WHICH STRUCTURE FITS YOUR NEEDS?
Controlled Foreign Corporation. Dealer establishes reinsurance company offshore and elects to be taxed as a U.S. insurance company for Federal Income Tax purposes. Most commonly, dealer elects to be treated as a small insurance company which will earn all underwriting profits and investment income on ceded reserves produced. Company makes a 953d election, which makes the offshore domiciled company a domestic company for tax purposes. CFC will file a U.S. Corporate Insurance Company Income Tax Return. Permanent tax exclusion for underwriting profits under IRC Section 831(b). Distributions taxable at preferential dividends tax rates.
Non-Controlled Foreign Corporation. Dealer buys a share(s) of stock in an established offshore reinsurance company. Earns 100% of underwriting profits and investment income earned on ceded reserves produced. NCFC is not subject to income taxation in country of domicile. Shareholder taxation is deferred until such time as distribution is made with respect to shares of stock owned. Distributions taxable as long-term capital gains
Dealer Owned Warranty Company. Dealer forms new corporation (C Corp) in the state of the producing dealership(s). DOWC is obligor on VSC products and is registered as service contract provider in states it will do business. Program is administered by third party admin company. DOWC files both State and Federal income tax returns and no premium taxes paid. DOWC utilizes retail cost accounting which is advantageous for tax deferral. Company does not make IRC Section 831(b) election until it is place into runoff status.
Ask Mezen Dealer Services for a no obligation reinsurance review.