Key Rules on Insurance Tax
2017
The Insurance Tax is a tax on
turnover imposed on the insurance industrythe rules of which are given in Act
CII of 2012 (hereinafter referred to as ‘the IT Act’). The revenue generated
from the tax shall be revenue for the central budget.
1 Subjects of the tax liability, taxable persons
The
provision of insurance services – under the IT Act, comprehensive insurance as
well as property and accident insurance – shall
be subject to tax if the location of risk[1]
is in Hungary (Section 2 of the IT
Act).
Compulsory vehicle liability
insurance, health insurance[2]
and agricultural insurance[3]
shall not be subject to insurance tax.
Comprehensive
insurance[4]
|
Property and
accident insurance[5]
|
Comprehensive
road vehicle insurance
(damage caused to road
vehicles, non-engine driven land vehicles)
|
Accident
insurance
(Including work-related accidents
and illnesses)
|
Comprehensive
rail vehicle insurance
(any
and all damage or loss occurred to rail vehicles)
|
Cargo insurance
(including goods, items of
luggage and any other items of property)[6]
|
Comprehensive
aircraft insurance
(any and all damage or loss
occurred to aircrafts)
|
Insurance against
fire and natural disasters
(all property damage caused
by fire, explosion, thunderstorm, other natural disasters other than
thunderstorm, nuclear energy, landslides, ground subsidence, earthquakes)
|
Comprehensive
watercraft (used on sea, lakes or canals) insurance
|
Other property damage[7]
|
|
Liability insurance related
to road vehicles[8]
(including the carrier’s liability)
|
|
Liability
insurance related to aircrafts
(including the carrier’s liability)
|
|
Liability
insurance related to watercrafts used on sea, lakes or canals
(including the
carrier’s liability)
|
|
General liability
insurance[9]
|
|
Credit insurance
(including general insolvency, export loans, payment
instalment transactions, mortgage loans, agricultural loans)
|
|
Sureties and
guarantees
|
|
Insurance against various
financial losses[10]
|
|
Legal protection insurance
(legal expenses and court
costs)
|
|
Assistance
|
The risk location (Member
State of the liability in the case of insurance branches not belonging to the
life insurance branch) shall be:
- the Member State in which the real estate is
situated, in the case of insuring real estate and the moveable properties
in them if they are covered by the same insurance policy,
- the Member State which shall be considered as the
country of commitment specified in the Civil Lability Insurance Act[11],
in the case of any kind of motor vehicle,
- the Member State in which the policy holder
concluded the contract, irrespective of the insurance branch concerned, in
the case of travel and vacation risk insurance policies with a term of
maximum 4 months,
- the Member State in which the permanent residence
of the policy holder is located, or, if the policy holder is a legal
entity, the site of this legal entity to which the contract applies, in
any other cases not referred to specifically in the paragraphs above.
The subject of the tax is the
insurer, including the Hungarian branch offices of third country insurers
seated in a Member State of the European Economic Area or in a third country
under the Insurance Act, and also including cross-border insurance service
providers in respect of their taxable insurance activities (Section 3 of the IT
Act).
2 The tax base, the tax rate[12],
and the accounting of the insurance premium
Tax base:
The insurance premium shall
comprise the tax base (Point 7 of Section 1 of the IT Act). It includes the gross
premium
charged by an insurer for the insurance services provided and accounted for in
accordance with accounting regulations, including the value not accounted for
as gross premium according to accounting regulations, which, however, is
considered as cover for insurance services in consideration for insurance
services.[13]
The tax base shall not include
the gross premium charged for agricultural insurance, and the premium income
received from the portfolio of insurance policies transferred from other
insurance companies for reinsurance[14],
accounted for as gross premium income.
If an insurance company
provides more than one insurance services subject to insurance tax within the
framework of a single insurance relationship, or provides a taxable insurance
service together with another insurance service (e.g. health insurance), the
insurance premium shall be the premium charged separately for each taxable
insurance service.
Accounting for the insurance
premium:
Insurance premiums shall be
accounted for on the basis of Schedule 2 to Government Decree No 192/2000 (XII.
