Non-US insurance companies are allowed to sell products to non-us tax residents
BNP Paribas is the first company to take advantage of Florida's international insurance law that allows non-US insurance companies to sell life products to non-US tax residents. The main significance of the law is that it exempts non-US residents from paying an upfront 30% withholding tax on domestic policies, by using an offshore wrapper.
Bowman Brown, chairman of Financial Services Industry Practice, Shutts & Bowen, said: "Most variable annuity and life insurance products sold in the international market contain imbedded investment elements. Non-US residents generally were subject to US withholding tax with respect to returns related to the investment elements of these products. So products issued by US insurers are not generally tax-efficient for non-resident purchasers."
Investors from Latin America will be the main beneficiaries of this legislation. Offshore companies will be able to sell to non-US investors who spend less than 120 days a year in the US. They can purchase products through the offshore firms in Florida.
The state has been the main financial centre for the sale of products to Latin America. A recent study by Dr Jon Cordrey of the Beacon Council indicates that there is an $8.6bn annual insurance premium market in Latin America, and that Florida could develop into an international insurance centre that would contribute $2.7bn annually to its economy as well as create 50,000 jobs.
Many foreigners, especially Latin Americans, are already accustomed to buying financial services in Miami. According to Brown, they want to buy key financial services in a stable country to avoid unstable political regime, economic uncertainty and changing regulations governing insurance at home.
The law does not require offshore insurers to obtain a Certificate of Authority to sell offshore products. Previously, companies had to wait up to three years for a licence to sell domestic insurance. Under the new regulations, to sell offshore insurance products it will take approximately only a month to establish a licence.
To take advantage of the proposal, an offshore insurer must have been licensed for three years and have a $15m surplus. They must make financial statements and records relating to Florida operations available to the Office of Insurance Regulation for review, and provide financial information to the office on an ongoing, regular basis. Companies must also be rated by a recognised international insurance rating organisation.
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