Offshore vs. Onshore #[WRCIC]

Anne Marie Towle, CPA Nicola Neilon, CPA Robert Vogel, CPA Offshore vs. Onshore Anne Marie Towle, CPA Vice President, Senior Captive Consultant Willis Global Captive Practice – Chicago, IL anne.marie.towle@willis.com Nicola Neilon, CPA Partner , Casey, Neilon & Associates, Strategic Wealthcare Advisors, Carson City, NV NicolaNeilon@wealthcarespas.com Robert Vogel, CPA Vice President , Pro Group Captive Management Services - Carson City, NV RobertVogel@pgmnv.com

Offshore vs. Onshore 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] #[WRCIC]

Domicile Selection Offshore vs. Onshore Domicile decision metrics: Capitalization and surplus requirements Regulatory environment Availability of local infrastructure expertise Political considerations Cost of operations Tax Considerations #[WRCIC]

Capitalization and Surplus Requirements Offshore vs. Onshore 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 #[WRCIC]

Regulatory Environment Offshore vs. Onshore 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 #[WRCIC]

Availability of Local Infrastructure And Expertise Offshore vs. Onshore 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 #[WRCIC]

Political and Perception Considerations Offshore vs. Onshore 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 #[WRCIC]

Cost of Operations Offshore vs. Onshore Cost of Service providers tend 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 #[WRCIC]

What does this mean to you? Offshore vs. Onshore U.S. Taxpayer? Why Insurance Matters? Why Offshore? Why Onshore? What does this mean to you? #[WRCIC]

Offshore vs. Onshore U.S. Taxpayer ? 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? #[WRCIC]

Why Insurance Matters Offshore vs. Onshore Tax 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 #[WRCIC]

Why Offshore Offshore vs. Onshore Traditionally, 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 #[WRCIC]

Why Onshore? Offshore vs. 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 #[WRCIC]

What does this mean to you? Offshore vs. Onshore What does this mean to you? Recommendations: Work closely with captive consultant, tax and legal advisors to determine best option for your company The initial option may change to a different domicile in the future due to economic, regulatory or company goals #[WRCIC]

Thank you for your participation today Questions? Offshore vs. Onshore Thank you for your participation today Questions? Anne Marie Towle, CPA Vice President, Senior Captive Consultant Willis Global Captive Practice – Chicago, IL anne.marie.towle@willis.com Nicola Neilon, CPA Partner , Casey, Neilon & Associates, Strategic Wealthcare Advisors, Carson City, NV NicolaNeilon@wealthcarespas.com Robert Vogel, CPA Vice President , Pro Group Captive Management Services - Carson City, NV RobertVogel@pgmnv.com #[WRCIC]