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Insurance companies of the offshore type belong, together with offshore bank and trust companies among the most up-to-date tools in the field of tax planning and tax optimisation. Like offshore banks insurance companies formed in offshore jurisdictions also enjoy the liberal environment of the offshore system and legislation.
There exists a number of types of offshore insurance licenses, beginning with the full international license, through a number of limited licenses to a license for additional insurance or underwriter or insurance broker licenses. Every jurisdiction has its own laws and classes of individual licenses which offer some of the below listed forms of licenses.
This is a full international offshore insurance license, which usually does not have any restriction of activities, which means that on the basis of this license it is possible to insure, secure insurance or reinsure without limitation, including providing life policies or policies for other insurance companies from offshore or onshore jurisdictions.
Basically this concerns a full international insurance license which, however, has specific restrictions, such as an upper limit for the maximum amount of insurance policies, not providing life policies, foreign exchange restrictions, etc.
The Restricted In-house License is a license which enables its holders to provide insurance services exclusively to a group of natural persons or legal entities who are the subject matter of the license or to the proprietor of the insurance company. This type of insurance company is intensively used by international holdings, banks, insurance companies and tax optimisation funds. The most frequented seat of these insurance companies are the Bermuda Islands, where at present about 3,000 internal insurance companies are registered, which administer insurance policies amounting to several billions of USD.
This is a company, which itself cannot insure but which can only accept an insurance policy and subsequently secure it at another commercial onshore or offshore insurance company, often at a wholesale price. The home country of the re-insurance companies is the Caribbean island Nevis, where you can get a re-insurance company at a price about USD 2,000. A re-insurance company is an extremely excellent tool for tax planning intended de facto for any business, consulting or investment company.
Another chapter could be formed by licensed underwriters, brokers or trustees who can get licenses for international offshore activities in a number of offshore jurisdictions for international offshore activities at relatively advantageous conditions.
A major part of the insurance companies of the Offshore type, like ordinary business offshore companies, are not subject to taxation of their profits, but they often pay a certain type of lump-sum tax only or appropriate license fees. These fees are an important aspect while deciding about the extension of a license or its cancellation on the part of authorities.
The main characteristics of offshore insurance licenses can be defined as follows:
Many offshore insurance companies provide their clients with insurance services which can include various types of insurance coverage of a high risk - for example against events of negligence and misuse of official authority, corporate liability, against a possible strike as well as insurance of other risks which would be very expensive if agreed upon with ordinary onshore insurance companies. The ability of make profits of providing these services depends to a significant extent on competition on the market and on the price of the insurance policy when purchased from standard providers in an onshore jurisdiction.
Indeed, insurance business activities have become a highly profitable matter for many private international offshore insurance companies, and it is no exception that an offshore branch office of an insurance company is more profitable than its parent onshore company. Since in many cases the onshore insurers charged an unbelievable premium - or refused to conclude an insurance policy at all - the parties which were exposed to a high risk did not have any other possibility but contacting offshore institutions which were glad to meet their requirements, often even with a discount. Some of them only contacted the renowned foreign insurance companies which were willing to take over the coverage of the risks at more acceptable premium than onshore insurance companies. Other, mostly professional groups, holdings or individuals with common risks tended to establish co-operation insurance pools, operating either in offshore locations or in such states as Vermont (USA) or Colorado(also USA), which had more tolerating insurance regulations, and which in turn provided insurance to all members of the interest group.
An offshore insurance company may help the international insurance community not only in the field of tax planning, asset protection, but also for the purpose of increasing image and goodwill of the group (or holding), which thus can declare ownership of an insurance company and its capitals strength.
Who can use an insurance company for tax planning purposes? It is possible to state that almost anyone whose business activity nature is of such a type that this legal entity can be made use of. The ownership of an offshore company brings several basic advantages. The first advantage is a simple fact that this company provides a certain type of insurance at all. Conservative insurers continue to consider many companies and transactions to be too risky and they simply refuse to provide a standard insurance, or if one manages to persuade them to make an insurance policy quotation, they require such restrictive conditions that it is virtually impossible to conclude it. That is why a company which needs to conclude an non-conventional insurance policy before starting a new project can get into a situation that it will have to leave its plans due to the impossibility of finding an insurance (reinsurance) coverage. But an insurance policy provided by an International Captive Insurance Company, for which it is possible to find reinsurance more easily on the part of a conventional re-insurer, can solve similar problems for many firms. In comparison with costs of coverage provided by domestic insurers, the insurance premium rate at the international institution will probably be much lower.
Second, there are also tax advantages resulting from the insurance at an international insurance institution, because the costs charged by an insurance company formed in this manner can be included into the tax base of the company. In other words this means that all insurance contracts and policies concluded, for which an insurance company logically requires remuneration, can reduce the tax base of the parent company of the investor in an invoiced volume.
Cyprus, Isle of Man, Bahamas, Cayman Islands, Turks and Caicos, Anguilla, Antigua, St. Vincent, Grenada, British Virgin Islands, St. Kitts, Montserrat, St. Lucia, Dominica, Nevis, American Virgin Islands, Gibraltar, USA, Vanuatu, Cook islands, Samoa, Bermuda, Jersey and many other jurisdictions.
Offshore insurance companies are uniquely one of the most up-to-date tools of offshore strategies. Their use reaches from the providing of proper insurance companies for the general public to family insurance services which optimises tax burden of a very rich individual or to the service of cash flow active management at international firms.