RMC No. 59-2008: Amends certain portions of RMC No. 30-2008 on the taxability of insurance companies for Minimum Corporate Income Tax, Business Tax and Documentary Stamp Tax purposes

Key points

1. MCIT direct costs. For life and non-life insurers, allowable costs of services and direct costs are those exclusively related or indispensable to earning revenue as an insurance company, including investment income not subject to final taxes. They are limited to listed items, such as salaries of personnel in underwriting, claims, actuary and policy owner services, commissions, cost of facilities, inspection and medical fees, claims net of reinsurance recoveries, required reserve additions, and reinsurance ceded.
2. Investment expenses. Investment expenses are not part of direct cost. Those relating to investment income not subjected to final tax are still allowed as a deduction to arrive at taxable income.
3. Life insurers: business tax. Direct premiums are subject to the 5% premium tax under Section 123 of the Tax Code. Health and accident premiums, whether received by a life or non-life insurer, are treated as life insurance premiums subject to Premium Tax and not VAT. Management fees, rental income and other independent income are subject to VAT under Section 108 or percentage tax under Section 116, as are re-issuance, reinstatement and renewal fees and penalties.
4. Life insurers: investment income. Income from investing funds solicited from policy holders, recognized as liabilities and withdrawable anytime, is treated as quasi-banking income subject to gross receipts tax under Sec. 121. The same applies to income from funds solicited for purposes other than paying current premiums and treated as liabilities.
5. Life insurers: Documentary Stamp Tax. Life insurance policies are subject to DST under Section 183, at P0.50 on each P200 or fractional part of premium collected. For group policies, the premium falls under Section 183 and each individual employee certificate falls under Section 188 (P15.00). Health and accident policies use Section 183, and VUL certificates evidencing contributions to the VUL fund are not subject to DST under Sec. 195.
6. Non-life insurers. Gross receipts, including total premiums collected but excluding crop insurance, are subject to VAT under Section 108. Health and accident premiums are subject to the Sec. 123 premium tax. Other policies bear DST under Section 184 (P0.50 on each P4.00 of premium charged, with no DST on reinsurance contracts), even if the policy became ineffective for non-payment of premiums, and certificates, including motor vehicle Certificates of Cover, bear DST under Section 188.

Who is affected

• Life insurance companies
• Non-life insurance companies

Deadlines and effectivity

• DST on certificates to be strictly imposed once the Circular is effective