This blog was last updated on April 9, 2024

The new rate for Insurance Premium Tax (IPT) was published in the Spanish Gazette (BOE) on 31 December 2020. It increases from 6% to 8%. This increased rated applies to the first tax period of 2021 (for submissions to be made the next February). In this blog, we’ll look at the challenges faced by insurers from the increased rate and transmission measures.

IPT was first implemented in Spain on 1 January 1997 with a rate of 4%, and since 1998 the IPT rate was increased to 6%. The Spanish Government have justified this latest increase to 8% with two arguments: the rate hasn’t changed since 1998 and the IPT remains at a lower level when compared with other European countries in Europe like Germany, the UK, or Italy.

The increase has no implications on other elements or points related to IPT, such as IPT exemptions, surcharges like CCS or deadline submissions. The main challenge for insurers is how to apply IPT compliantly.

How will it affect insurers?

In principle, the new IPT rate of 8% should apply in the following cases:

• New contracts or renewals incepting on or after 1 January 2021
• Premiums received on or after 1 January 2021
• Instalments of policies issued before 1 January 2021 and received on or after 1 January 2021

If some policies falling under the above conditions have been charged at 6% by the insurer instead of 8%, the insurers can issue the corresponding supplementary receipts for the difference to the policyholder.

We understand that the Spanish authorities have shown some leniency by providing insurers with a “transitional period” that should last for a couple of months where it’s still possible to report some policies at the IPT rate of 6% as per the below cases:

• Policies incepting before 1 January 2021 and whose annual premium is received in the first months of 2021
• Refunds for policies with an inception date before 1 January 2021

Filling in different Spanish territories

IPT must be declared in each of the five tax authorities in Spain depending on the location of the risk insured. The experience of January 2021 IPT filings shows that the change of IPT rate isn’t implemented in the same way in all jurisdictions in the tax returns and each tax authority will implement the changes brought by this IPT increase differently.

This is a real challenge to the insurance industry to submit and declare the upcoming months in a compliant manner with two different tax rates, five different tax authorities and multiples scenarios depending on the policies and the types of risks written by each insurer. Furthermore, this change of IPT rate brings another layer of complexity with the difficulty to include negative transactions within the IPT return and the requirement in some cases to apply for formal refunds to the different tax authorities.

Calculating, reporting and settling IPT can be complex for insurers with fragmented rates and rules across different jurisdictions. Remaining compliant in Spain is even more challenging due to the different tax authorities involved in the process.

SOVOS has many years of experience helping insurers meet their IPT compliance obligations in Spain.