Percentage Tax on Life Insurance Premiums: The 2% Tax Under NIRC Section 123
NIRC Section 123 imposes a 2% percentage tax on the total premiums a life insurance company collects in the Philippines, computed on gross premiums received in money, notes, credits, or any substitute for money. This tax replaces VAT for life insurance premiums — life insurance is a VAT-exempt transaction precisely because Section 123 already taxes the same premiums separately. The tax has specific carve-outs, and a doubled 4% rate applies to agents of foreign insurers.
Track Your Percentage Tax Filings FREE →What is the percentage tax on life insurance premiums? #
Section 123 of the National Internal Revenue Code (NIRC) taxes every person, company, or corporation doing life insurance business in the Philippines at 2% of total premiums collected, except purely cooperative companies or associations. The tax applies regardless of how the premium is paid — cash, notes, credits, or any substitute for money — and it is computed on the gross premium collected, not on net income or underwriting profit. This is a business tax on the volume of premiums received, similar in structure to the other percentage taxes under NIRC Title V, such as the 3% tax on domestic common carriers or the tax on banks and financial intermediaries.
The statute itself reads:
“There shall be collected from every person, company or corporation (except purely cooperative companies or associations) doing life insurance business of any sort in the Philippines a tax of two percent (2%) of the total premium collected, whether such premiums are paid in money, notes, credits or any substitute for money.”
This is the operative text of NIRC Section 123 as it stands after the amendments introduced by Republic Act No. 8424 (the Tax Reform Act of 1997) and later renumbering. The rate has not been changed by the TRAIN Law, the CREATE Act, CREATE MORE, or the more recent Capital Markets Efficiency Promotion Act (CMEPA) — all of which touched other percentage taxes under Title V, such as the stock transaction tax under Section 127, without amending Section 123’s 2% rate on life insurance premiums.
Why is this a percentage tax and not VAT? #
Life insurance premiums fall under NIRC Section 109 as a VAT-exempt transaction, and the reason is structural: Section 123 already imposes a separate 2% tax on the same gross premiums, so subjecting the same amount to both VAT and this percentage tax would double-tax the same revenue base. A life insurance company does not compute output VAT on premiums it collects and does not issue a VAT official receipt for that premium income. Instead, it computes the 2% percentage tax quarterly and reports it on BIR Form 2551Q, the same form used for the general 3% percentage tax on non-VAT businesses under Section 116, even though the life insurance premium tax rate and legal basis are entirely different from that general rate.
This distinction matters for how a life insurance company treats its own input costs — because premium income sits outside the VAT system, VAT paid on the company’s purchases related to that premium income is not creditable the way input VAT would be for a VAT-registered seller. Non-life insurance is treated differently: non-life (property, casualty, motor, and similar) insurance premiums are generally VAT-taxable, which is why a distinction between “life” and “non-life” insurance products matters for how each company computes and files its business tax, not just for underwriting purposes.
What premiums are exempt from the Section 123 tax? #
Section 123 does not tax every peso a life insurer collects — four specific categories fall outside the 2% tax, and reading past the headline rate to these carve-outs is where most classification errors happen. The table below summarizes the rate, the tax base, and each exemption exactly as the statute frames it.
| Item | Rule |
|---|---|
| Standard rate | 2% of total premiums collected, from every person, company, or corporation doing life insurance business in the Philippines |
| Tax base | Total premium collected, whether paid in money, notes, credits, or any substitute for money |
| Refunded premiums | Exempt if refunded within six (6) months after payment, on account of rejection of risk |
| Reinsurance premiums (already-taxed) | Exempt where the reinsurer has already paid the tax — a company already taxed on its life insurance premiums is not taxed again when it cedes the same risk to a reinsurer |
| Reinsurance on offshore risk | Exempt where the premiums are collected on account of reinsurance, if the insured — in relation to whom the reinsurance is made — resides outside the Philippines, and the risk insured against is located outside the Philippines |
| Purely cooperative companies or associations | Excluded from the tax entirely — not merely reduced, but outside Section 123’s coverage altogether |
| Agents of foreign insurance companies | Pay twice the standard rate — 4% — on premiums collected, except agents handling reinsurance, who remain outside this doubled rate |
Each of these is a distinct condition, not a general “insurance is exempt” rule — a refund outside the six-month window, or a reinsurance arrangement where the ceding company has not actually paid the tax, does not qualify for the corresponding carve-out.
