Argentina’s New Tax on Reinsurance

On the 24th of July 2023, the executive branch of the Argentine government issued Presidential Decree 377/23, widening the scope of the existing tax named “Impuesto PAIS.” This new decree imposes a tax of 25% on all residents in the country that purchase foreign currency (basically US dollars) to pay for services acquired outside of Argentina. Reinsurance placements and treaties are considered “imported services” and as such are subject to the application of this new tax.

Since the presidential decree became official, insurance and reinsurance associations have had heated discussions with the activity’s regulator (SSN) and have been expecting a resolution from this authority on how this new tax should be applied, but this has not yet happened. Nor is there any market standard or agreement on how insurers or reinsurers should act. As a result, each insurance carrier is relying on their legal counsel’s opinion and has its own “feeling” of how to apply this tax.

Some carriers are taking this issue to court stating that it is an unconstitutional measure and completely unannounced. Others have momentarily stopped issuing policies until this situation is clearer.

Some few carriers are requiring that their clients sign a letter accepting to pay this tax in order to avoid problems later. Others are communicating that the tax is applicable even if the policies have been issued and paid for before the 24th of July but without the regulators authority to purchase the foreign currency. This is likely the most controversial point of discussion. Although there are a few carriers who are not applying this new tax (yet), what we are seeing is that policies issued as a fronting operation or are heavily dependent on overseas facultative reinsurance; or form part of global insurance programs (CMPs and others), are being impacted directly with this 25% tax, which is charged in different ways depending on the carrier. These can be administrative or financial surcharges, non-commissionable premiums, policy issuing charges. Regarding other policies which are placed within carriers’ automatic reinsurance treaties, these are impacted with an amount that varies between 4 and 10 % depending on the carrier and the line of business to be issued. This tax (so far) is not affecting workers compensation nor employee benefits (life; personal accidents; pension plans) insurance placements.

All of this is occurring in a highly confusing and anguishing environment previous to the next presidential elections to take place in 30 days, as the probable result will be government transitioning from the ruling populist party to a right wing one, which we believe shall eventually delete this new tax.

Argentina is suffering the worst inflation of over the last 20 years. August’s inflation rate was 12.4% and a similar figure is expected for September! With these number it is virtually impossible to keep sums insured in Argentine pesos (ARS) updated. Although the probable new government will want to tackle inflation soonest, we can’t expect to see any improvements soon, so this problem shall carry on existing until well into 2024.