U.S. Sales of Offshore Insurance to Foreigners Streamlined But Issues Remain

Abstract

A multi-billion dollar market exists for U.S. sales of life insurance to non-U.S. purchasers. Insurers incorporated outside the U.S. can now participate in this market by selling, within Florida, life insurance policies and annuity contracts to non-U.S. customers under Florida Statutes (FSA) 624.402(8), effective July 1, 2005.

Alien insurers considering marketing life insurance policies to non-U.S. customers from Florida or elsewhere in the U.S. will wish to consider various tax and non-tax issues. Among these are:

1. Determining the most advantageous approach to compliance with U.S. state insurance regulation, such as obtaining a certificate of authority, or, if available as under Florida law F.S.A. Sec. 620.402(8), a more streamlined regulatory framework.

2. Reviewing what other regulatory rules may be applicable to the issuance and marketing of the policies and annuities, and the best method for compliance.

3. Assessing whether the proposed life insurance policies and annuities are U.S.-tax-qualified, and, if not, prominently disclosing this adverse characteristic to U.S. taxpayers.

4. Evaluating any risk that income from the proposed life insurance and annuities could be subject to withholding of U.S. tax to the non-U.S. customer.

5. Considering the possibility that the alien insurer's income from the proposed life insurance and annuity sales program could be U.S. corporate taxable to the alien insurer.

Non resident aliens contemplating purchasing life insurance policies and annuities from U.S. or non-U.S. insurers should review the nontax and the U.S. and foreign tax aspects. Among these are:

1. Analyzing historical and projected pretax yields, insurer financial statements, ratings, governmental supervision, and fee structure.

2. If the insurance policy is issued by a U.S. insurer and qualified under U.S. tax principles, whether the insured views it unlikely that a lifetime withdrawal of earnings in excess of investment in the contract, which will be subject to U.S. withholding tax under Rev. Rul. 2004-75, is likely to be avoidable.

3. If the annuity is issued by a U.S. insurer and qualified under U.S. tax principles, whether the expected annuity payments otherwise subject to U.S. withholding tax under Rev. Rul. 2004-75 are avoidable by treaty or creditable in the NRA's home country.

4. If the policy or annuity is issued by an alien insurer, or is issued by a U.S. insurer but does not qualify under U.S. tax principles, whether there is some risk that U.S. withholding tax or estate tax could nevertheless apply, e.g., by reason of the investor control rules U.S. sales of offshore insurance to foreigners streamlined but issues remain.