Why does the foreign agent rate double to 4%? #
Section 123 sets a materially higher rate — 4%, or twice the standard 2% — for agents of foreign insurance companies other than reinsurance agents, and the distinction turns on where the insurer doing the underlying life insurance business is organized, not on where the premium is physically collected. A domestic life insurance company, or the Philippine branch of a foreign insurer licensed and doing business directly in the Philippines, pays the standard 2%. An agent who instead places business with a foreign life insurer that is not itself directly transacting life insurance business in the Philippines — collecting premiums on that foreign company’s behalf — pays the doubled 4% rate on those premiums. Reinsurance agents are carved out of this doubled rate, consistent with the separate reinsurance exemptions above. A business placing coverage through such an agent should confirm which rate actually applies before assuming the standard 2% governs the arrangement.
Worked example: computing the tax on ₱10,000,000 in quarterly premiums #
A domestic life insurance company collects ₱10,000,000 in total life insurance premiums during a calendar quarter, none of which fall under the refund, reinsurance, or cooperative exemptions. The percentage tax due under Section 123 is:
| Step | Computation | Amount |
|---|---|---|
| Total premiums collected for the quarter | — | ₱10,000,000 |
| Percentage tax rate under NIRC Section 123 | 2% | — |
| Percentage tax due | ₱10,000,000 × 2% | ₱200,000 |
The company reports this ₱200,000 on its BIR Form 2551Q for the quarter and remits it by the applicable deadline. Because life insurance premiums are VAT-exempt, no separate 12% output VAT applies to any part of this ₱10,000,000 — the ₱200,000 percentage tax is the company’s entire business tax on this premium income. Contrast this with a non-life insurer collecting the same ₱10,000,000 in premiums for property or motor coverage: that revenue is generally VAT-taxable, meaning the non-life insurer would compute 12% output VAT on qualifying premiums (subject to its own input VAT credits) rather than the flat 2% percentage tax that applies to life insurance under Section 123. The two insurance lines sit under entirely different tax regimes even though both are, in everyday terms, “insurance premiums.”
If ₱1,500,000 of that quarter’s ₱10,000,000 in collected premiums were later refunded within six months because the company rejected the underlying risk, that ₱1,500,000 would be excluded from the tax base, reducing the taxable premiums to ₱8,500,000 and the tax due to ₱170,000.
How does this compare to other Title V percentage taxes? #
Section 123 is one of several specialized percentage taxes that sit alongside — not instead of — the general 3% percentage tax most non-VAT businesses use, and each applies to a specific industry rather than to businesses generally. For a broader map of how Section 123 fits with the taxes on common carriers, banks, and stock transactions, see Percentage Tax Beyond 3%: Common Carriers, Banks, Insurance, and Stock Transactions, which summarizes the full Title V landscape. For how the underlying choice between VAT and percentage tax works for a business generally, see VAT vs. Percentage Tax in the Philippines.
Frequently asked questions #
What percentage tax rate applies to life insurance premiums in the Philippines? #
Under NIRC Section 123, every person, company, or corporation doing life insurance business in the Philippines pays a percentage tax of 2% of the total premiums collected, whether those premiums are paid in money, notes, credits, or any substitute for money.
Is this the same as VAT on life insurance premiums? #
No. Life insurance premiums are VAT-exempt precisely because Section 123 imposes this separate 2% percentage tax on the same premiums instead. A life insurance company does not charge output VAT on premiums collected — it computes and remits the 2% percentage tax on BIR Form 2551Q rather than a VAT return.
Are all life insurance premiums subject to this 2% tax? #
No. Section 123 carves out specific exemptions: premiums refunded within six months of payment because the insurer rejected the risk, reinsurance premiums where the ceding company already paid the tax, premiums on reinsurance covering a risk located outside the Philippines, and premiums collected by purely cooperative companies or associations.
What happens if an agent sells insurance for a foreign life insurance company? #
Under Section 123, agents of foreign insurance companies — other than reinsurance agents — pay twice the standard rate, or 4%, on premiums collected, rather than the 2% rate that applies to a company doing life insurance business directly in the Philippines.
Does a purely cooperative life insurance association pay this tax? #
No. Section 123 excludes purely cooperative companies or associations from this percentage tax entirely — the exclusion is written into the statute itself, not a separate BIR ruling.
Summary #
NIRC Section 123 imposes a 2% percentage tax on total life insurance premiums collected in the Philippines, in place of VAT — a rate that has stayed unchanged through the TRAIN Law, CREATE, CREATE MORE, and CMEPA. The tax exempts premiums refunded within six months for a rejected risk, already-taxed reinsurance premiums, reinsurance on offshore risks, and purely cooperative companies, while doubling the rate to 4% for agents of foreign insurers other than reinsurance agents. A life insurance company reports and remits this tax quarterly on BIR Form 2551Q, alongside the other percentage taxes covered in Percentage Tax Beyond 3%.