A captive insurance company is a company formed by a business owner to insure the risks of their operating business and affiliated companies. It must be operated like a real insurance company and be licensed as one. Captive insurance companies have been around for a long time and are used by both large and small businesses. For tax purposes, if the company’s net written premiums do not exceed $1.2 million, the premium income is not taxable. This can be a good option for small business owners to manage their risks and save on taxes. A captive insurance program helps a business owner make more money by keeping insurance costs down and making profits from the insurance premiums. This is done by reducing the number of claims and investing the premiums to make more money. Running a captive is also cheaper than using regular insurance companies because there are less administrative costs. Plus, it gives more control over claims and access to better insurance deals. The new Florida law sets minimum financial requirements for insurance companies called captives. They need to have a certain amount of money and assets on hand to do business. There are different rules for captives that insure big companies. The IRS also has rules for captives, including that they can’t provide life insurance. A captive insurance company must meet certain IRS requirements to be taxed as an insurance company. This includes having enough capital to pay claims, keeping separate financial reporting from its parent company, and operating like a real insurance company. The company also needs to be a regular C corporation, not an S corporation or partnership for tax purposes. If it’s a foreign company, it may need to make an election to be taxed as a US company to avoid extra taxes. The Florida captive insurance bill has some unique rules that make it different from offshore companies. For example, a Florida captive can only insure the risks of its parent company and must have at least three incorporators, with two being Florida residents. It also has to hold meetings and maintain its principal place of business in Florida. Florida also requires a background investigation of the individuals and the company, including their financial and criminal backgrounds, before they can operate. Additionally, the company has to provide evidence of their assets, management expertise, and overall plan of operation to the Office of Insurance Regulation. Florida has some restrictions that offshore venues do not have for captive insurance companies. Captive insurance companies in Florida have to follow annual reporting requirements and regulations, which means they have to report on their financial status and get approval for certain financial decisions from the Office of Insurance Regulation (OIR). This means that they have to hire professionals and have their main operations in Florida. However, Florida’s captive insurance laws are not as competitive as those in offshore venues, which have lower regulatory requirements and better protection for assets. This is a list of legal cases and statutes related to captive insurance companies in Florida. It also includes information about Domenick R. Lioce, a lawyer and certified public accountant who is involved in various professional organizations. The article is submitted on behalf of the Tax Law Section of The Florida Bar.
Source: https://www.floridabar.org/the-florida-bar-journal/captive-insurance-companies-florida-enters-the-arena/
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