Taxation of Motor Insurance Policies

Edit Buliczka
September 26, 2023

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

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:

  1. Land motor vehicles
  2.  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.

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Edit Buliczka

Edit is a senior regulatory counsel. She joined Sovos in January 2016 and has extensive IPT knowledge and experience. Her role ensures the IPT teams and systems at Sovos are always updated with legislative changes. She is a Hungarian registered tax expert and chartered accountant and has worked for companies in Hungary including Deloitte and KPMG and as an indirect tax manager she worked for AIG in Budapest. She graduated with an economist degree from Budapest Business School, faculty of finance and accountancy and also she has a postgraduate diploma from ELTE Legal University in Budapest.
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