General Introduction and the Law: Law: Why is insurance exempt under the Principal VAT Directive
Insurance has always been exempt from VAT. Under the Principal VAT Directive it falls within the Article 135 exemptions rather than those allowed for under Article 132. The Article 132 to 134 exemptions are often referred to as the “social exemptions”and cover services that are of a social, welfare or public interest nature. The exemptions allowed for under Articles 135 and 136 are provided for different reasons. It is generally thought that the main reason for exempting insurance and other financial services was to avoid the complications of bringing them within the VAT system. In addition, in the case of insurance, some member states already imposed a separate premium tax when the Sixth Directive was being negotiated and this may have affected their position on VAT and insurance.