24.) on the special features of the annual reporting and bookkeeping
obligations of insurers (hereinafter referred to as the ‘Government Decree’) by
insurers. The significance of that lies in the fact that the tax shall be
assessed by the 20th day of the month following the accounting of
the insurance premium (or premium instalment). Regarding the accounting of the
premium the insurer has two options to choose from[15]:
a) the insurance premium
income is continuously accounted for on their due date specified in the
effective insurance contracts and with the expected amount on the basis of the
contract. If a contract becomes no longer effective, the income already
accounted for in the month of termination will be reduced with respect to the
date of termination of the contract;
b) the insurance premium
income is accounted for on the date of its financial realization during the
insurance year. When the year is closed the insurer accounts for the income
financially unrealized but due until the balance sheet day; at the same time,
it terminates the income accounted for under the same title when the previous
year was closed.
Example:
The insurer applies the
provisions of Point a) when it accounts for insurances.
The client contracted for
property insurance against fire and natural disasters with the insurer and the
policy period lasts from 1 January 2017 until 31 December 2017. The client
chose to pay premium on a quarterly basis, and duly complies with their payment
obligations regarding the first two quarters on 22 January and 6 May 2017; then
terminates the contract on 17 May.
In accordance with the
provisions of the agreement concluded with the insurer the contract becomes
ineffective on the day of the unilateral termination in such cases.
The insurer accounts for the
premium incomes as income for January and April 2017 (irrespective of the fact
that the frequency of premium payment is quarterly in this case). In the month
of the termination of the contract, in May 2017, the income accounted for the
second quarter is reduced by the amount due for the period between 18 May and
30 June.
Assessment of tax liability
In order to assess the tax
liability, first it shall be examined whether the consolidated tax base reached
HUF 8 billion in the calendar year directly preceding the accounting of tax.
If it did, the rate of tax
shall be 15 percent for comprehensive insurance, and 10 percent for property
and accident insurance in each month of the tax liability.
If it did not reach HUF 8
billion, the rate of tax shall be
- 25% of the 15 % and 10% tax rate after the portion of
the tax base of the tax accounting month falling below HUF 100 million,
- 50% of the 15% and 10% tax rate after the portion of
the tax base of the tax accounting month exceeding HUF 100 million HUF, but not
exceeding HUF 700 million,
- 100% of the 15% and 10% tax rate after the portion of
the tax base of the tax accounting month exceeding HUF 700 million.
The following table summarizes
the tax rates applicable to various tax bases valid in 2017.
Type of insurance
|
Tax base
|
Tax rate
|
Comprehensive insurance
|
insurance premium
|
- 15 percent of the tax
base
- for taxable persons the consolidated
tax base of which did not reach HUF 8 billion in the calendar year
directly preceding the accounting of tax, the tax rate shall be
1.) 3.75% after the
portion of the tax base of the tax accounting month falling below HUF 100
million
(25 percent of the 15
percent)
2.) 7.5% after the
portion of the tax base of the accounting month exceeding HUF 100 million
HUF, but not exceeding HUF 700 million
(50 percent of the 15
percent)
3.) 15% after the
portion of the tax base of the tax accounting month exceeding HUF 700 million
|
Property and accident
insurance
|
insurance premium
|
- 10 percent of the tax
base
- for taxable persons the consolidated
tax base of which did not reach HUF 8 billion in the calendar year
directly preceding the accounting of tax, the tax rate shall be
1.) 2.5% after the
portion of the tax base of the tax accounting month falling below HUF 100
million
(25 percent of the 10
percent)
2.) 5% after the portion
of the tax base of the accounting month exceeding HUF 100 million, but not
exceeding HUF 700 million
(50 percent of the 10
percent)
3.) 10% after the portion
of the tax base of the tax accounting month exceeding HUF 700 million
|
The applicable tax rates
depend on two factors: 1.) the gross amount of insurance premium deriving from
comprehensive, property and accident insurance in the previous year 2.) the
amount of the tax base of the tax accounting month.
The preferential tax rates in
the various tax brackets shall be applicable in the particular insurance
branches in the ratio which is represented by the premiums of comprehensive,
property and accident insurance services in the entire tax base of the
particular month.
Example:
The insurer’s consolidated tax
base in tax year 2016 was HUF 4 billion.
