#[WRCIC]

Offshore vs. Onshore

Anne Marie Towle, CPA Vice President, Senior Captive ConsultantWillis Global Captive Practice – Chicago, ILanne.marie.towle@willis.com

Nicola Neilon, CPAPartner , Casey, Neilon & Associates, Strategic Wealthcare Advisors, Carson City, NVNicolaNeilon@wealthcarespas.com

Robert Vogel, CPAVice President , Pro Group Captive Management Services - Carson City, NVRobertVogel@pgmnv.com

Offshore vs. Onshore

Offshore vs. Onshore

#[WRCIC]

The selection of a captive’s domicile is one of the most important decisions involved in a captive feasibility study. And the first critical question that needs to be resolved is “onshore or offshore?” This is such an important issue that it needs to be resolved before any of the other issues are addressed since all financial and operational assumptions are dependent on the domicile chosen.

#[WRCIC]

Offshore vs. Onshore

#[WRCIC]

Domicile SelectionDomicile decision metrics:

• Capitalization and surplus requirements• Regulatory environment• Availability of local infrastructure expertise• Political considerations• Cost of operations• Tax Considerations

Offshore vs. Onshore

#[WRCIC]

Capitalization and Surplus Requirements

• Capital Requirements are generally lower off shore than onshore– Example

• Utah Pure Captive $250,000• Bermuda Class 1 Pure

$120,000

However, less capital is not always better

Offshore vs. Onshore

#[WRCIC]

Regulatory Environment• US regulatory governance has State and National

accreditation standards that focus on solvency, stability and protection of insured's

• Offshore domiciles governance is individual per country, can change easily and the focus generally on financial dollars flowing into that country

Offshore vs. Onshore

#[WRCIC]

Availability of Local Infrastructure And Expertise• Onshore domiciles have been conducting the “business of

captives” since 1970’s and still developing in terms of service providers, regulatory experience and choices

• Some Offshore domiciles have been conducting the “business of captives” since the 1800’s, yet others are much newer however tend to be rich with service providers but not necessarily with the same transparency as onshore

Offshore vs. Onshore

#[WRCIC]

Political and Perception Considerations• Offshore

– The American consumer has become acutely opinionated on U.S. corporations conducting their affairs offshore and could harm companies reputation.

– Patriot Act– 911– Money laundering– Reputation

• Onshore

Offshore vs. Onshore

#[WRCIC]

Cost of Operations

Cost of Service providerstend to be 20% more offshore

Cost of Travel and services

Ease of geographic location

Conducting business between different time zones

Natural disasters and the interruption of business activities

• U.S. Taxpayer?• Why Insurance Matters?• Why Offshore?• Why Onshore?• What does this mean to you?

Offshore vs. Onshore

#[WRCIC]

Offshore vs. Onshore

#[WRCIC]

The process of selection a domicile begins with a determination of the financially optimal tax treatment of the captive facility:

• Do we want the captive to be a U.S. taxpayer?– if no, then the captive will need to be offshore;– if yes, then the captive may be either offshore or

onshore.• If the captive is not going to be a U.S. taxpayer, then

which offshore domicile is optimal?• If the captive is going to be a U.S. taxpayer, then

which domicile (offshore/onshore) is optimal?

U.S. Taxpayer ?

Offshore vs. Onshore

#[WRCIC]

Why Insurance MattersTax deduction for premiums paid to captive by policyholder

Favorable insurance tax treatment of captive (deduction for discounted insurance reserves, unearned premiums)

– Offshore CFC captives - Subpart F income

– Domestic captives - direct federal income tax

Onshore captives– Possible IRC § 831(b) investment income only taxation

Offshore captives– Possible IRC § 953(d) onshore tax election

Offshore vs. Onshore

#[WRCIC]

Why OffshoreTraditionally, off-shore domiciles have been chosen by large global organizations because of – Tax benefits– Lower minimum capitalization requirements– Less conservative premium-to-surplus ratio

requirements– A depth of experience working with global

organizations – Easy access to offshore risk transfer markets– Flexibility of regulation

Offshore vs. Onshore

#[WRCIC]

Why Onshore?• Currently over 30 domiciles have enabling captive

insurance legislation– Tax benefits– Ability to write employee benefits in U.S. captive– A depth of experience working with small, medium and large

organizations – Flexibility of regulation – Desire to be a U.S. Taxpayer– Lower operating expenses– Ease of accessibility

Offshore vs. Onshore

#[WRCIC]

What does this mean to you?Recommendations:1. Work closely with captive consultant, tax

and legal advisors to determine best option for your company

2. The initial option may change to a different domicile in the future due to economic, regulatory or company goals

Offshore vs. Onshore

#[WRCIC]

Thank you for your participation todayQuestions?

Anne Marie Towle, CPA Vice President, Senior Captive ConsultantWillis Global Captive Practice – Chicago, ILanne.marie.towle@willis.com

Nicola Neilon, CPAPartner , Casey, Neilon & Associates, Strategic Wealthcare Advisors, Carson City, NVNicolaNeilon@wealthcarespas.com

Robert Vogel, CPAVice President , Pro Group Captive Management Services - Carson City, NVRobertVogel@pgmnv.com