There are several countries within the European Union (EU) and European Economic Area (EEA) that have introduced a Fire Brigade Tax (FBT). Fire Brigade Tax is payable on certain premium amounts and usually in addition to Insurance Premium Tax (IPT).

Fire Brigade Tax, or the Fire Brigade Charge (FBC) or Fire Protection Fee (FPF) as it’s known in some territories, is levied on the proportion of the premium that covers fire risks. Fire Brigade Tax is calculated on the fire premium multiplied by the applicable Fire Brigade Tax rate, which seems straightforward but, as is often the case with IPT, some countries have made this calculation quite complex.

This blog summarises the challenges around Fire Brigade Tax calculation and what to consider when calculating Fire Brigade Tax, as well as including country specific rules. For further information about country specific Fire Brigade Tax rules read our blog posts about UK, Portugal and Slovenia.

How to calculate the fire proportion

Solvency II Directive 2009/138/EC doesn’t provide a definition of fire proportion.

The following approach is the most common way to determine the fire proportion of FBT regulations (e.g. Austria).

  1. Where the insurance policy covers 100% fire risks: Fire Brigade Tax is calculated on 100% of the taxable premium
  2. Where the insurance policy covers multi-risks and the fire risk can be determined: Fire Brigade Tax is calculated on the fire premium only.
  3. Where the insurance policy covers multi-risks and the fire proportion cannot be determined: Fire Brigade Tax is calculated based on proportions dictated by the Fire Brigade Tax regulations or by a tax office guidance. Alternatively, there can be a market practice which is followed and accepted by the local tax offices or the bodies where Fire Brigade Tax is payable.

In Luxembourg the rule is as follows: where the fire and natural forces element cannot be separately identified, the 6% rate applies to 40% of the premium in case of household contents or 50% of the premium in case of non-household contents. This is based on guidance issued by the Luxembourg Tax Office.

In Belgium, the taxable premium for Security Fund for Fire and Explosion charge (Fire INAMI) is dependent on the type of risk covered. The fire proportion is determined by the Law on compulsory healthcare and compensation insurance. For example, for premiums covering terrorism risks the fire proportion is 35%, while for electricity risk it’s 10%. It‘s not possible to deviate from these dictated fire proportions.

In Austria the fire proportion rate can be determined by the insurer based on the covered risks.

An interesting example of Fire Brigade Tax calculation is Finland where the taxable basis of IPT is increased by the amount of calculated Fire Brigade Tax.

As these examples demonstrate, there are many different approaches to the Fire Brigade Tax. Insurers need to stay up-to-date with the local Fire Brigade Tax regulations to correctly calculate the Fire Brigade Tax amount.

When calculating the fire proportion, it’s important to understand that Fire Brigade Tax is not only applicable for fire risks but is due on other risks too. Understanding what risks may trigger Fire Brigade Tax liability requires familiarising ourselves in the mappings of the covered risks.

Which class of businesses or risks could be impacted by Fire Brigade Tax?

The immediate answer is Class 8, Fire and Natural Forces. According to Annex I of the Solvency II Directive Class 8, Fire and natural forces covers “All damage to or loss of property (other than property included in classes 3, 4, 5, 6 and 7) due to fire, explosion, storm, natural forces other than storm, nuclear energy, land subsidence.”

And from this definition it’s not difficult to figure out what other classes may be impacted by Fire Brigade Tax. So, these are Class 3 Land Vehicles, Class 4 Railway rolling stock, Class 5 Aircraft, Class 6 Ships, Class 7 Goods in Transit and Class 9 Other Damage to Property.

From a risks point of view, Fire Brigade Tax is usually charged on theft, hail and frost damages on top of the fire, storms or land subsidence.

Up-to date knowledge of the Fire Brigade Tax rates is required to calculate Fire Brigade Tax. Plus, you also need to know how the settlement is working, that is where to declare Fire Brigade Tax, what form should be used and the payment method etc.

Fire Brigade Tax rates

Staying up to date with Fire Brigade Tax rates is even more important. In our ever-changing world tax rates increase and decrease constantly depending on the climate and politics.

Fire Brigade Tax rates vary across the EU. In Slovenia Fire Brigade Tax rates increased from 5% to 9% as of 1 October 2022. The new rate is applicable to policies that were cashed on or after 1 October 2022.

In some countries there are no separate Fire Brigade Tax regimes as such, but if fire is covered by the premium, then the applicable Insurance Premium Tax rate is higher. Examples include France and Greece. In Greece if the premium covers fire risks a higher IPT rate of 20% is applicable.

There are countries (Iceland), where, broadly speaking, Insurance Premium Tax applies only if fire is covered.

And lastly, there are countries where separate Fire Brigade Tax regimes exist and Fire Brigade Tax is calculated on the fire proportion and the applicable Fire Brigade Tax rate is applied. Examples include Austria, Germany and Luxembourg.

The Fire Brigade Tax rates discussed so far are in territories where the taxable premium rate model is used. However, there are Fire Brigade Tax regimes using other rate models too, like the sum insured. This is the case in Liechtenstein where Fire Brigade Tax is calculated based on the value of the property.

Within the frame of this topic, it’s also worth mentioning that Fire Brigade Tax can be insurer borne, insured borne or both. In Austria for example, 4% of the Fire Brigade Tax is insured borne and is invoiced to the policyholder as an addition to the premium and the other 4% is insurer borne and is deducted from the collected premium.

Fire Brigade Tax settlement process

Completing the Fire Brigade Tax obligation requires submitting the tax declaration and paying the corresponding tax. These two processes can be referred to as settlement.

The variety of Fire Brigade Tax settlement processes is colourful. Differences exist in:

For compliant tax settlement, it’s vital that understanding and interpretation of Insurance Premium Tax regulation is up-to-date and accurate.

Need to learn more about Fire Brigade Tax regimes? Contact Sovos’ IPT expert team who are happy to help you.