Introduction to IFRS 17 and Its Impact on Insurance Companies

In 2017, the International Financial Reporting Standard 17 (IFRS 17) was introduced, replacing IFRS 4. IFRS 17, also known as "Insurance Contracts," sets comprehensive principles for recognizing, measuring, presenting, and disclosing insurance contracts. This accounting standard applies to annual reporting periods beginning on or after January 1, 2023.

The main goal of IFRS 17 is to enhance transparency and comparability of insurance company financial statements. It provides more relevant and reliable information to assess the impact of insurance contracts on an entity's financial position, performance, and cash flows.

Legal Framework for IFRS 17 in Malta

Under Article 2(1) of the Accountancy Profession Act, public interest entities are required to prepare their financial statements using IFRS as adopted by the EU. Consequently, insurance companies regulated by the Insurance Business Act must adopt IFRS 17 for financial periods beginning on or after January 1, 2023.

IFRS 17 Tax Implications for Maltese Insurance Businesses

The adoption of IFRS 17 has significant tax implications for insurance companies. Stakeholder consultations have highlighted the impact of IFRS 17 on the taxation of insurance companies in Malta, both during the transition and for ongoing tax calculations.

Under Article 27(8) of the Income Tax Act, new rules govern the computation of total income for insurance companies applying IFRS 17. These rules also guide the treatment of transitional gains or losses that arise due to changes in profit recognition compared to IFRS 4.

Managing Transitional Impact and Staggered Tax Payments

Upon IFRS 17 adoption, insurance companies may experience a one-time transitional impact, leading to significant gains or losses. To reduce the immediate tax burden, Malta introduced provisions allowing tax deferral.

For additional guidance, see GCS Malta’s accounting and compliance services

Eligibility for Election

To qualify for tax payment staggering, the insurer must:

  • Be fully compliant with all tax obligations when filing.

  • Have no outstanding balances or pending submissions under the Income Tax Acts, VAT Act, or Final Settlement System Rules.

Deadline: The election for Year of Assessment 2024 must be submitted by November 15, 2024.

Tax Payment Deadlines on Adoption Gains

If an insurer elects to stagger payments:

  • Annual installment payments are due by December 21 each year.

  • For Year of Assessment 2024, the first installment is due December 21, 2024.

  • Companies with special settlement dates under Rule 5(b)(iii) of the Income Tax (Statutory Dates) Rules have their first installment due June 30, 2025, and the second installment December 21, 2025.

Important: This deferral applies only to tax on adoption gains. Standard tax settlement dates remain unchanged.

Further Guidance and Compliance Resources

Additional guidance on the tax treatment of IFRS 17 in Malta can be found here.

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