A law drafted by the Bulgarian Finance Ministry provides for the introduction of 2% tax on insurance premiums.

The draft Insurance Premiums Tax Act has been made public on the website of the Finance Ministry. It provides for the introduction of the tax effective August 31, 2010.

According to Ministry estimates, a total of BGN 50 M are expected to be raised from the new tax by the end of 2010. The combined gross insurance premiums in the country amounted to BGN 1.68 B in 2009.

The newly proposed tax on insurance policies will not alter the existing legal arrangements with respect to the taxing of the profit of the insurers.

The 2% will be paid on collected premiums, while life insurance policies are exempt from it. In the case of deferred payments, the tax will be paid only on sums that have already been collected. The companies will not owe a tax on premiums that they have reinsured.

The insurance companies operating in Bulgaria declared themselves against the premium tax as soon as the idea was first floated several weeks ago. Their formal position was that it contradicts with EU regulations.

It has later turned out that the new tax does not violate EU law but the insurers have warned that the state revenues from it will be smaller than expected because they would reinsure their premiums; some have even threatened to relocated their head offices to other EU member states.

According to the provisions of the law, however, the registration in another EU country will not help avoid paying the tax.