Requirements of the insured annuity

a. The life annuity contract must be signed between the taxpayer, who will be the beneficiary, and an insurance company .

In life annuity contracts, reversal mechanisms or certain benefit periods or counter-insurance formulas may be established in the event of death once the life annuity has been established.

The reversal mechanism in insurance contracts is the procedure by which, in the event of the death of the insured (who in this case is the policyholder and beneficiary), all or part of the life annuity is transferred to a new insured and beneficiary.

Life annuity insurance contracts with certain benefit periods are those in which it is guaranteed that the income will be received for a minimum number of years even if the insured and initial beneficiary of the income dies (logically, in the event of the death of the insured, the income will be received by the beneficiary designated for that purpose).

Finally, the counterinsurance formulas (the most used in insurance practice) are those that guarantee the designated beneficiary a capital amount in the event of the death of the insured.

However, in order to ensure that the application of the exemption from reinvestment gains provided for in article 38.3 of the Personal Income Tax Law complies with the intended purpose, contracts entered into after April 1, 2019, in which reversal mechanisms, certain benefit periods or counter-insurance formulas in the event of death are established, must comply with the following requirements (Additional Provision nine of the Personal Income Tax Law ):

• In the case of reversal mechanisms in the event of the death of the insured, there may only be one potential beneficiary of the reversing life annuity.
• In the case of certain benefit periods, said periods may not exceed 10 years from the establishment of the life annuity.
• In the case of counter-insurance formulas, the total amount to be received upon the death of the insured may at no time exceed the following percentages with respect to the amount allocated to the creation of the life annuity:

  Years since the establishment of the life annuity	Applicable percentage
  1st	95 percent
  2nd	90 percent
  3rd	85 percent
  4th	80 percent
  5th	75 percent
  6th	70 percent
  7th	65 percent
  8th	60 percent
  9th	55 percent
  10th and above	50 percent

Important : The new requirements established for cases in which there are reversal mechanisms, certain benefit periods or counter-insurance formulas in the event of death on insured life annuity contracts will not apply to life insurance contracts entered into prior to April 1, 2019, regardless of whether the life annuity is established after that date.

b. The life annuity must have a periodicity of less than or equal to year, must begin to be received within one year from its establishment, and the annual amount of the income may not decrease by more than 5% compared to the previous year.

c. The taxpayer must inform the insurance company that the life annuity being contracted constitutes the reinvestment of the amount obtained from the transfer of assets, for the purposes of applying the exemption provided for in this article.