Prior the Finance Act 2021, stakeholders had clamoured for the simplification and rewording of the income tax laws pertaining to insurance companies, in order to reduce the ambiguities and resultant controversies in the application of the law.
Under the Finance Act 2021, the provisions of the income tax laws pertaining to life and non-life insurance companies have how been better crafted to reduce the ambiguities by which it had hitherto been characterised.
Secondly, the provisions pertaining to minimum tax for all other non-insurance companies (including the waiver of 0.25% for two of the returns filed within the periods covered January 2019 to December 2021, and the penalty associated with any late filing of such returns) will now apply also to insurance companies. However, the ‘gross turnover’ for the purpose of the minimum tax application has been redefined under the Finance Act 2021 for non-life insurance businesses. ‘Gross turnover’ for non-life insurance businesses will now be defined as gross premium plus ‘other income’.
‘Other income’, for the purposes of non-life insurance
businesses means all the income of the non-life insurance
business other than gross premium (excluding franked
investment income).
Lastly, the Finance Act 2021 also amends the Insurance Act by replacing the term “Paid up share capital” with “Capital requirement”.
For existing companies, ‘capital requirement’ includes
the following:
– the excess of admissible assets over liabilities, less
the amount of own shares held by the company,
– subordinated liabilities subject to approval by the
Commission, and
– any other financial instrument as prescribed by the
Commission.
(Admissible assets are defined as share capital, share premium, retained earnings, contingency reserves, and any other admissible assets subject to the approval of the National Insurance Commission).
For new companies, Capital requirement includes the
following:
– Government bonds and Treasury bills
– Cash and Bank balances and
– Cash and cash equivalent.
For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.