Life Insurance Company and Group Insurance
- Life insurance covers human lives and related insurance services including group insurance and health and accident policies.
- Group insurance covers multiple individuals under one contract, such as employees of one employer.
- In accident insurance, burden of proof initially lies on beneficiary to show death was due to covered peril; then burden shifts to insurer to prove exceptions.
- Accident insurance differs from ordinary life insurance where cause of death is generally immaterial for compensation.
Non-Life Insurance Company
- Non-life insurers cover property and casualty risks including marine, fire, casualty, surety, fidelity, indemnity, and bonding.
- Only authorized entities by the Insurance Commission may transact such insurance business.
Minimum Corporate Income Tax (MCIT) for Life and Non-Life Insurance Companies
- Gross income for MCIT includes direct premiums, reinsurance assumed (net of returns/cancellations), miscellaneous and investment income not subject to final tax, released reserves, and other gross income items.
- Deductions allowed pertain to costs directly related to revenue generation: claims/net of reinsurance, legal reserve additions, and reinsurance ceded.
Business Taxation and Documentary Stamp Tax (DST) for Life Insurance Companies
(a) Business Tax
- Core income from premiums on life insurance contracts is subject to 5% premium tax under Section 123 of the Tax Code.
- Fees related to reinstatement, renewal, penalties are considered akin to premiums and subject to 5% premium tax.
- Other non-core incomes such as management fees, rental income, and unrelated services are subject either to VAT or percentage tax under relevant provisions.
- Investment income from invested premiums is exempt from further business tax as premiums were already taxed.
- Investment income from funds other than premiums (treated as liabilities) is subject to gross receipts tax under Section 121.
- Apportionment between taxable and exempt investment income is based on proportion of premiums versus liability fund balances.
(b) Documentary Stamp Tax
- Life insurance policies are subject to DST at P0.50 per P200 premium collected.
- Certificates related to insurance are subject to DST of P15 per certificate.
- Group insurance premiums are subject to DST per policy; individual certificates under group policies taxed separately.
- Health and accident insurance policies under life insurers are taxed pursuant to Section 185 at P0.50 per P4 premium.
Taxation of Additional Financial Products Offered by Life Insurance Companies
Variable Unit Link (VUL): policyholder contributes mostly to a managed investment fund; only a small percent is pure insurance premium.
- Premium portion subject to business tax and DST.
- Management fees for fund management subject to VAT or percentage tax.
- Certificates of fund shares subject to DST under Section 195.
- Gains by policyholders on unit share redemptions are income taxable.
Premium Deposit Fund (PDF): policyholders deposit for future premiums; funds invested by insurer treating deposits as liabilities.
- Premiums subject to tax as above.
- Investment income from PDF funds subject to gross receipts tax.
- Deposit certificates treated as indebtedness and subject to DST.
- Interest credited to policyholder is subject to 20% final withholding tax.
Business Tax and DST for Non-Life Insurance Companies
(a) Business Tax
- Gross receipts of non-life insurance companies (marine, fire, casualty, surety, and similar) are subject to VAT.
- Health and accident insurance premiums under non-life insurers also subject to VAT.
- Exceptions to gross receipts include returned premiums, premiums on reinsurance already taxed, reinsurance covering foreign risks, and taxes passed on to insureds.
(b) Documentary Stamp Tax
- Policies on property insurance are subject to DST at P0.50 per P4 premium.
- Reinsurance contracts are exempt from DST.
- Health and accident policies taxed at P0.50 per P4 premium under Section 185.
- Certificates including motor vehicle insurance Certificate of Cover subject to DST of P15 per certificate.
Enforcement and Revocation
- This memorandum circular revokes, amends, or modifies inconsistent prior issuances.
- Internal Revenue officers are tasked with wide dissemination and enforcement of these rules.
The above is a comprehensive analysis of the taxability rules applicable to insurance companies under Philippine law concerning Minimum Corporate Income Tax, Business Taxes, and Documentary Stamp Taxes with specific focus on the nature of income and financial products associated with life and non-life insurers.