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What Is Insurance Premium Tax (IPT)? A Complete Guide

People working within tax, finance, and insurance often have the same question: what is Insurance Premium Tax? The answer is complex.

The fragmented rules and requirements of different jurisdictions make calculating and settling Insurance Premium Tax (IPT) and the corresponding surcharges accurately and on time a significant undertaking.

This guide will help you understand IPT, discuss the key elements of calculating this tax, and provide solutions to ensure compliance:

  • Insurance Premium Tax explained: IPT is a tax applied to insurance premiums in many jurisdictions in Europe
  • Insurers must calculate, report, and pay IPT and the corresponding surcharges on eligible premiums, on the sum insured amounts or on per policy basis.
  • Rates and rules vary widely between the European countries
  • IPT applies to admitted insurance and in some cases, if allowed on non-admitted insurance
  • Accurate reporting and settlement are essential to avoid penalties

Who should read this IPT Guide?

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.

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What Insurance Premium Tax Actually Is

At its core, IPT is an indirect tax levied by the government on most non-life insurance premiums. As a general rule IPT is collected by insurers and that cost is then passed on to policyholders. Although in some cases IPT is an insurer borne tax e.g. in Hungary and cannot be directly passed on to policyholders.

In Europe, there are six key elements when it comes to answering the question of “what is Insurance Premium Tax?” and understanding how to accurately report and pay IPT.

  • Class of Business – the category that the risk falls under. Within the EU there are 18 classes of non-life insurance and 9 classes of life insurance
  • Location of Risk – understanding where the risk lies to determine where premium taxes should be declared
  • Tax Applicability and Tax Rates – this determines the applicable tax rate and any additional parafiscal charges that need settling or whether the premium benefits from exemption.
  • Tax point date – understanding the date when the tax liability arises is key for settlement purposes
  • Declaration and Payment – being aware of the frequency for declaring and settling liabilities
  • Additional Reporting – ensuring any additional reporting requirements are taken care of

IPT is often confused with sales tax, but their definitions are very different.

IPT vs Sales Tax

While both are consumption taxes, IPT and sales tax differ in scope, application, and rate. In general, IPT is a tax on insurance premiums, whereas sales tax (or VAT) is a general tax on the consumption of goods and services. Income generated from insurance premium amounts is generally exempt from VAT. Unlike sales tax (VAT), IPT is typically applied only to the initial premium (reinsurance is usually exempt) and does not give rise to deduct its amount on policyholder side i.e. there is no input /deductible IPT.

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Table of contents

1. How Insurance Premium Tax Works

2. Who Is Required to Pay IPT?

3. What Types of Premiums Are Subject to Insurance Premium Tax?

4. Where to Pay Premium Taxes

5. Insurance Premium Tax Rates by Jurisdiction

6. IPT Compliance and Reporting Requirements

7. Common Mistakes in IPT Filing

8. How to Calculate Insurance Premium Tax

9. How Sovos Supports IPT Compliance

10. Conclusion

11. FAQ

How Insurance Premium Tax Works

Insurance Premium Tax (IPT) in Europe is a form of indirect taxation applied mainly to insurance premiums, typically charged by insurers, and in most of cases it is ultimately borne by policyholders.

Unlike Value Added Tax (VAT), which is generally exempt on insurance services, IPT serves as the primary tax mechanism on insurance transactions.

The structure, rates, and scope of IPT vary widely across European countries, while EU member states are fundamentally guided by overarching EU regulations, such as the Solvency II 2009/138 EU directive. The tax itself remains non-harmonised, meaning each country sets its own rules, exemptions, and reporting and settlement requirements.

Insurance contracts can be subject to a variety of indirect taxes that go beyond the standard Insurance Premium Tax (IPT).

These include stamp duties, which are fixed or percentage-based taxes (such as in Ireland or Malta) and various parafiscal surcharges that usually fund specific public services. Examples of such surcharges include Fire Brigade Taxes (FBT) in Croatia, which are commonly imposed on property and fire insurance premiums to support local firefighting services, and contributions like INEM, INAMI, and MRPF, TER, or HAVF and RAVF and DGF in Portugal, Belgium, France, Italy and Denmark respectively. These surcharges are typically used for funding national health insurance, various risks prevention (like terrorism) accident-related funds or guarantee funds (e.g. motor guarantee funds).

This creates a complex insurance taxation landscape where insurers (especially those operating cross borders) must carefully navigate differing national regimes, each with distinct taxable bases rules, multiple tax rates, reporting and payment obligations; all of which put high administrative burden on companies.

Who Is Required to Pay IPT?

