Insuring Property With an Unlicensed Foreign Insurer? The NIRC Section 124 Tax You Still Owe

A Philippine property owner who insures directly with a foreign insurance company not authorized to transact business in the Philippines — without going through any local agent — owes a 5% percentage tax on the premium paid under NIRC Section 124, and must report the placement to both the Insurance Commissioner and the BIR. A different rate applies if a licensed local agent places the same kind of risk with such a foreign insurer instead: that agent pays 4%, double the rate set for ordinary life insurance under Section 123.

What does NIRC Section 124 actually cover? #

Section 124 of the National Internal Revenue Code (NIRC) is a Title V “Other Percentage Taxes” provision that taxes two distinct situations involving a foreign insurance company not licensed to transact business in the Philippines — a local agent placing fire, marine, or miscellaneous coverage with such a company, and a property owner who bypasses any local agent and insures directly. Both situations share the same underlying concern: insurance premiums leaving the Philippine market through a channel the Insurance Commission does not directly supervise, so the Tax Code imposes a percentage tax — and, for the direct-placement case, a reporting duty — to keep the transaction visible to regulators even though no domestically authorized insurer is involved.

Because WebFetch access to the Supreme Court E-Library and LawPhil was unavailable while researching this post, the statutory text below is reproduced as it consistently appears across independent secondary codifications of Republic Act No. 8424 (the Tax Reform Act of 1997), rather than confirmed against a direct fetch of the BIR’s or LawPhil’s own hosted text:

“Every fire, marine or miscellaneous insurance agent authorized under the Insurance Code to procure policies of insurance on risks located in the Philippines for companies not authorized to transact business in the Philippines shall pay a tax equal to twice the tax imposed in Section 123… The provisions of this Section shall not affect the right of an owner of property to apply for and obtain for himself policies in foreign companies in cases where said owner does not make use of any agent, company or corporation residing or doing business in the Philippines. In all cases where owners of property obtain insurance directly with foreign companies, it shall be the duty of said owners to report to the Insurance Commissioner and to the Commissioner of Internal Revenue each case where insurance has been so effected, and shall pay the tax of five percent (5%) on premiums paid, in the manner required by Section 123 of this Code.” — NIRC Section 124, as reproduced in secondary codifications of Republic Act No. 8424

The two scenarios Section 124 taxes, side by side #

Section 124 does not set a single rate — it splits into two separate situations depending on whether a licensed local agent is involved at all, and the rate roughly doubles when the owner cuts that agent out. The table below lines up both scenarios against the ordinary case of insuring with an authorized insurer.

The practical dividing line is simple: if a Philippine-licensed agent is anywhere in the chain, that agent owes the 4% tax. If the owner deals directly with the unauthorized foreign insurer — no local intermediary at all — the owner owes the 5% tax and carries the reporting duty personally.

Why would an owner insure directly with a foreign company at all? #

Direct foreign placement is a narrow, specialist practice, not a way to shop around the local market for a better premium — it typically happens because the domestic insurance market cannot absorb a particular risk at all. Large marine cargo shipments, aviation hull and liability coverage, satellite risks, and certain large industrial or catastrophe-exposed property risks are the recurring examples where Philippine owners place cover directly into an international specialty market, such as the Lloyd’s of London syndicate market, because no domestically licensed insurer has the capacity or appetite to underwrite that specific exposure.

A worked comparison makes the tax consequence concrete. Makilala Mining Corp., a Philippine mining company, needs to insure a single ore shipment valued well beyond what any domestic non-life insurer is willing to underwrite for that voyage. Contrast two ways it could do this:

• Through a licensed local agent. Makilala’s Philippine-based marine insurance broker, authorized under the Insurance Code, places the cargo cover with an overseas insurer not licensed to transact business in the Philippines, on Makilala’s behalf. The broker — not Makilala — owes the 4% tax on the premium collected for arranging that placement.
• Insuring directly. Makilala instead contracts directly with the same unauthorized foreign insurer itself, with no Philippine agent or broker in the chain at all. Makilala now owes the 5% tax on the premium it pays, and Makilala — not any local intermediary — must report the placement to the Insurance Commissioner and to the BIR.

If the shipment’s premium is ₱2,000,000 either way, the tax outcome differs only in who owes it and at what rate: ₱80,000 (4%) from the broker in the first scenario, or ₱100,000 (5%) directly from Makilala in the second — on top of whatever commercial reasons made direct placement necessary in the first place.

