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Insurance Premium Tax (IPT) Treatment of Space Risks

This update is to inform the Market of Lloyd’s position regarding the tax treatment of premium received in respect of EU/EEA space insurance risks.

The term ‘space insurance risk’ for the purposes of this article covers the launch and in-orbit operation of a space object (e.g. a satellite).

The treatment of insurance premium taxes (IPT) on EU/EEA space insurance risks is a complex area which has been the subject of recent discussions between Lloyd’s, the LMA, the IUA and LIIBA.  Lloyd’s, with the support of external tax advisors, has sought to clarify some of the uncertainties regarding the tax treatment of this business.

Separate from Lloyd’s own work, on 31 October 2023, Lloyd’s received notification that a first-tier tax court in the Netherlands had issued its judgement in an IPT case that concerned satellite insurance policies with a Dutch policyholder. The court ruled that the location of risk for the insurance was situated in the Netherlands and, accordingly, the elements of the premium in respect of the operational in-orbit risk (including the first-year orbit) should have been subject to Dutch IPT.  There was no dispute that the IPT exemption for foreign goods-in-transit insurance (which already exists in Dutch IPT law) could be applied to the launch phase of the satellite, hence no IPT was applied to that element of the premium.

Lloyd’s Crystal has now been updated with Lloyd’s position on the IPT treatment of space insurance risks in each territory where there has previously been uncertainty, along with Lloyd’s instructions to Velonetic (Xchanging) to minimise any delays in premium processing.  For further information regarding the IPT treatment of the specific elements of coverage, please see the below sections.

We will continue to monitor the IPT treatment of space insurance risks and will update Crystal should any new exemptions be introduced, or further developments be announced by a tax authority following the Dutch court decision.  If you have any questions or require any further information, please contact the Lloyd’s Tax Department below.

taxdept@lloyds.com

The launch phase begins at the moment the space object leaves the launchpad until the moment the final rocket separates from the space object or finishes its propulsion. This may be before the space object reaches its final Geostationary Earth Orbit.

Lloyd’s agrees with the decision of the Dutch tax authority in treating the launch risk akin to a foreign goods-in-transit risk for IPT purposes. Where countries have legislated for a specific IPT exemption for foreign goods-in-transit, and the launch of the space object is not happening domestically, Lloyd’s considers that IPT should not be applied to this element of the premium where the policyholder is located in that country. It is important that any launch element of the premium which is exempt from IPT is clearly identified and separately recorded within the insurance policy documentation.

Where countries have specific space insurance risk IPT exemptions, the premium received in respect of the launch risk should also not be subject to IPT, irrespective of whether there is a foreign goods-in-transit exemption or not. In this case, no premium allocation is required since the in-orbit element of the premium is also not subject to IPT. Lloyd’s is currently aware of specific space insurance risk IPT exemptions for policyholders located in the UK, France, Luxembourg, and Bulgaria.

In all other cases, Lloyd’s expects that IPT is charged at the rate applicable to property damage, liability or foreign goods-in-transit risks, for the country in which the policyholder is located.

Please consult the specific tax pages on Lloyd’s Crystal for up-to-date information and guidance of how to treat launch premiums for IPT purposes.

The in-orbit phase begins from the moment after the launch phase ends and can include raising the orbit of the satellite to its final operating position, deployment of solar arrays, antenna and other appendages, as well as the in-orbit testing of the satellite prior to the commencement of the intended commercial operation. The in-orbit phase also includes the use and operation of the space object whilst in-orbit. The in-orbit phase ends once the space object is decommissioned either by moving it to a “graveyard orbit” or by a potential return to earth phase.

Where countries have specific space insurance risk IPT exemptions, the premium received in respect of the in-orbit risk should not be subject to IPT. Lloyd’s is currently aware of specific space insurance risk IPT exemptions for policyholders located in the UK, France, Luxembourg, and Bulgaria.

In all other cases, Lloyd’s expects that IPT is charged at the rate applicable to property damage or liability (or in some specific cases aircraft) risks, for the country in which the policyholder is located.

Please consult the specific tax pages on Lloyd’s Crystal for up-to-date information and guidance of how to treat in-orbit premiums for IPT purposes.