FEDERAL EXCISE TAX

A tax imposed on premium payments to offshore (re)insurers; 4% on direct premiums and 1% on reinsurance premiums. It can be eliminated if the captive:

  1. makes an election to be taxed as a U.S. corporation, or
  2. if the transaction is not really insurance (i.e., not claiming premium deductibility) but argued to be a transfer of self-insurance reserves.