Foreign Insurance Tax: Form 720 & IRS No. 30 Filing Guide

Foreign Insurance Tax at a Glance

Foreign insurance excise tax is generally calculated using taxable premiums paid during the quarter and reported on Form 720 under IRS No. 30.

What Is the Foreign Insurance Tax?

The Foreign Insurance Tax is a federal excise tax imposed on certain premiums paid for insurance policies issued by foreign insurers.

The tax can apply to qualifying:

• Casualty insurance
• Indemnity bonds
• Fidelity bonds
• Surety bonds
• Life insurance
• Sickness insurance
• Accident insurance
• Annuity contracts

Whether foreign insurance tax applies depends on the insurance contract, insurer, insured risk, premium payment, and any applicable exemption or treaty provision.

Who May Be Responsible for Foreign Insurance Tax?

The person who pays the premium to the foreign insurer, or to a nonresident person such as a foreign broker, generally must pay the applicable tax and file Form 720.

If that person does not pay the tax, responsibility may fall on another person involved with the policy, including a person who issued or sold the policy or the person insured under it.

Businesses that may need to review foreign insurance tax requirements include:

• U.S. businesses purchasing insurance from foreign insurers
• Policyholders paying premiums to foreign insurers
• Businesses using foreign insurance brokers
• Businesses purchasing foreign casualty coverage
• Businesses or individuals purchasing qualifying foreign life, sickness, or accident insurance
• Parties involved in foreign-issued insurance arrangements

The facts of the insurance transaction determine who is responsible for reporting the tax.

Foreign Casualty Insurance Tax

Premiums paid for qualifying casualty insurance issued by a foreign insurer are generally subject to a 4% federal excise tax.

The 4% rate also generally applies to qualifying:

• Indemnity bonds
• Fidelity bonds
• Surety bonds

The applicable premium amount and resulting tax are reported on Form 720 under IRS No. 30.

An exception can apply to certain casualty insurance covering export goods in transit to foreign destinations. Businesses should confirm that the requirements of the exception are satisfied before treating a premium as exempt.

Foreign Life, Sickness and Accident Insurance Tax

A 1% federal excise tax generally applies to taxable premiums paid for qualifying:

• Life insurance
• Sickness insurance
• Accident insurance
• Annuity contracts

These policies are also reported under IRS No. 30 on Form 720.

Correctly identifying the insurance type is important because foreign casualty insurance and qualifying bonds generally use the 4% rate, while life, sickness, accident insurance, and annuity contracts generally use the 1% rate.

What About Foreign Reinsurance?

Foreign reinsurance has historically been an important part of the foreign insurance excise tax rules.

However, the current IRS Form 720 instructions state that the section 4371(3) tax on foreign reinsurance premiums no longer applies.

Because older IRS publications and historical guidance may contain information about the former 1% reinsurance tax, businesses should use the current Form 720 instructions when determining the treatment of reinsurance premiums. Complex cross-border reinsurance arrangements may also involve other federal tax or treaty considerations.

What Is Considered a Premium?

For foreign insurance excise tax purposes, a premium generally means the agreed price or consideration paid for the insurer to assume and carry the insured risk or obligation.

The premium can include additional charges or assessments payable under the insurance contract, whether paid:

• In one payment
• Through installments
• Through another payment arrangement under the policy

Correctly determining the taxable premium is important because the applicable 1% or 4% tax is based on the premium subject to tax.

If premiums are later refunded, IRS rules may allow the related tax to be treated as an overpayment or claimed through the applicable refund procedure.

When Does Foreign Insurance Tax Liability Arise?

Foreign insurance tax liability generally attaches when the premium payment is transferred to the foreign insurer.

Liability can also arise when payment is transferred to:

• A bank designated by the foreign insurer
• A trust fund or similar recipient designated by the insurer
• A nonresident agent
• A nonresident solicitor
• A foreign broker

This means paying the premium through an intermediary does not necessarily prevent foreign insurance excise tax from applying.

A person may also pay the tax before liability formally attaches when records are maintained consistently with that practice.

Are There Foreign Insurance Tax Exemptions?

Yes. Certain premiums or transactions may qualify for an exception or exemption from foreign insurance excise tax.

For example, the tax generally does not apply to qualifying casualty insurance premiums paid to foreign insurers for coverage of export goods in transit to foreign destinations.

Tax treaty provisions may also affect whether certain premiums paid to foreign insurers are subject to U.S. federal excise tax.

