QuestionsQuestions (BIR REVENUE MEMORANDUM CIRCULAR NO. 30-2008)
It includes making or proposing to make insurance contracts as insurer, making or proposing suretyship contracts as vocation, doing any kind of business specifically recognized as constituting insurance business (including reinsurance), and doing any business in substance equivalent to the foregoing in a manner designed to evade the Insurance Code.
The premium payment received from the insured/policyholder as consideration for indemnifying another against loss arising from an unknown or contingent event.
Gross revenue includes: direct premium and reinsurance assumed (net of returns/cancellations), miscellaneous income, investment income not subject to final tax, released reserve, and all other items treated as gross income under Section 32 of the Tax Code.
Costs/deductions refer to those exclusively related or indispensable to generating revenue, including: (1) claims, losses, maturities and benefits net of reinsurance recoveries; (2) additions required by law to reserve fund; and (3) reinsurance ceded.
Premiums for direct writings/premiums received by a life insurance company are subject to 5% premium tax under Section 123 of the Tax Code, on the total premium collected, with exclusions such as premiums refunded within six (6) months after rejection/return for other reasons, and related exemptions/limitations stated in Section 123.
Yes. The circular states they are considered akin to premiums if they are incidental to or in connection with the insurance policy contracts issued, thus covered by Section 123 and subject to 5% premium tax on the gross amount received.
Because these services can be pursued independently of insurance business, they are not subject to the 5% premium tax; instead they are treated as income for services subject to VAT under Section 108 or percentage tax under Section 116, depending on the nature of the transaction/service.
Because the investment income realized from investing the premiums earned (funds sourced from policyholders through premiums already subjected to the 5% premium tax under Section 123) is considered merely incidental to and necessary for the insurance business; thus, the circular treats it as exempt from additional business tax.
Investment income arising from investing funds obtained from others—i.e., funds solicited from policyholders for purposes other than payment of current premiums and treated as liabilities— is considered quasi-banking function income and therefore subject to gross receipts tax under Section 121.
It allocates by ratio: Exempt/Non-taxable investment income = Investment Income × (Total premiums earned for the month) / (Premiums earned + Liability account balance pertinent to other funds). Taxable for gross receipts tax = Investment Income × (Other funds liability balance) / (Premiums earned + Other funds liability).
Exempt portion = 1,000,000 × 30,000,000 / 50,000,000 = P600,000. Taxable for gross receipts tax = 1,000,000 × 20,000,000 / 50,000,000 = P400,000.
DST of P0.50 on each P200, or fractional part thereof, of the amount of premium collected on policies of insurance or instruments whereby insurance is made or renewed upon any life or lives.
DST is based on Section 185 (fidelity bonds and other insurance policies) for health and accident insurance (not the life policy DST basis). The circular cites DST of P0.50 on each P4.00, or fractional part thereof, of the premium charged.
(1) Premiums received for the life insurance solicited remain subject to income tax and also to business tax/premium tax and DST as life insurance. (2) Management fees earned for managing the VUL investment portfolio are subject to VAT (Section 108) or percentage tax (Section 116), plus income tax. (3) Certificates issued evidencing contribution to the VUL fund (deeds of trust in nature) are subject to DST under Section 195.
Investment income earned using the PDF (where deposits are treated as liabilities) is subject to gross receipts tax under Section 121, plus income tax. The instrument issued evidencing the deposits is treated as a certificate of indebtedness subject to DST under Section 179 at P1.00 on each P200 (or fractional part) of the issue price.