Texas governor Rick Perry signed SB 734 into law on 3 June allowing the formation of pure captive insurance companies in the state.
The new bill authorises licensed captive companies to insure the operational risks of their affiliates and risks of controlled unaffiliated businesses.
The bill also prohibits captives from issuing a number of types of insurance, including title, personal automobile and workers’ compensation.
The rate of the annual tax imposed on captive insurance companies is 0.5 percent of the company’s taxable premium. The annual minimum tax to be paid by a captive under the bill is $7,500, with maximum tax payment capped at $200,000.
It is hoped that the implementation of the bill will enable large Texan companies to redomesticate their captives that are currently domiciled in other states that have captive-enabling legislation.
“There is a concern that this situation creates additional and administrative burdens for Texas companies because other states typically impose a number of obligations on out-of-state companies.”
“[SB 734] seeks to address this situation by authorising the formation of pure captive insurance companies in Texas and setting out provisions relating to the operation and tax liability of such companies,” said a bill analysis by Carona Insurance.
Kimberly Yelkin, executive partner of the Austin office of Gardere Wynne Sewell LLP, whose firm helped to draft and negotiate the captive bill with the Texas Department of Insurance, said: “It took a lot of work to come to the final version of the legislation but we are very pleased with the bill as passed.”
“The passage of SB 734 will promote economic development in Texas. So I think that a lot of large corporations will establish captives in the state or redomesticate to the state because of the favourable tax advantages and the money that can be saved.”
