What Captive Owners Should Know about the Federal Excise Tax

Captive Tax Issues | P. Bruce Wright | Partner | Eversheds Sutherland (US) LLP 

The federal excise tax (FET) is imposed at the federal level on insurance premiums or reinsurance premiums that are paid by a US person to a foreign non-US person with regard to US risks. In this video, Bruce Wright, partner at Eversheds Sutherland (US) LLP, discusses what captive owners should know about FET.

In general terms, there is a 4 percent tax on direct property-casualty premiums; there is a 1 percent tax on life, sickness, accident, and health premiums that are direct; and there is a 1 percent tax on reinsurance premiums that are paid to the foreign person under these provisions. 

If premiums are effectively connected with US trade or business, they are not subject to this tax. In other words, if a foreign corporation is doing business in the United States and it is paying income taxes on its effectively connected income, this tax will not be imposed.