Lloyd’s Tax Department has been made aware of a new Insurance Tax in Hungary effective on premiums signed by Xchanging (DXC) on or after 1 July 2022. This Insurance Tax shall apply to all Lloyd’s Insurance Company (Lloyd’s Europe) insurance business where the risk is located in Hungary and only reinsurance business is exempt from Insurance Tax.
A risk is located in Hungary for Insurance Tax purposes if it relates to:
- fixed and/or moveable property (excluding goods in transit) situated in Hungary, or
- motor vehicles, ships, yachts, or aircraft registered in Hungary, or
- travel risks of a duration of four months or less taken out in Hungary, or
- any other type of risk (not listed above) where the insured is habitually resident in Hungary or, in the case of a corporate insured, its business establishment to which the risk relates is situated in Hungary.
The authorities have cited the conflict in Ukraine and the consequent need to fund subsidies on gas and electricity prices as the reason for introducing the tax. As a result, this is a temporary tax which is due to end on 31 December 2023.
In line with the treatment of the existing Hungarian IPT, Insurance Tax is borne by the insurer and is a deduction from the premium received by Lloyd’s Europe. Insurance Tax shouldn’t be invoiced to the insured and should be shown on the slip in the Fiscal and Regulatory section under ‘Taxes Payable by the Insurer(s)”.
The rate of Insurance Tax will apply as follows:
- For premiums signed between 1 July 2022 and 31 December 2022, the rate of Insurance Tax shall be 4%.
- For premiums signed between 1 January 2023 and 31 December 2023, the rate of Insurance Tax shall be 2%.
Higher rates of Insurance Tax can apply if Hungarian premium income exceeds certain thresholds. An analysis of business written in 2021 indicates that the value of Lloyd’s Europe business will not trigger the higher tax rates. Lloyd’s tax department will monitor business Lloyd’s Europe writes and will advise of any change to the rates.
Further Information
Insurance Tax is due to be paid via two payments:
- For premiums signed between 1 July 2022 and 31 December 2022, the Insurance Tax payment and return must be made by Lloyd’s before 31 January 2023.
- For premiums signed between 1 January 2023 and 31 December 2023, the Insurance Tax payment and return must be made by Lloyd’s before 31st January 2024.
Furthermore, insurers are required to prepay two instalments of the Insurance Tax as follows (these prepayments can be recovered when making the actual tax payments shown above, but details for this are yet to be provided by the Hungarian tax authority):
- The first prepayment is due on 30 November 2022 and is based on premiums signed between 1 July 2021 and 30 June 2022.
- The second prepayment is due on 31 May 2023 and shall be equal to premiums signed in the period 1 July 2022 and 31 December 2022
For additional premiums and return premiums, as the payment is based on the premiums signed during the relevant periods, APs and RPs will be included in the calculation and therefore will be subject to Insurance Tax. They will not necessarily follow the Insurance Tax / IPT treatment of the original premium.
If you have any questions or require any further information, please consult the Hungary tax pages of Lloyd’s Crystal or contact Lloyd’s Tax Department at taxdept@lloyds.com.