Circular N° 779 issued by the Luxembourg tax authority on 22 August 2016 enacted a new tax of 3% to be charged on motor liability insurance premiums. The legislation takes effect on 1 October 2016.
2015 saw many discussions within the government, legal circle and the insurance industry on whether another special tax should be implemented to finance the ambulance service in Luxembourg. At present, the ambulance service is partly financed through the 6% special tax, known as the Fire Brigade Charge, levied on fire insurance premiums although this tax was aimed at funding the fire engine services through levying on the insurers.
The opinion was that by charging another special tax of 3% on motor insurance premiums, the ambulance service would be fully covered. This was proposed in Bill No. 6861 on the Organisation of Civil Security and Creating a Grand Ducal Body of Fire and Rescue.
Technical content of the new tax
The tax rate is 3% and charged on the net premium of the motor liability insurance. The tax is payable by the insurer and chargeable at the time the premium is received. As the risk location for vehicle insurance is the location where the vehicle is registered, insurance companies operating under freedom of services provision will also be subject to the tax if the insurance covers a Luxembourg- registered vehicle. The legislation also makes it clear that when vehicles are purchased and shipped from outside of Luxembourg into Luxembourg, and from the date the vehicles are dispatched to the date when the purchaser receives the vehicles is a period of thirty days; the risk location is deemed to be in Luxembourg.
The tax must be collected and submitted by the insurer to the tax authority Bureau d'Imposition Luxembourg III. The filing deadline and the deadline for payment is the 15th day of the month following the quarterly declaration period. Where the insurer has no permanent establishment in Luxembourg, the tax is due by the tax representative appointed by the insurer. The tax representative shall be established in Luxembourg.
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This new tax has been updated in IPT Quote, TMF Group's online tax calculation tool and a news item published in IPT Quote to inform users. The new tax is named Emergency Service Levy under Motor line of business. As the tax is charged only on motor liability insurance, a subclass has been created to distinguish between motor liability insurance and motor hull insurance. In addition, premium apportionment functionality has been configured under this tax to cater the scenario where a combination of motor liability insurance and hull insurance is underwritten. Users are then able to split the premium and run the Emergency Service Levy calculation only for the liability premiums.
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.