writing complex global programmes.
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 so you don’t have to.
FAQ: All questions for Insurance Premium Tax answered
Who pays Insurance Premium Tax?
In the United Kingdom (UK) and European Economic Area (EEA) the responsibility generally lies with the insurer that has underwritten the policy. There are some cases where a policyholder or intermediary involved in an insurance agreement may need to settle the IPT.
How do you determine the country where IPT should be paid?
In the UK and EEA, this depends on the type of insurance. Property insurance, vehicle insurance, travel and holiday insurance, and all other insurance follow different approaches. The rules vary outside of the UK and EEA, so it is possible for there to be double taxation where there is a combination of EEA and non-EEA coverage.
What rate of IPT should be applied?
The location of risk affects the applicable rate. In many countries, determining the rate is by the type of insurance. Within the EEA, there are 18 main classes of non-life insurance, and it is imperative to determine where insurance coverage falls within these classes. This ensures that taxes are correctly applied.
There are exemptions from IPT in the UK and EEA. Some are highly specific, whilst others are considerably broader. Some exemptions include those seen in relation to goods in transit and sickness insurance, but it is important to review exemptions for each country in which the insurance.
When is IPT payable to the tax authorities?
Firstly, consider the date that triggers settlement of an IPT liability. This is usually referred to as a tax point date. It varies from country to country. In most EEA countries and in the UK, the default tax point date is the date the insurer receives a premium from a policyholder.
The IPT payment and declaration process varies across different countries. Some have monthly settlement deadlines. Others may have quarterly, bi-annual, or even annual payment obligations. Payment deadlines and tax return submission deadlines are not always the same.
Are there any other taxes applicable to insurance premiums in addition to IPT?
Additional parafiscal charges are common across the UK and EEA. These are often applied on specific classes of insurance, such as property and fire insurance, but in some countries are broad in their application. These charges often entail additional registrations in a country as there may be separate tax offices that deal with them.
Can I claim back IPT?
It is possible in some circumstances to reclaim overpaid IPT. This is subject to the rules in place within the country the reclaim is sought, as some countries (notably Italy) have stricter rules in place than others. We recommend maintaining accurate records of any evidence substantiating the reclaim amounts, such as credit notes issued to policyholders, as these are often required.
The rate increased from 5% to 9%. This came into effect on 1 October 2022. The first submission deadline followed on 15 November 2022.
Unfortunately, the transition has been plagued by problems. We discuss some issues and how Sovos is approaching them.
Slovenia’s new tax return
We had anticipated that the tax return would remain unchanged, with the premium reduction at 20% and the standard at 100% carrying over from the previous version. Instead, the Slovenian tax authorities overhauled the return entirely. This included:
The old rate at 5%
The new rate at 9%
Allowing for all combinations of rates to be selected
With the combinations, a return could include up to 30 different lines, but the return only includes four – one for each combination.
This layout suggests that the tax authority wishes to combine policies with the same rates, e.g., 100% and 9%.
This differs from previous returns.
Previously each class of business had a separate line. Sovos has contacted the tax authority about the most compliant way to complete this.
Telephone number information on tax return
Some aesthetic changes caused unexpected issues.
Telephone numbers now have a set number of boxes instead of an open line.
This change doesn’t accommodate longer phone numbers. For example, a UK phone number doesn’t fit.
This requires clarification from the tax authorities:
Should the number section be blank?
What about adding more boxes?
Will the authority issue a new tax return for international phone numbers?
Postcodes also have the same issue.
As frustrating as these issues are, there is a more significant frustration.
The amount of time between the new return’s publishing and the first submission deadline The new return was published online roughly three weeks before the deadline.
This was a very short turnaround to upload the returns to the systems and solve any problems that may have arisen, as well as informing clients about any new information that may be required here.
Fortunately, no new information was required. Short deadlines to comply with new tax return requirements are a frequent problem we encounter.
Conflicting information about Slovenia’s new Fire Brigade Tax return
Guidance from the tax authority has been inconsistent at best.
The new Fire Brigade Tax rate would apply to the cash received date. The 9% rate applies to any premiums generated after 1 October 2022.
However, guidance on the official Slovenian tax authority website stated that if the inception date for the policy was before 1 October, the 5% rate would still apply. This is regardless of when the premium was collected. This applies until the policy is renewed. At this point, the 9% rate is applied. This is a significant conflict. It’s potentially millions of euros difference in the amount due. Don’t forget the countless corrections required to balance the books.
As well as being issued late, multiple tax return versions were published online. Only one had the updated tax rate included. The return disappeared from the website and was replaced by the original return.
The English translation and other versions haven’t been updated – this is still the case even after the deadline.