The reporting duty is separate from the tax itself #

Paying the 5% tax does not by itself satisfy Section 124’s direct-procurement rule — the statute separately requires the owner to report each instance of directly obtained foreign insurance to the Insurance Commissioner and to the Commissioner of Internal Revenue. This reporting requirement exists precisely because no licensed local agent or company is in the transaction to otherwise surface it to either regulator through its own registration and filing obligations. A property owner planning a direct foreign placement should treat the report and the tax as two separate compliance steps, not one — and should confirm the current reporting format and office with the Insurance Commission and the BIR before completing the transaction, since this guide addresses the statutory obligation itself rather than a specific administrative form.

How this fits with the rest of Title V’s insurance taxes #

Section 124 is one piece of a broader set of specialized percentage taxes NIRC Title V imposes on specific industries instead of the general 3% percentage tax or ordinary VAT, and it sits right next to the provision covering ordinary life insurance. Percentage Tax on Life Insurance Premiums: The 2% Tax Under NIRC Section 123 covers the baseline rate for life insurance companies doing business directly in the Philippines — Section 124’s rules are the companion provision for fire, marine, and miscellaneous (non-life) coverage placed with an unauthorized foreign insurer, whether through a local agent or by the owner directly. For how Section 124 and Section 123 both fit among the other Title V percentage taxes — on common carriers, banks, and financial intermediaries — see Percentage Tax Beyond 3%: Common Carriers, Banks, Insurance, and Stock Transactions.

Frequently asked questions #

What tax applies if I insure my property directly with a foreign insurance company? #

Under NIRC Section 124, a property owner who obtains insurance directly with a foreign company not authorized to transact business in the Philippines — without going through any local agent, company, or corporation — pays a percentage tax of 5% on the premiums paid, and must report the transaction to the Insurance Commissioner and to the BIR.

Does this tax apply if my insurer is licensed to do business in the Philippines? #

No. Section 124 only applies to insurance placed with a foreign company that is not authorized to transact business in the Philippines. A policy issued by a domestic insurer, or by the licensed Philippine branch of a foreign insurer, falls under the ordinary VAT or percentage-tax rules that apply to authorized insurers, not Section 124.

What if I use a licensed Philippine agent to place my insurance with an unauthorized foreign company? #

A different part of Section 124 applies: the fire, marine, or miscellaneous insurance agent who is authorized under the Insurance Code to procure such policies pays a tax equal to twice the rate in NIRC Section 123 — 4% — on the premiums collected, rather than the owner paying the 5% direct-procurement rate. The 5% rate in Section 124 is specifically for an owner who bypasses any local agent entirely.

Who do I report a direct foreign insurance placement to? #

Section 124 requires the property owner to report each instance of directly obtained foreign insurance to both the Insurance Commissioner and the Commissioner of Internal Revenue, in addition to paying the 5% tax on the premium. This reporting duty exists specifically because no licensed local agent or company is involved to otherwise bring the transaction to the regulators’ attention.

Why would a business insure directly with a foreign company instead of a local insurer? #

This typically happens when a risk is too large, too specialized, or too unusual for the domestic insurance market to absorb — large marine cargo shipments, aviation hulls, or specialty industrial risks are common examples where a Philippine owner places cover directly in an international market such as Lloyd’s of London rather than through a domestically licensed insurer.

Is the Section 124 tax the same as VAT on insurance premiums? #

No. Section 124 is a percentage tax under NIRC Title V (Other Percentage Taxes), separate from and instead of VAT, in the same family as the percentage taxes on life insurance premiums under Section 123 and on common carriers and financial intermediaries elsewhere in Title V.

Summary #

NIRC Section 124 taxes insurance placed with a foreign company not authorized to transact business in the Philippines in two distinct ways: a licensed local fire, marine, or miscellaneous agent who arranges such coverage pays 4% of the premiums collected (double the Section 123 life-insurance rate), while a property owner who insures directly with the same kind of unauthorized foreign insurer — with no local agent at all — pays 5% of the premium and must separately report the placement to both the Insurance Commissioner and the BIR. The two triggers are easy to tell apart: whether a licensed Philippine agent sits anywhere in the chain. Reinsurance agents stay outside the doubled rate, and the reporting duty applies specifically to the direct-procurement case, since no local intermediary otherwise brings the transaction into regulatory view.