For admitted insurers (locally authorised), and if IPT is an insured borne tax, the insurer separately shows the IPT amount in the policy documentation and/or on the invoice but the direct settlement of the collected IPT to the tax authority is the insurer’s responsibility. This means that although IPT is settled by the insurer, its cost is ultimately and directly passed on to the policyholder. However, in some jurisdictions, where insurer borne taxes apply, the premium amount is embedded into the price of the insurance, and it must not be shown separately in the policy or on the invoice. For non-admitted insurers, i.e. third country insurers in the EU/EEA, in jurisdictions where selling insurance products is allowed without local authorisation, IPT is still due, but declaration and the settlement responsibility often shifts to the policyholder. In these cases, the non-admitted insurer provides the cover and collects the premium amount while the policyholder is obliged to register and remit the IPT amount to the local tax offices. In the United Kingdom (UK) and European Economic Area (EEA) the reporting and payment responsibility of IPT generally lies with the admitted insurer that has underwritten the policy. These insurers can write policies through their local establishment (head office or local subsidiaries) or on a freedom of establishment basis (locally established branches) or on a freedom of services basis (EU cross border insurance). There are some rare cases where a policyholder or the intermediary involved in an insurance agreement may need to settle the IPT directly to the authorities. Policyholders are usually liable to settle IPT if the insurer writes business on a non-admitted basis (third country insurers writing cross border insurance policies). As a rule of thumb, insurers who provides cover for the insured risks must register and account for Insurance Premium Tax (IPT) and the corresponding surcharges. Registration requirements vary by country so it’s important to comply with country specific registration requirements. It’s important to follow the registration process, checking timelines and required documentation ahead of time to avoid delays and potential penalties. Read our top five tips for stress free Insurance Premium Tax registrations.

What Types of Premiums Are Subject to Insurance Premium Tax?

So, what does insurance premium tax apply to? IPT applies to most of the non-life insurance policies with some exemptions, such as sickness, international transits or some agricultural lines of businesses. Exemptions available on non-life insurance lines are vary country by country in Europe.

Life insurance policies are enjoying exemptions in the majority of the EU/EEA region countries.

Where to Pay Premium Taxes

The Solvency II directive sets the “location of risk” rules, which ultimately determine which Member State has the right to collect taxes on insurance transactions.

The country where the insurance risk is deemed to be located will be the authorised tax jurisdiction. According to Article 13 of the directive, these criteria include the location of the property or registration of the vehicle insured, where the policyholder obtained holiday/travel insurance, or (in the lack of these risks) the habitual residence or business establishment of the policyholder. Understanding these rules is crucial to avoid double taxation within the EU. The location of risk rules was further reinforced by the European Court of Justice in landmark cases, such as the Kvaerner case (C-191/99).

It is important to mention that these rules do not apply to countries outside of the EU/EEA region (such as Switzerland), although the UK follows these rules. Therefore, in case of some Swiss-related policies, double taxation may occur.

The classification of the insurable risks is what determines the location of a risk and the authorised county for levying tax(es) on insurance transactions. Annexes of the same directive list the risk types which are commonly called ‘Class of Businesses’ (CoBs). There are 18 non-life class of businesses and 9 life or long-term classes.

The rules vary outside of the UK and EEA .i.e. in Switzerland and throughout US states, so it is possible for there to be double taxation where there is a combination of EEA and non-EEA coverage.

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Navigating Location of Risk Rules

Our Location of Risk Rules ebook helps you to successfully navigate these rules.

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Insurance Premium Tax Rates by Jurisdiction

In general, when insurers are calculating, reporting, and paying IPT on eligible premiums, they must consider the following:

  • Location of Risk: IPT is typically based on where the insured risk is located (not the insurer)
  • Exemptions: Certain policies are exempt from IPT
  • Calculation: IPT is calculated as a percentage of the premium and cannot be reclaimed by the policyholder (like VAT)

Below is a handy table of key jurisdictional IPT rates in the EEA:

UKStandard rate: 12%
Higher rate: 20%
FranceGeneral rate: 9%
Some fire rate: 30%
MTPL rate: 33%
SpainStandard rate: 8%
GreeceStandard rate: 15%
Fire rate: 20%
GermanyGeneral rate: 19%
Fire rate: 22% (on fire proportion)

Use our Guide to IPT to understand all the elements of Insurance Premium Tax and how to navigate complex territories.

IPT Compliance and Reporting Requirements

Compliance with IPT rules and regulations can be complex, and IPT compliance requirements vary between countries and jurisdictions.

Declarations are submitted through diverse channels such as paper forms, email, postal mail, or increasingly via online portals. The information in these declarations varies as well. Sometimes the taxable premium and the tax amount is sufficient information, while in other cases, detailed information about the policies split by class of businesses must also be uploaded electronically.

The frequency of filings also differs widely, ranging from monthly, bimonthly, and quarterly to biannual or annual periods, with some jurisdictions requiring a combination of these depending on the type of the levy.

