Every time you buy something, from the moment you get up until you go to bed, you are paying VAT. We pay VAT on almost everything we buy. You pay for the purchase of a chicken, for the refrigerator where to keep it, or for the electricity it needs to operate. Also for the services of the electrician who has put the plug you need to connect to the light.

Of the few activities that are free, in part, from the Value Added Tax (VAT) is insurance. Despite the fact that it is a tax that has lived among us for years, there are still many doubts about VAT in the insurance contract.

To clarify all these doubts is this article in which you will find all the information about VAT in the insurance contract.

Does insurance have VAT?

Well, according to article 20 of Law 37/1992 on Value Added Tax, insurance, reinsurance, and capitalization operations are considered “exempt”. Therefore, the answer to the question of whether insurance has VAT is no. By subscribing to an insurance policy you will not pay VAT, nor will you have to do mediation services.

The fact that insurance is not subject to VAT does not mean that it does not have other associated taxes and fees.

What taxes does the insurance contract have?

If you take a look at any of your insurance receipts, no matter one mode or another, you will see that in the breakdown of the price there is a chapter referring to taxes. And when I refer to taxes it is because there are several. Depending on the modality in question, the insurance will have two or more taxes or fees. Let’s see it.

The Insurance Premium Tax (IPS)

It is an indirect tax, established in 1997, and applied to certain types of insurance. The IPS taxes the net insurance premium at 6%, that is, the price of the insurance without taxes or surcharges of any kind.

It is a tax that affects most of the contracted insurance, but it has its exceptions. What insurance do IPS not pay? As the list is not very long, these are the exempt modalities.

  • Health and sickness insurance.
  • Operations relating to compulsory social insurance and group insurance that implement alternative systems to pension plans and funds.
  • The life insurance pure
  • Export credit or surety insurance contracts.
  • Agricultural insurance.
  • Insurance contracts related to international passenger and freight transport operations.
  • Insurance-related to ships or aircraft destined for international transport.

The Surcharge of the Insurance Compensation Consortium

The CCS is the public body that covers certain exceptional risks not assumed by the private insurance sector.

The assets of the Consortium are exclusive, being financed with the premiums and surcharges that it collects through the insurance operations carried out by the insurers themselves.

Three types of surcharges apply depending on the different types of insurance.

Surcharge for Extraordinary Risk Insurance, damage to property, people (life and accidents), and loss of benefits.

For example, it deals with the damage caused by earthquakes, floods, and other natural catastrophes. In order to meet the indemnities derived from these risks, the CCS is financed through a surcharge applies to each insurance operation, whether it is life or non-life insurance.

Thus, for example, you will pay the surcharge on the car, home, community, or industry insurance that you hire. You will also do it when contracting personal insurance, both in the life branch in individual and group policies that exclusively or mainly guarantee the risk of death, including those that include guarantees for permanent disability.

In non-life insurance, the surcharge is mandatory in accident policies or those that guarantee compensation in the event of death or permanent disability.

Surcharge in Obligatory Subscription Civil Liability Insurance derived from the Use and Circulation of Motor Vehicles

Another coverage provided by the CCS is damage caused by uninsured or stolen vehicles. For this purpose, the surcharge is set at 1.5% of the net premium corresponding to the compulsory civil liability insurance of your car insurance policy.

Surcharge for the liquidation of insurance companies.

This is a surcharge that is levied at 0.15% on the net insurance premiums made on risks. The objective is to guarantee all policyholders their insurance coverage in the event that the insurer has financial problems. If this happens, the body in charge of the liquidation of the company. It will be in charge of meeting the commitments with the insured, injured parties, employees, or suppliers.

Surcharge for fractioning payment of the insurance price.

Whether or not to pay this surcharge is up to you and the chosen insurer.

There are many insurers that, to facilitate the payment of the insurance, admit its fractionation by months, quarters or semesters. Some have even established other 90-day payment formulas. This form of financing is not free, although the cost depends on each company.

The CCS surcharge is normally paid in the case of split insurance, in the first fraction. But you can pay it in installments like the main receipt. If you do, the CCS will charge you interest for it, which ranges from 2% of the semi-annual payment to 3.5% in case of splitting it by months.

How does VAT affect me in the insurance contract?

We have seen that insurance is not taxed by VAT, but that does not mean that it is not affected by it. In fact, any variation in the tax can affect what you pay for your insurance policy. If the VAT goes up, the repairs or services provided by the insurer also do so, so the insurance costs will increase.

But in addition to this increase in the price of insurance, in the event of a claim, you may also be forced to pay the tax. Do you want to know when?

What impact does VAT have on car insurance?

The car insurance is no exception and its price does not include VAT, but after an accident repairs itself carrying IVA.

The normal thing is that it is the insurer who takes charge of the payment of the tax when paying the repair of the damages. But this is not always the case, as happens when a policyholder is a legal person or the vehicle is involved in business activity.

When the vehicle belongs to a company, insurers avoid paying VAT by being able to deduct it on their tax returns. In these cases, the insurer will pay the workshop or supplier the taxable amount of the invoice, while the amount of the tax will be on your account.

If your policy is fully comprehensive with excess, you are an individual and the use of the car is private, the amount of the excess must be deducted from the total amount of the invoice. But if you are a company, in addition to paying the full amount of VAT, you will also have to pay the amount corresponding to the franchise.

There are some insurers on the market that take charge of VAT on repairs by paying an extra premium on the price of insurance.

It is convenient that before accepting the insurance contract, you review the conditions because each insurer has its own criteria.

What about VAT on damage insurance?

In damage insurance (home, business, communities, business, etc …) something similar happens in car insurance. You do not have to pay VAT on the price of the insurance and neither in the repairs of the goods for private use.

Different is when the goods are related to a commercial or business activity. Thus, for example, you could pay VAT on repairs in homes for rent made by home insurance.

As you can see in this case, not only the insurer can take into account, when paying VAT for the repair, the condition of the policyholder but also the activity of the goods affected in the loss.

When assessing the extent of the damage, some insurers include the amount of VAT in the compensation, knowing that the policyholder cannot deduct it. In contrast, there are still many who delay their payment until the policyholder presents the repair invoice.

How does VAT affect people’s insurance?

Fundamentally, within the insurance for people are health, life, or death insurance. For none of them, you will have to pay VAT, in the price of the insurance and not in the benefits you receive from them.

Medical services and acts are exempt from VAT tax, certain pharmaceutical products are not, but if they are covered by your insurance policy, it will be the insurer who will take care of it.

In the case of funeral insurance, you will not have to pay anything for the VAT with which funeral services are taxed and which varies between 10 and 21% depending on which service it is.

conclusion

Insurance operations are exempt from paying for Value Added Tax, VAT. So are mediation services.

But the same does not happen with the deliveries of goods and services made under the coverage of the policy. In summary:

  • You do not pay VAT in the insurance contract, whatever the modality. You will pay for other taxes and surcharges but not for VAT.
  • You will not pay VAT on repairs when you are a natural person and the property is not intended for commercial activity. 
  • You will pay VAT when the policyholder is a legal entity and can deduct it in their tax returns.
  • You will not pay VAT when you have agreed with your insurer in the insurance contract. 

As you have seen, no insurance has VAT in Spain, however, what you pay for it is directly affected by the VAT incurred by the repairs or services provided at your expense.

Have you ever had to pay VAT on the repair because the insurance company did not pay it?

Leave your answer in the comments.

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