Tax Facts

8179 / What taxes apply to a foreign captive that do not apply to a captive formed domestically?

While captives that are formed in foreign jurisdictions can often take advantage of tax benefits that are not available within the U.S., these captives may become subject to U.S. excise taxes that erase the benefits of a foreign domicile.A U.S. excise tax of 1 percent is applied to gross reinsurance and life insurance premiums and a 4 percent excise tax is applied to direct property and casualty premiums paid to a foreign insurer.1

Further, U.S. shareholders of a controlled foreign corporation (CFC) must include their pro rata share of the CFC’s insurance income in their gross income if their stock ownership exceeds certain threshold amounts.2 A foreign captive will be considered a CFC if U.S. shareholders (as defined below) own more than 50 percent of either (a) the combined voting power of the corporation or (b) the total value of the corporation.3

A “U.S. shareholder” is defined, for these purposes, as a person who owns at least 10 percent of the total combined voting power for all classes of stock in the foreign corporation.4

Tax Facts Premium Tools
Calculators
100+ calculators specifically designed to help you easily assist clients with specific planning situations and calculations.
Practice Guidance
Designed to help you discover new ways for which to build and maintain client relationships.
Concepts Illustrated
Specifically designed to help you easily assist clients with specific planning situations and calculations.
Tax Facts Archives
Access to the entire library of Tax Facts dating back to 2012 allowing you to look up the exact tax figures from prior years.