A captive is an insurance company organized in an offshore jurisdiction such as Bermuda, Cayman Islands or St. Lucia (BVI). It is owned by the shareholder(s) of a highly profitable small business or professional services corporation. Captives insure or reinsures Life and Property & Casualty policies on a low risk basis. The captive pays U.S. income taxes at low rates, 0% up to 15%.
Note: Premiums paid to the Closely Held Captive Insurance Company are tax deductible by the small business. This creates a tax arbitrage.
The Closely Held Captive Insurance Company (CHCIC) is not the same as traditional captives. Most existing captives are designed to reduce the cost of insuring an enterprise. The captive concepts we are presenting are designed to address tax and estate planning opportunities.
Benefits for closely held businesses and professionals to use an offshore captive include:
a. Reducing or Deferring Income tax.
b. Asset Protection from creditors.
c. Wealth Transfer, i.e transferring wealth to family members.
d. Reducing exposure Gift and Estate Taxes.
Remember these three points—It’s the heart of the captive concept:
1. Premiums paid to the Family Captive are tax deductible expenses.
2. Captive is a U.S. taxpayer for tax purposes.
3. Captive is taxed at 0% to15% rate.
Tax Arbitrage = a 24% to 39% increase in funds moved to the CHCIC.