Non-Controlled Foreign Corporation and other Captive Insurance Company Structures Comparative Analysis
| Domestic Captive | Domestic 831(b) | Foreign Captive | Foreign 953(d) | NCFC | |
|---|---|---|---|---|---|
| U.S. Premiums Treated as Tax Deductible for Policyholder ¹ | Y | Y | Y | Y | Y |
| U.S. Federal Excise Tax Exemption | Y | Y | N² | Y | N² |
| U.S. Corporate Tax Exemption on Underwriting Profits | N | Y³ | N | N | Y⁴ |
| U.S. Corporate Tax Exemption on Investment Income | N | N | N | N | Y |
| U.S. Tax Deferral on Deferred Dividends to U.S. Taxpayers | N | Y | N | N | Y |
| U.S. Withholding Tax Exemption on Dividends to Foreign Entities | N⁵ | N⁵ | Y | N⁵ | Y |
| U.S. Tax Exemption on Catastrophe Reserves | N | N | N | N | Y⁶ |
| Wealth Management Planning Advantages | N | Y⁷ | N | N | Y⁷ |
¹ Risk Transfer and Risk Distribution requirements must be satisfied to qualify for tax deductibility of premiums.
² FET is 4% on property and casualty premiums for policies issued by the captive on a direct basis; 1% on health premiums for policies issued by the captive on a direct basis; and 1% on all reinsurance premiums assumed by the captive regardless of the line of business.
³ Subject to an Annual Gross Premium Limitation of $2,300,000.
⁴ There is no Annual Gross Premium Limitation.
⁵ The U.S. withholding tax on dividends to foreign entities is 30%.
⁶ Since taxes on profits are deferred until they are distributed to the US taxpayer they can roll over and accumulate over time while earning investment income to provide funding for high limit catastrophe losses without incurring any tax liability.
⁷ If structured properly with real insurance risk, profits can be used for pension funding and estate planning.
THIS IS A VERY TECHNICAL AREA OF TAX LAW.
NOTHING STATED ABOVE IS INTENDED NOR SHOULD BE TAKEN AS PROVIDING TAX OR LEGAL ADVICE. READERS ARE DIRECTED TO THEIR TAX AND LEGAL ADVISORS FOR ADVICE ON THIS SUBJECT MATTER.
