In Germany, there is a complicated tax regime concerning Fire and Property Damage insurance. What is the total tax amount due when 60% of the premium subject to a rate of 22% Insurance Premium Tax (IPT), and 40% of the premium subject to a rate of 22% Fire Brigade Charge (FBC)? This is the tax calculation on a fire only policy. In addition, there is fire premium split rules behind the scene. Tedious? Let's take a closer look at taxes on Property & Fire insurance in Germany.

In general, an insurance contract in Germany is subject to a 19% insurance premium tax on 100% of the premium, and the insured is liable for the tax. When fire peril is covered in a policy, under some circumstances the Federal Central Tax Office divides the amount of tax paid into IPT and FBC, and the insurer is regulated as the tax debtor for FBC.

Many of our clients are aware of the split of tax amount to attend both taxes when a policy covers residential building or home contents. However, they get confused with how to run the calculation when it comes to a fire only policy or a policy covering multiple perils including fire.

Is it a fire only policy?

If this is a policy covering properties damaged by fire only - regardless of the type of the property covered (fire insurance and insurance against business interruption by fire only) - a 22% rate of tax should be applied on the net premium; 60% of the tax amount is considered as IPT, and 40% goes to FBC.

Does the cover concern residential buildings or buildings mainly for commercial purposes?

If the building in question is a residential building and / or that building's contents, regardless of whether fire is covered, a 19% tax rate is applicable; 85% of the tax amount is IPT, and the rest belongs to FBC. For the contents, tax splits into 84% and 16% with the rate remaining at 19%. If the policy covers only fire peril, it is then considered a fire only policy and the 60/40 split applies instead.

If the policy covers industrial buildings or industrial buildings combined with other insurances where multiple perils are covered, regardless of fire cover, 19% IPT is due. There is no need to split the tax amount. The special rule to notice here is, of course, if it is a fire only policy, the rate of 22% applies as does the 60/40 split. However, the rule applies slightly differently when the fire premium is shown separately on a fire only policy. In such a case, the amount of fire premium shown on the policy is subject to a 22% tax with the 60/40 split, and the rest of the premium is subject to a 19% tax and no further split should occur.

In a nutshell, industrial building and combined industrial building insurance is not subject to FBC unless it covers only fire peril. A chart below maps a clear route of the logic.

How we handle the complexity in IPT Quote

This complication of logic has been populated into our online tax calculator IPT Quote. In IPTQ rate checker, subclasses are available under both taxes for users to choose from, in accordance to their products (multiple perils or fire only). Meanwhile, 22% tax rate applicable on 60% premium, for example, has been simplified into an actual rate of 13.2% (22%*60%). Users only need to choose the right subclass and the calculation will run itself in the background. As a result, the outcome Tax Schedule should come up with the correct tax amount due.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.