In almost all jurisdictions around the world, insurance premiums are subject to some form of taxation. Most of the time this taxation takes the form of VAT or a more specific insurance premium tax (IPT).
Furthermore, the trend we have seen worldwide in the past years -and the trend we expect to continue seeing- has been in the direction of indirect taxation which has also affected insurance premiums. In turn, this has been translated to either the introduction of an IPT tax of some sort or the increase in IPT rates. The latest of these is the UK where the standard IPT rate will be increased from 6% to 9.5% in November 2015.
In Cyprus even the latest tax reform have left insurance premiums unattached. Excluding a stamp duty of €2 there is no other form of taxation –on the insureds side- as far as insurance is concerned. On the contrary, insurance premiums are tax deductible as expenses however this is not in the scope of this article to address.
Some examples where IPT tax is applicable can be found below:
Implications for your business
Considering the table above one understands that taxation on insurance premiums can easily take a big chunk off any balance sheet. As a matter of fact it can even create a competitive advantage.
Take this for example:
A technology Services Company registered in Holland requires Professional Indemnity insurance. For the sake of the example the annual premium is expected to be €100.000. In addition a company needs to pay IPT that brings the overall insurance premium cost to €121.000. All things equal the same insurance policy for a company registered in Cyprus will only cost €100.000. Now imagine what if the actual premium paid is even higher as it is the case in many occasions.
Having mentioned “All things equal” right above is worthy to mentioned that the range of insurance products and services as well as the breadth and depth of cover that one can purchase in Cyprus is up to standard to what one can get from the main insurance capitals of the world. In addition, the premium rates are most of the time even more favorable than elsewhere.
What derives from our example is that Cyprus amongst other things has an additional advantage and is called IPT. Companies that are domiciled in Cyprus can and should take advantage of all the tax benefits offered. Especially when the insurance policies in question are Liability Insurance Policies.
The article is a contribution by Stelios Kaparis of Cynosure Insurance Agency & Consultancy Services (Cyprus) Ltd -www.insuranceconsultant.com.cy- a long standing associate of our firm.
The article provides only a brief overview on the subject of IPT and cannot be considered as a tax or insurance advice.