Finally, the guidance on the tax authority’s website states it’s mandatory to submit the FBT returns online through the tax authority portal.
However, official communications from the tax authority directly informed us at Sovos that submissions were required by email only.
Again, this is a significant conflict. Submitting returns through the wrong channel would result in the tax authority declaring the submission late and levying fines.
Next steps with Slovenia’s new tax return
We have communicated all these issues to the Slovenian tax authority. We haven’t received a response yet, but we will update this blog as soon as we have more information.
Sovos has a wealth of experience that enables us to solve issues that arise and ensure our customers remain compliant with the latest tax requirements.
Need help with Fire Brigade Tax requirements in Slovenia?
Want to ensure compliance with the latest Fire Brigade Tax requirements? Speak to our experts.
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:
Corporate health insurance policies – companies will need to ensure any claims on these policies relating to Covid-19 made by insured employees and their dependents will be covered by the insurer
Corporate travel insurance policies – companies will need to ensure any claims on these policies relating to business travel affected by Covid-19 by insured employees will be covered by the insurer
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.
Meet the Expert is our series of blogs where we share more about the team behind our innovative software and insurance premium tax (IPT) compliance services.
As a global organisation with indirect tax experts across all regions, our dedicated team are often the first to know about regulatory changes and developments in global tax regimes to support you in your tax compliance.
We spoke with Sean Burton, senior compliance services representative who explained Slovakia’s specific IPT reporting requirements and shared some of his top tips to ensure compliance.
Can you tell me about your role and what it involves (day to day and more strategic responsibility)?
I’m a senior compliance services representative for IPT at Sovos. I joined the company just over three years ago and have mainly worked with clients writing global insurance programmes, exposing me to a wide range of scenarios within IPT.
My day-to-day role now involves overseeing the review and return preparation process for associates and representatives’ data, ensuring accurate submissions are prepared in a timely manner. The final step in this sequence is for me to sign off the final returns and pass them to our client money team. Outside of this work I deal with client queries, assisting with more complex annual reporting requirements and submission of the Slovakian IPT returns.
Can you tell us about Slovakia’s specific IPT reporting requirements?
The IPT tax regime in Slovakia took over from the previous Non-Life Insurance Levy tax on 1 January 2019. Any policies incepted on or after this date are subject to the IPT tax as opposed to the old levy.
The tax rate remained the same at a flat 8% rate across all business classes.
There are three tax points for IPT in Slovakia:
Booked date – when the premium receivable is booked into the system
Cash received date – when the premium payment is received
Payment due date – when the premium is due to be paid
This offers insurers greater flexibility with their tax points in comparison to other territories, allowing the insurer to pay taxes either upfront or spread across multiple returns in installments. The main point here is once a specific tax point has been selected, the insurer must use it for the next eight submission periods. After this they can change the tax point should they wish.
Slovakian IPT is submitted electronically via an online tax portal. The submission and payment are due at the end of each quarter.
What are some of the issues insurers face with IPT in Slovakia?
As with most territories that have moved to online filings, the Slovakia tax authorities now require more specific information for each policy. As a result, Sovos now requests an additional field in our data template so that we can report this accurately.
Type of movement:
E/R – Issuance of a premium/renewals: grouped on the tax return by class of business. It’s important to note that an overall negative position for a specific business class is not permissible and will be rejected in the Slovakian Tax Portal.
S – Supplementary premium: the case whereby a premium or part thereof, is increased, reduced or cancelled. These premiums are reported within Box 19 on the Slovakian IPT return, where the total can be either positive or negative.
C – Correction of error: In the case of a correction of error a supplementary declaration must be submitted for the appropriate period affected.
This can be a problem for insurers who haven’t previously collated this information and it’s not part of their current internal booking systems, which can take time to update.
Another issue for insurers writing policies with a long duration over a number of years is that whilst the IPT regime took over from the old Non-life insurance levy (NLIL), NLIL can still be due if the policy incepted prior to 2019. Therefore, it’s important for insurers to be aware of this distinction and ensure both taxes are paid accurately.
What are your top tips for Slovakian IPT reporting compliance?
My top tip for IPT reporting in Slovakia would be to collect as much detailed policy information as possible to complete the separate sections of the IPT return compliantly.
This will also help insurers be organised for any further updates to Slovakian reporting in the future. Requesting detailed policy information is a trend we’re seeing across all territories and insurers need to be prepared for this.
How can Sovos help insurers with IPT in Slovakia?
Firstly, at Sovos we have a good connection with local associates in Slovakia. This means we can keep our finger on the pulse with any IPT related legislative changes that arise in Slovakia.
Secondly, the online submission process requires each box to be manually inputted with information such as premium tax amounts, contact information and tax point selection. Leaving this process in our hands will certainly save insurers valuable time.
