Hungarian Insurance Premium Tax

October 2012 – Effective from 1 January 2013, Hungary will impose tax on insurance premiums. The new insurance premium tax (IPT) regime will have extraterritorial effect, taxing insurance premiums collected by non-Hungarian insurance companies insuring Hungarian risks on a freedom-of-services (FOS) basis (in addition to  taxing Hungarian subsidiaries and branches of foreign insurers as well).

Considering that several types of non-life insurance products (including, for instance, credit risk insurance or captive structures) will be hit by the new Hungarian IPT regime, it is of vital importance that all insurers who may insure Hungarian risks assess their position and the potential consequences.

Hungarian IPT liability

Effective from 1 January 2013, insurers (insurance companies) with their registered seat or branch in Hungary as well as European Member State resident insurers providing services in Hungary on an FOS basis will be subject to IPT in Hungary in connection with most non-life insurance services as long as the risks insured arise in Hungary. Importantly, along with several other types of property insurance, credit risk insurance and various captive structures will also trigger Hungarian IPT obligations.

The taxpayer will be the insurer as opposed to non-Hungarian examples where the taxpayer is generally the insured customer (and the insurer only acts as an agent assigned with collecting and reporting the tax). The tax base will be the amount of the insurance premium accounted for by the insurer. The tax will be levied at the rate of 15% in the case of comprehensive car insurance and at the rate of 10% in the case of all other (non-life) insurance products and services.

Looming uncertainties for FOS insurers

  • The legislation provides only limited guidance regarding the IPT compliance obligations of taxpayers. As at the date of this newsletter, the Hungarian tax authority has not issued any guidance with respect to IPT obligations. It is unclear whether FOS insurers may be required (or allowed) to appoint a fiscal representative in Hungary.
  • It is unclear whether taxpayers may be eligible for tax treaty protection in connection with ITP. Since IPT is a new tax, its attributes have not yet been interpreted by the Hungarian tax authority or the Hungarian courts. International examples suggest that taxes on insurance premiums are generally regarded as taxes on turnover (without eligibility for tax treaty protection), but there are notable exceptions when insurance premium taxes are regarded as income taxes.

The IPT legislation, taking effect on 1 January 2013, does not include any grandfathering mechanism with regard to insurance arrangements that were entered into before 1 January 2013 but remain operative after that date.

For more information please contact Csilla Andrékó, Managing Partner, at