A ship’s owner or an operator can take out insurance to cover the ship for various risks. Before the insurer establishes which insurance premium taxes are due on the ship’s insurance, they need to understand what risk(s) is (are) going to be insured and where the location of risk lies.
Marine insurance could include insurance of risks which fall under ship’s hull, ship’s liability, marine cargo and marine carrier’s liability. The risk location may depend on the registration status of the vessel, place of ship’s operation and establishment of the policyholder.
A ship’s insurance can simply be exempted from any insurance premium taxes, for example in Bulgaria. However, insuring a ship can lead into more complex discussions and potentially into taxation in more than one jurisdiction. A good example of applying more than one premium tax to a ship’s insurance could be an insurance covering damage to or loss of a ship used for non-commercial purposes which is registered in the UK and operates between the UK and Germany. In this scenario a double-taxation could potentially apply on the basis that the secondary port of registration is Germany. Therefore in this case the ship’s insurance would be subject to 6% UK Insurance Premium Tax (IPT) and 19% German IPT, totalling 25% effective IPT rate.
Let’s take the same scenario but assume that the ship serves solely for commercial purposes. In this situation the insurance would be exempt from IPT in the UK and should attract 3% IPT in Germany if certain criteria are met. Thus the effective IPT rate reduces to 3%.
The importance of identifying the type of insurance is a key factor, as not every single insurance policy that has “marine” in its name falls under Class 6 of non-life insurance. For example, marine cargo insurance would fall under Class 7 goods in transit. Thus, if the insurer is insuring goods transported by sea, the location of risk will depend on the location of the policyholder unless international goods in transit is specifically mentioned under the exemptions in the relevant IPT law. Countries where international goods in transit specifically fall under the IPT exemptions are, for example, Austria, Bulgaria, and Germany.
Carriers’ liability insurance for marine could cover the liability of the carrier while transporting goods by sea. Hence the location of risk does not necessarily follow the ship’s flag but should follow the location of the carrier as their interests are insured.
Similarly to marine, we can pose the question “What is aviation insurance?”
Aviation insurance is a wide term as it could cover, amongst others, the following risks in accordance with Annex A of the first non-life insurance directive: Class 5 aircraft, Class 11 aircraft liability and Class 7 goods in transit. The IPT rate or exemption applicable depends on the type of insurance, location of risk and relevant national jurisdiction.
Insuring a plane against damage to or loss of aircraft means that the insurer should be looking into the jurisdiction in which the plane is registered. However when insuring a carrier’s liability when transporting goods by air, the location should depend on the policyholder’s address or place of permanent establishment.
For a better understanding, let’s assume for example, that the insurance company covers damage to or loss of a plane registered in Bulgaria. In this scenario the policyholder would pay only the insurance premium and no IPT as the aircraft insurance in Bulgaria is exempted from IPT. If the same insurance covered a private plane registered in Belgium, the policyholder would pay the insurance company not only the insurance premium but also 9.25% IPT. However, if the Belgian plane was used for commercial international transport of passengers it would be treated as exempt from IPT. Additionally, taxing the aviation insurance in certain countries like Switzerland could depend on the actual take-off weight. If this weight was more than 5.7 tonnes and the aircraft was used for commercial transport of people and goods, then Swiss aircraft insurance would be treated as exempt from Swiss Stamp Duty. It is important to note that Switzerland, as a non-EU/EEA country does not follow standard location of risk rules.
When it comes to aviation cargo insurance, in Malta the insurance could be exempt from stamp duty whereas in Italy it could be treated in the same way as goods transported by sea and thus be subject to the IPT rate of 7.50%.
Whether by sea or air, it is clear that the various scenarios require different treatment and evidence that IPT is not a harmonised tax across the “harmonised” European Union single market. In most countries the aviation and marine insurances are exempted from premium taxes, however insurers need to also be aware of those where IPT is applicable.