Businesses should verify that all requirements of an exemption or treaty provision are satisfied before excluding premiums from Form 720.

Foreign Insurance Tax and U.S. Tax Treaties

Certain U.S. tax treaties can modify the federal excise tax treatment of premiums paid to qualifying foreign insurers.

A treaty exemption should not be assumed simply because the insurer is located in a country that has a tax treaty with the United States. The insurer, transaction, and treaty provision must meet the applicable requirements.

When a treaty-based position is used to exempt foreign insurance premiums from U.S. excise tax, an annual disclosure requirement may apply. Depending on the circumstances, Form 8833, Treaty-Based Return Position Disclosure, may be used.

Businesses relying on treaty relief should maintain documentation supporting the position.

How Is Foreign Insurance Tax Calculated?

The calculation generally depends on the type of taxable insurance.

Casualty insurance and qualifying bonds generally use the taxable premium multiplied by the 4% rate.

Life, sickness, and accident insurance and annuity contracts generally use the taxable premium multiplied by the 1% rate.

For example, if a business pays a taxable premium for foreign casualty insurance, it generally applies the 4% rate to the taxable premium and reports the resulting liability under IRS No. 30. Businesses should identify the correct insurance category before calculating the tax.

How Is Foreign Insurance Tax Reported on Form 720?

Foreign insurance tax is reported under IRS No. 30 – Policies Issued by Foreign Insurers.

The general process is:

1. Identify policies issued by foreign insurers.
2. Determine whether the premium is taxable.
3. Identify the type of insurance.
4. Determine the taxable premium paid during the quarter.
5. Apply the appropriate tax rate.
6. Report the resulting tax under IRS No. 30.
7. Maintain records supporting the calculation.

When your foreign insurance tax information is ready, you can use Excise720 to prepare and electronically file the applicable Form 720 online.

When Is Foreign Insurance Tax Reported?

Foreign insurance excise tax is generally reported quarterly on Form 720.

If the due date falls on a Saturday, Sunday, or legal holiday, IRS rules generally move the deadline to the next business day.

Businesses should report applicable premiums paid during the quarter on the appropriate Form 720 return.

What Records Should You Keep?

Businesses responsible for foreign insurance tax should maintain accurate records supporting each taxable policy or instrument.

Useful records can include:

IRS guidance generally requires foreign insurance tax records to be maintained for at least three years after the later of the date the tax became due or the date the tax was paid.

How to Prepare for Foreign Insurance Tax Filing

Before preparing Form 720, gather the information needed to determine the foreign insurance tax. This can include:

Review the policy type carefully before calculating the tax because different insurance categories can have different rates.

Once the required information is available, Excise720 can be used to prepare and e-file Form 720 for applicable foreign insurance taxes under IRS No. 30.

Common Foreign Insurance Tax Filing Mistakes

• Applying the wrong tax rate: Casualty insurance and certain bonds generally use 4%, while qualifying life, sickness, accident insurance, and annuity contracts generally use 1%.
• Using outdated reinsurance information: Current Form 720 instructions should be checked before reporting foreign reinsurance because the section 4371(3) reinsurance tax no longer applies.
• Ignoring payments through foreign brokers: Paying a premium through a nonresident intermediary does not automatically eliminate foreign insurance tax liability.
• Reporting the wrong premium amount: Additional charges or assessments under the insurance contract may be part of the premium.
• Assuming every foreign policy is taxable: Certain exceptions and treaty provisions may affect tax liability.
• Assuming a treaty automatically provides an exemption: The applicable treaty requirements must be satisfied and disclosure requirements may apply.
• Keeping incomplete records: Policy type, premium amounts, insurer details, payment information, and exemption documentation should be maintained.

Foreign Insurance Tax Filing Checklist

Before filing, confirm that you have:

1. Identified policies issued by foreign insurers.
2. Determine whether the premium is taxable.
3. Identified the correct insurance category.
4. Applied the appropriate 1% or 4% rate.
5. Used the correct taxable premium amount.
6. Reviewed applicable exemptions.
7. Considered relevant treaty provisions.
8. Checked whether treaty disclosure is required.
9. Reviewed current IRS guidance for reinsurance.
10. Reported the applicable liability under IRS No. 30.
11. Maintained supporting policy and premium records.

Foreign Insurance Tax Filing Pricing

Frequently Asked Questions