The tax base in February 2017 is
HUF 570 million, HUF 360 million of which was generated from comprehensive
insurance policies and HUF 210 million was generated from property insurance
policies.
Since the consolidated tax
base was less than HUF 8 billion in the previous year, the progressive tax
rates, which are more favourable than the main rule, may be applied to the
February tax base.
Since 12/19th part (360/570)
of the tax base was generated from comprehensive insurance policies and 7/19th
part (210/570) was generated from property insurance policies, the same
proportions are applicable to the part of the tax rate which does not exceed
HUF 100 million (therefore, HUF 63.16 million of the premium income from
comprehensive insurance policies and HUF 36.84 million from property insurance
policies belong to this tax bracket).
The amount of tax payable
shall be (63.16 million x 3.75%) 2.37 million, and (36.84 x 2.5%) 0.92 HUF
million, that is a total of HUF 3.29 million.
HUF 470 million fall into the
next tax bracket, out of which the share of premium income from comprehensive
insurance is HUF 296.84 million (360 million – 63.16 million), and the premium
income from property insurance is (210 million – 36.84 million) HUF 173.16
million.
The amount of tax payable on
the middle bracket on the premium income from comprehensive insurance policies
is (296.84 million x 7.5%) HUF 22.26 million, and from property insurances
(173.16 million x 5%) HUF 8.66 million.
The total amount of insurance
tax on the taxable premium income in February 2016 is (3.29 million + 22.26
million + 8.66 million) HUF 34.21 million.
3 Tax assessment
The tax on the premium
payments and instalments shall be assessed, declared on Form No. 1720
provided for this purpose by the state tax authority and paid by
insurers by the 20th day of the month
following the accounting month of the premium payments and instalments, that is, until 20
February 2017 the earliest. Administrative tasks regarding insurance taxes are
performed by the state tax authority. The statutory tasks related to
insurance tax shall be performed by the state tax authority.
Insurance tax shall be paid
into NTCA tax revenue account no. 10032000-01076318-00000000 for
insurance tax (tax type code: 200).
National
Tax and Customs Administration
[1] Subpoint b)
of Point 62 of Subsection (1) of Section 4 of the Act LXXXVIII of 2014 on
Insurance Activities (hereinafter referred to as the ‘Insurance Act’)
[2] Insurance industry
under Point 2 of Part A) of Schedule No. 1 to the Insurance Act
[3] agricultural insurance under Act
CLXVIII of 2011 on Handling Weather-Related and Other Natural Risks Affecting
Agricultural Production
[4] Industries under Points 3 to 6 of
Part A) of Schedule 1 of the Insurance Act
[5] Industries under Part A) of
Schedule 1 of the Insurance Act, with the exception of Points 3 to 5
[6] damages occurred
to goods or items of luggage transported, irrespective of the type of the
vehicle of transport
[7] e.g., damage caused by hail or
frost, or damage caused by theft
[8] but not including compulsory
vehicle liability insurance, since it shall not be subject to insurance tax
[9] for instance,
liability insurance related to environmental pollution
[10] e.g. risks related to employment,
non-foreseeable business supplementary and extra costs, profit losses
[11] Act LXII of 2009 on Compulsory Insurance Against
Civil Liability in Respect of the Use of Motor Vehicles
[12] Subsections (1) and (2) of Section 5 of the IT Act
[13] It is a feature of the so-called unit-linked life
insurances, which are combined with investments, that the insurer assumes other
risks in addition to the risks covered by the insurance premium (e.g. accident
risk). The coverage of that is that the insurer deducts a certain amount from
the savings component of the insurance, as consideration for their costs. This
amount is practically insurance premium and therefore it is also part of the
tax base.
[14] Reinsurance activity shall mean transferring risks
assumed by an insurance company or a reinsurance company, and a third-country
insurance company or reinsurance
company in whole or in part, under the terms and conditions specified in a
contract, for the payment of premiums [Point 112 of Paragraph (1) of Section 4
of the Insurance Act]. The premium income received from reinsurance:
the fees indicated in reinsurance contracts and received from the reinsurance
portfolio in compensation for the assumption of risks (see in Government
Decree).
[15] Pursuant to the provisions
pertaining to the specific items of the profit and loss account in Schedule 2
to the Government Decree