What Captive Owners Should Know about the Federal Excise Tax

June 24, 2019

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.


Subscribe to the Captive Wire daily newsletter and get this FREE 21-page report: Risk Distribution—Expected Adverse Deviation (EAD) Case Studies. Explore the concept of risk distribution through the lens of EAD and its application in captive insurance. Authored by leading actuaries, this report delves into the methodology behind EAD, offering case studies that examine how EAD modeling can demonstrate sufficient risk distribution in various captive insurance structures.


June 24, 2019