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09/09/2021 · 2 minute read

Washington state passes legislation for framework for premium tax filing

Senate Bill 5315 — passed by Washington state in May 2021 — provides a formal compliant framework for captive insurers to register and pay state premium taxes on Washington-based risks they directly insure. The law is particularly relevant to captives with Washington-based parents and affiliates or an insured entity maintaining a principal place of business in Washington.

The bill requires that captives directly insuring risks in Washington state must:

  • Register with the Washington Office of the Insurance Commissioner (WA OIC).
  • Pay a registration fee of US$2,500.
  • Pay an annual 2% premium tax on direct written premiums allocated to Washington risks by March 1 every year, beginning in 2022.
  • Pay the 2% tax related to policies written from January 1, 2011 to December 31, 2020, by September 9, 2021, to benefit from the interest and penalties safe harbor provided for in the legislation.

According to the new law, captive insurers meeting the definition of an “eligible” insurer have the following characteristics:

  • Are wholly or partially owned by a captive owner.
  • Insure risks of the captive owner, the captive owner’s affiliates, or both.
  • One or more of its insureds have their principal place of business in Washington.
  • It has assets that exceed its liabilities by at least $1 million and has the ability to pay its debts as they become due, both as verified by audited financial statements prepared by an independent certified accountant.
  • It is licensed as a captive insurer by the jurisdiction in which it is domiciled.

“Eligible” captive insurers are required to register with the WA OIC, pay the registration fee, and, if applicable, pay any back taxes within 120 days from the passing of the legislation (that is, by September 9, 2021) or of first issuing a policy covering Washington risks, if that happens after. While the Washington Commissioner still has to set the annual renewal fee, the legislation states that this shall not exceed US$2,500. An eligible captive insurer that fails to register and pay the required fee and taxes will be deemed an unauthorised insurer and is subject to fines and penalties applicable to unauthorised insurers.

What should captive owners do?

As with all relevant regulatory and tax matters, impact on your captive may vary considerably depending on the circumstances unique to your individual organisation. We encourage captive owners to review and discuss how such reforms may affect their captive with their organisation’s tax department and/or external advisors.

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