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Foreign Reinsurance Companies Hope For Unequivocal Income-tax Rules

A special code of taxation, that is fair and unambiguous, be introduced for foreign reinsurance branches

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Whilst over last one year or so, the Insurance regulator has licensed eight foreign reinsurers to set up branch offices in India, the need of the hour is a simple, transparent and stable taxation framework.  

Below are a few ways by which this can be done:

Levy of withholding tax
Being non-residents, a significant issue that is bothering foreign reinsurance branches is levy of withholding taxes on gross payments at a maximum rate (i.e. 43.26 percent) unless they apply and obtain a specific lower withholding tax certificate from the revenue authorities.  Considering wafer-thin margins realised on reinsurance premiums, the said tax rate is too steep and impacts cash flows of these reinsurance branches in the absence of lower withholding tax certificate.  
It will greatly help if they are also given the facility to obtain a blanket NIL withholding tax certificate on the similar lines as issued to the Indian branches of foreign banks.

Corporate Taxation Regime
A special code of taxation, that is fair and unambiguous, be introduced for foreign reinsurance branches.  Also, they be excluded from the levy of Minimum Alternate Tax in the same way as life insurance companies are exempted.

Prospects in upcoming Budget

In line with Government's agenda of ease of doing business in India, it is essential to prescribe a simplified and transparent taxation code for reinsurance branches that apart from reducing litigation would promote a conducive business environment.   We remain hopeful that the upcoming Union Budget would address some of the aforesaid issues and bring cheers to the reinsurance industry.  

The information contained herein is of a general nature and is not intended to address the specific circumstances of any particular individual or entity. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in India.

With inputs from Neetika Khosla, Chartered Accountant

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Tags assigned to this article:
Union Budget 2018 insurance taxation

Naresh Makhijani

Naresh Makhijani is Partner and Head - Financial Services at KPMG in India

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