Offshore vs. Onshore
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#[WRCIC] Offshore vs. Onshore
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Offshore vs. Onshore . #[WRCIC]. Offshore vs. Onshore . Anne Marie Towle, CPA Vice President, Senior Captive Consultant Willis Global Captive Practice – Chicago, IL [email protected] Nicola Neilon, CPA - PowerPoint PPT Presentation
Transcript of Offshore vs. Onshore
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Offshore vs. Onshore
Anne Marie Towle, CPA Vice President, Senior Captive ConsultantWillis Global Captive Practice – Chicago, [email protected]
Nicola Neilon, CPAPartner , Casey, Neilon & Associates, Strategic Wealthcare Advisors, Carson City, [email protected]
Robert Vogel, CPAVice President , Pro Group Captive Management Services - Carson City, [email protected]
Offshore vs. Onshore
Offshore vs. Onshore
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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.
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Offshore vs. Onshore
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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
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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
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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
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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
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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
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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
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Offshore vs. Onshore
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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 ?
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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
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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
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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
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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
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Thank you for your participation todayQuestions?
Anne Marie Towle, CPA Vice President, Senior Captive ConsultantWillis Global Captive Practice – Chicago, [email protected]
Nicola Neilon, CPAPartner , Casey, Neilon & Associates, Strategic Wealthcare Advisors, Carson City, [email protected]
Robert Vogel, CPAVice President , Pro Group Captive Management Services - Carson City, [email protected]