Similarly to filing requirements, there are differences in the payment rules. Usually, online submission is linked to direct debit payments using local bank accounts, while bank transfers from foreign bank accounts are accepted where the submission is made in the form of email or post. .

Here are some key compliance considerations and requirements:

  • Registration & Deadlines: Registration for insurance premium tax for insurers must be adhered to within the jurisdictional deadline.
  • Liability: As a rule of thumb, insurers are responsible for accurate reporting and adhering to IPT filing deadlines.
  • Returns: Regular returns must be filed to declare the received taxable insurance premiums or sum insured or number of policies issued..
  • Rates: It’s crucial to identify the IPT rates for the specific risk in the location of that risk
  • Penalties: Late or incorrect payments and missed or inaccuracies in returns may trigger penalties.

Use our Guide to IPT to understand all the elements of Insurance Premium Tax and how to navigate complex territories.

Common Mistakes in IPT Filing

Common mistakes in IPT filing are often due to complex rules and regulations. These errors then lead to significant financial penalties.

Below are a few common errors:

  • Incorrect determination of the class of businesses: Various Class of businesses may trigger various rates; incorrect mapping of the risks can lead to under or over declaration as well.
  • Misidentifying Risk Location: Errors often occur when the location of risk is incorrectly identified, leading declaring IPT in an incorrect jurisdiction
  • Incorrect Application of Tax Rate: Using the wrong IPT rate is common, especially when dealing with complex policies and exemptions
  • Forgetting the additional surcharges: Calculating only IPT and not the compulsory surcharges may lead to substantial consequences such as penalties
  • Misunderstanding IPT: Treating IPT as VAT is a frequent error (e.g., trying to reclaim IPT in the same way as input VAT)

How to Calculate Insurance Premium Tax

Insurance premium tax rate models in Europe vary widely, typically applying either a percentage rate on the premium amount or, less commonly, on the sum insured.

Percentage rates often range from low single digits such as in case of Bulgaria with 2%, to over 20% like in the case of Finland with a 25.5% IPT rate. While some countries use only one tax rate across all classes of businesses, in some EU countries such as France or Italy, the applicable rate is dependent on the risk coverage,

In addition to percentage-based taxes, some jurisdictions impose a fixed amount stamp duty per policy basis. Countries such as Malta mix the fixed amount of tax with a percentage rate model.

Another unique rate model is applied by Hungary, that use the so-called sliding-scale methodology. The sliding scale model, which is commonly used in personal taxation, increases the tax rate progressively as the total amount of the premium collected in the reporting period rises, creating a higher tax burden for periods where the total amount of the premium collected exceeds a certain limit.

The applied insurance premium tax rate models can vary within a country as well. For example, in Spain, a percentage rate model based on the premium amount used for IPT is combined with a percentage rate applied to the sum insured for extraordinary risks charges. While in Ireland, the percentage rate model is mixed with a fixed amount rate model.

This variation of rate models reflects the diverse approaches European countries take to ensure fair tax collection while addressing different market characteristics.

Use our Guide to IPT ebook to understand all the elements of Insurance Premium Tax and how to navigate complex territories.

How Sovos Supports IPT Compliance

Sovos’ IPT Determination solution is the first virtual end-to-end Insurance tax compliance software that enables you to confidently calculate and apply European 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.

Conclusion

Insurance Premium Tax is a growing revenue source, and therefore it is crucial to understand its key elements, as well as how to register, calculate, and report. IPT compliance is crucial, and we know IPT rates can be complicated and are always subject to change. Why not ask our experts for answers to your IPT questions?

FAQ: What Is Insurance Premium Tax?

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.

The location of the risk coverage determines the country of taxation hence the applicable rate. In many countries, the tax rate is determined by the type of insurance. However, there are countries, such as Bulgaria, where the same tax rate applies to all Class of Businesses (CoBs). 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.

Learn more about Location of Risk in our ebook.

In the European Union (EU) and European Economic Area (EEA) and in the United Kingdom (UK), this depends on the so called Classes of Businesses i.e. the type of risk. 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 like in case of Switzerland.

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 international goods in transit and sickness insurance, but it is important to review exemptions for the country where the risk is located.

Life insurance policies are usually benefit from exemption in most of the EU/EEA countries.

As a rule of thumb, IPT is a tax on non-life insurance premiums amounts. The tax is passed onto the policyholder; however the settlement requirements remain the obligations of the insurers. But in some jurisdiction IPT is insurer borne, meaning that the tax cannot be passed directly onto the policyholder, but its costs are embedded into the premium amount.

Sovos’ IPT Managed Services provides support. Our team of local language regulatory specialists monitor and interpret IPT regulations across Europe so you don’t have to.

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