Our tax support

Supporting the market

Tax obligations will arise when writing multinational policies in multiple territories in most circumstances. 

These taxes may include:

Premium taxes, stamp duties or other parafiscal charges
Foreign income or corporate tax on profits
Foreign withholding taxes (for example on (re)insurance premiums or investment income on assets held abroad)

Lloyd’s expects managing agents and members to comply with tax laws in all territories where Lloyd’s operates.

Lloyd’s supports the market by performing some of the required tax compliance services, including filing certain tax returns and facilitating payment of premium taxes to local tax authorities. As most insurance policies can be managed centrally at Lloyd’s (specific local insurance policies are not usually required) premium tax and similar taxes are managed (in most cases) by the Lloyd’s Tax team on behalf of market participants.

Given the number of different jurisdictions in which Lloyd’s members write business and different taxes concerned, there is a variety of legal and administrative frameworks which can apply. Some jurisdictions have Lloyd’s specific legislation, and some jurisdictions have agreed arrangements with tax authorities to accommodate the unique features of the Lloyd’s market, whilst in others administrative processes and bases of filings have not been agreed with the relevant tax authorities but have been followed as a matter of custom and practice.

While the Lloyd's Tax team plays a valuable role in providing tax compliance services and support, it is ultimately the responsibility of managing agents within the Lloyd's market to ensure the correct administration and payment of taxes. The Lloyd's Tax Team provides helpful guidance (but not advice) to managing agents and other market participants to assist them in meeting their tax obligations.

Insurance Premium Taxes - calculations and getting it right

IPT on business written via Lloyd’s is (usually) centrally administered by the Lloyd’s Tax team. Individual managing agents do not need to manage local remittances if they ensure that all business written by their syndicates is processed at Lloyd’s in an approved and timely manner (via Velonetic).

When calculating IPT under a particular multinational policy we ask that you:

01.

Identify the risk being insured and correct location of risk for tax purposes

Not all classifications of risks are the same globally. Identifying the risk insured and then applying country specific rules will be necessary to determine the location of a risk and the correct premium tax treatment.

The Risk Locator tool and our ‘How to Establish Risk Location’ guide will support this process. In many situations, the location of risk for tax matches the regulatory risk location.

The EEA uses the same regulatory framework, including location of risk rules. Insurers including Lloyd’s Insurance Company S.A. (LIC) can apply a single set of rules when determining the location of the risk covered by a policy throughout the EEA.

Outside the EEA, each country has its own specific location of risk rules and regulatory framework. These rules determine the tax and regulatory treatment of insurance premiums based on the location of the insured risk. In many non-EEA jurisdictions, insurance premiums are subject to tax based on the location of the insured risk rather than the insurer's home country. The tax rates and calculation methods can vary significantly from country to country. Commercially available tools can be subscribed to and should assist a managing agent in forming its decision on risk type and location. Lloyd’s provides a tool called Crystal which has guidance on classifying risk type and location of risk, but Crystal’s contents should not be regarded as advice or relied upon.

Identifying risk type and location can be a complex process. All insurance companies as well as managing agents and brokers that operate internationally may need to consult with third-party tax advisors to understand the specific rules and requirements that apply to risks written in a particular jurisdiction, and to obtain tax advice where appropriate on specific matters if required.

02.

Split premium by risk/territory as appropriate

Splitting premium and allocating it to different geographies and risk types is essential to ensure accurate tax calculations. Whilst there is generally no legislation that provides details of how a premium should be split there is guidance and market practice as to how it could be done.

Premiums must be split and allocated to geography as well as risk type and policyholder. Premiums should be split on a just and reasonable basis. Insurers, managing agents, and brokers should maintain clear and accurate records detailing the methodology used for premium splits and any supporting calculations.

Below are examples of risk allocation methods:

Buildings and/or contents - Value of local property divided by value of total property

Directors & Officers – Number of local Directors divided by total Directors

Employee Liability – Number of local employees divided by total employees

03.

Determine applicable premium taxes and confirm correct rates

To determine the applicable premium tax and tax rates for insurance premiums, it is advisable to engage the services of a third-party expert specialising in tax and insurance regulations. These experts have in-depth knowledge of tax laws and regulations in various jurisdictions and can provide accurate and up-to-date information specific to your insurance business. Crystal (Lloyd’s database of applicable taxes) contains some helpful guidance on these such issues but should not be relied on.

04.

Broker to collect premium and relevant taxes and pay managing agent

Where there are no separate local insurance policies, settlement of premium should occur via Velonetic. For local policies, local collection of premium and associated taxes and charges may apply and will not be administered centrally by Lloyd’s.

05.

Submit data to Velonetic / Lloyd’s in a correct and timely fashion

Velonetic process almost all insurance premiums for the Lloyd’s market. They check, validate and input policy information from the Market Reform Contract (MRC) into their system. 

06.

Maintain / keep records

Managing agents must keep records of policy information, premiums, taxes, premium split methodology, and payments as it is their responsibility to ensure the tax treatment of the policies they write is correct and that all requirements to declare and settle premium taxes have been complied with.