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A captive insurance company is an insurance company that is organized and owned by the parties that own the insured enterprise.  Under certain circumstances, insuring risks through a captive insurance company can be a more tax-efficient risk management technique than purchasing insurance from a third-party insurer.

State self-placement taxes are imposed by a state when risks within the state are covered by insurance that is not purchased from an insurer licensed within the state. There is no nationally accepted terminology for these taxes, which can be called self-placement taxes, self-procurement taxes, or taxes on independently-procured insurance. Under federal law, only the “home state” can impose these taxes. For any insurance program, the determination of the “home state”, and determining the scope of the taxes, can be highly complex.

The United States imposes a federal excise tax, known as FET, on insurance premiums paid to non-US insurance companies on risks that are located in the United States. The tax rate is 4% for direct non-life insurance, and 1% for reinsurance or life insurance.

A closing agreement is an agreement entered into between a foreign insurance company and the Internal Revenue Service.  By entering into a closing agreement, the insurance company agrees to comply with certain requirements of US tax law, such as filing returns and consenting to the right of the IRS to audit the company. In exchange, the IRS agrees that American companies that buy insurance from that insurance company are allowed to assume that the insurer is eligible for an exemption from FET under a tax treaty.