|(a) Definitions. The following words and terms, when
used in this section, shall have the following meanings, unless the
context clearly indicates otherwise.
(1) Affiliate--A subsidiary or holding company that,
directly or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, a captive insurance
company. The term includes a parent entity that controls a captive
(2) Captive insurance company--A company that holds
a certificate of authority issued by the Texas Department of Insurance
under Insurance Code, Chapter 964, and that insures only the operational
risks of its affiliates or the risks of a controlled unaffiliated
(3) Control--To direct, or cause the direction of,
the management and policies of an entity, other than the power that
results from an official position with, or corporate office held in,
the entity. The power may be possessed directly or indirectly by any
means, including through the ownership of voting securities or by
contract, other than a commercial contract for goods or non-management
(4) Controlled unaffiliated business--A person that:
(A) is not an affiliate;
(B) has an existing contractual relationship with an
affiliate under which the affiliate bears operational risk; and
(C) whose risk is managed by a captive insurance company
under criteria established by the Commissioner of Insurance pursuant
to Insurance Code, §964.066, relating to Standards for Risk Management
of Controlled Unaffiliated Business.
(5) Gross premiums--For purposes of the maintenance
tax implemented by this section, this term has the meaning assigned
by paragraph (9) of this subsection, defining the term taxable premium
(6) Home office--The location from which the officers
or directors of a business entity provide direction, control, and
coordination, and where the executive officers hold meetings and make
(7) Operational risks--Any potential financial loss
of an affiliate, except for a loss arising from an insurance policy
issued by a captive or insurance affiliate.
(8) Person--This term has the meaning assigned by Government
(9) Taxable premium receipts--The total amount of gross
premiums, membership fees, assessments, dues, revenues, and other
considerations for insurance written by the captive insurance company
in a calendar year, with no deduction for premiums paid for reinsurance
to another authorized insurer. Taxable premium receipts do not include
returned premiums, dividends paid to policyholders, or premiums excluded
by another law of this state.
(b) Taxes imposed on a captive insurance company.
(1) Premium tax.
(A) The premium tax rate is one-half of one percent.
(B) Each year, the minimum aggregate amount of premium
tax to be paid by a captive insurance company is $7,500, and the maximum
aggregate amount of premium tax to be paid is $200,000.
(C) The premium tax due is based on the correctly reported
taxable premium receipts on any kind of insurance written by the captive
on operational risks for an affiliate or risks for a controlled unaffiliated
business, on each kind of property or risk, without regard to the
location of the property or risk that is being insured.
(D) For information about allowable premium tax credits,
refer to subsection (c) of this section.
(2) Maintenance tax. The maintenance tax due is based
on the correctly reported gross premium from writing insurance on
risks located in this state, as applicable to the individual lines
of business written, on operational risks for an affiliate or a controlled
unaffiliated business. The rates for each line of business are determined
by the Texas Department of Insurance and may vary each year. In the
case of an indemnity policy that reimburses the insured for losses
paid, the location of the risk or exposure insured is the location
of the insured's home office.
(3) Other taxes. A captive insurance company's premium
receipts subject to taxation under Insurance Code, Chapters 223A and
964 are not subject to any other taxes, surcharges, or other regulatory
assessments or fees under the Insurance Code.
(4) Postponement or waiver of taxes or fees. The Commissioner
of Insurance may postpone or waive, in whole or in part, any fees
or taxes under the Insurance Code for a period not to exceed two years
for any foreign or alien captive insurance company that transfers
its state of domicile to this state. The amount of any premium tax
waiver is computed on the net premium tax due after application of
any available premium tax credits for examination expenses. To claim
such premium tax or maintenance tax postponement or waiver under this
paragraph, the captive insurance company shall submit with its premium
tax or maintenance tax report the written letter or other documentation
received from the Commissioner of Insurance or an authorized representative
of the Texas Department of Insurance granting such waiver or postponement
for the applicable tax year.
(c) Premium tax credit for examination expenses. A
captive insurance company is entitled to a premium tax credit against
the preliminary tax calculation in an amount equal to the allowable
examination expenses paid to, and as determined by, the Texas Department
of Insurance during the calendar year for which the tax is due. Credit
is not allowed for fees paid to another state or paid in a different
tax year. Any portion of the credit that exceeds the amount of taxes
calculated for the year in which the examination expense is incurred
may not be carried forward to a subsequent tax year.
(d) Due date and prepayments of tax. Captive insurance
companies are subject to the provisions of §3.809 of this title
(relating to Due Dates, Penalty and Interest, and Overpayments). Section
3.809 of this title also addresses prepayments of premium tax.
(e) Failure to pay taxes. A captive insurance company
that fails to pay all taxes imposed under Insurance Code, Chapters
223A and 964 is subject to Insurance Code, §203.002(b) and Tax
Code, Title 2, Subtitles A and B. The comptroller shall institute
such collection actions against a delinquent captive insurance company
as the comptroller considers appropriate.