QuestionsQuestions (BIR REVENUE MEMORANDUM CIRCULAR NO. 59 - 2008)
The MCIT determination for life and non-life insurance companies includes only costs exclusively related or indispensable to revenue creation from insurance activities, such as salaries of directly engaged personnel, commissions, costs of facilities, inspection and medical fees, claims net of reinsurance recoveries, legal reserve additions, and reinsurance ceded. Investment expenses are excluded except those related to non-final taxed investment income.
Investment expenses should not form part of the direct cost nor be deductible, except for investment expenses relating to investment income that has not been subjected to final tax, which are allowed as deductions.
A 5% premium tax is imposed on the total premium collected by life insurance companies on direct writings/premiums, excluding refunded premiums within six months or those subject to foreign taxes or reinsurance, pursuant to Section 123 of the Tax Code.
Premiums on health and accident insurance, whether from life or non-life insurance companies, are treated as premiums on life insurance and are subject to premium tax, not value-added tax.
No, management fees, rental income, and income earned from services independent of insurance activities are subject to VAT or percentage tax under Sections 108 or 116 of the Tax Code, not the 5% premium tax.
Investment income derived from policyholder funds treated as liabilities and used for investments is considered income from quasi-banking activities and is subject to gross receipts tax under Section 121 of the Tax Code.
There is a documentary stamp tax of fifty centavos (₱0.50) on each two hundred pesos (₱200), or fractional part thereof, of the amount of premium collected on life insurance policies.
Gross receipts including total premiums collected by non-life insurance companies (except crop insurance) are subject to Value-Added Tax under Section 108 of the Tax Code.
A documentary stamp tax of fifty centavos (₱0.50) on each four pesos (₱4.00), or fractional part thereof, of the amount of premium charged is imposed on non-life insurance policies on property.