Are Insurance Premiums Subject To VAT? Insurance premiums are not subject to VAT in general. But there are fewer cases that might incur VAT even from insurance premium. In this article I will explain when you do or do not have to pay VAT on insurance premiums in detail. If you really need to know the factors behind insurance premium and VAT kindly read the full article below.
Are Insurance Premiums Subject To VAT?
You never have to pay VAT on insurance premium but in some cases you might have to pay. Government laws regarding insurance says that there will not be any VAT charged on insurance premium.
The Government direction to VAT on various services, supplements, goods and products affirms that most kinds of insurance premiums are excluded from VAT. This exclusion on VAT includes insurance and reinsurance services/payments, protection agents and brokers and insurance supplies as a different component yet with different services and products.
Why VAT are excluded from Insurance Premium?
If you want to know the reason behind this you need to know first “what is VAT” and how it’s imposed on goods and services? You need to know that does insurance premium falls under services that can incur charges as VAT.
Well first let you know what is VAT. Value Added Tax (VAT) is a flat amount of tax amount that are charged on an item like goods and services. Not all the services are considered as VAT inclusive. Well it is kind of a sales tax like it is charged on consumption not income.
For example, In USA if you an used car you need to pay automobile sales tax whereas if you consume any kind of food or if you buy any types of consumables you may be charged a flat amount named as VAT.
Now come to the basic point. Insurance premiums are neither good that is consumed nor a service that inclusive of VAT. Therefore if you ask me are are Insurance Premiums Subject To VAT? I would say NO. Insurance premiums are exclusive of VAT.
Wait there are exceptions as well. In some cases insurance premiums are subject to VAT let’s know in detail how and when.
When Insurance premiums are subjected to VAT?
First of all you should know that there are different types of insurance like automobile, health, study and so on.
Health insurance are always exclusive of any kinda VAT. So when do you need to pay VAT on the insurance premium. If you are purchasing some goods or services that comes with or without insurance then you might have to pay VAT.
Confusing? Did you use credit card? If yes, you might have noticed that there is a term called credit sheild premium which is a kind of insurance premium. That recurs almost every month but if you miss to pay one month it will go in an outstanding amount and VAT might be charged on that.
This is complicated but let’s keep it simple if you are getting any services that come with insurance then you might have to pay VAT on that amount. In these circumstances, this is actually an insurance premium inclusive VAT. But if the service or good is itself insurance then it is exclusive of VAT.
Now if someone asks you, “Are Insurance Premiums Subject To VAT?”. Let them know or share this article with them.
Should you be worried about Insurance Premium VAT?
Absolutely Not. I would suggest you forget about VAT subject to insurance premium. Almost 99% of insurance premiums are not subject to VAT. There doesn’t just waste your time on calculating or doing research on this.
You might be thinking if insurance premiums are VAT exclusive then what is Insurance premium Tax?
What is Insurance Premium Tax? Is it VAT?
Insurance premium tax is imposed when an insurance contract is entered into with an insurer. The rate of the insurance premium tax is 21% of the premium. Some types of insurance are exempt from premium insurance tax, such as:
- Life & Health insurance
- Accident, disability and invalidity insurance
- Unemployment insurance
In short insurance premium tax (IPT) is a kind of VAT but it’s not literally or theoretically VAT. It’s an amount of tax that is deducted from the amount of premium and sent to the government. Well, there is no flat IPT because it is specified as a percentage of the premium. The higher the premium the higher the tax is.
Generally, the percentage of IPT varies from 12% to 21%. Don’t stick with the amount because it increases or decreases over the years. It mostly depends on the country’s annual budget. Government can control the percentage of tax according to the requirement.
I would like to thank you for reading the article and I wish that you have understood at least 50% about insurance premium Tax (IPT) & Value Added Tax (VAT). Well I know this is not rocket science or not so easy to learn. If you find anything we might have missed let us be informed.
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