Sponsors (3)
The bill makes U.S. catastrophe risk vehicles more attractive to foreign capital and lowers multistate reinsurance tax costs and uncertainty for insurers, at the expense of reduced state/federal tax revenue, constrained local taxing authority, added compliance tasks, and greater risk of tax-avoidance structuring.
Nonresident aliens and foreign corporations can receive qualifying dividend amounts tied to investment income from catastrophic risk transfer companies tax-free, making U.S. catastrophe-linked investments more attractive and helping insurers/reinsurers raise capital and liquidity.
Insurers and catastrophic risk transfer companies face lower or capped premium-tax burdens when selling reinsurance across state lines, reducing their costs for multistate reinsurance transactions.
Companies and reinsurers gain tax-rate certainty because non‑formation‑state premium taxes are capped at explicit federal rates, reducing unpredictability in tax exposure.
State and local governments (other than the formation State) will lose premium-tax revenue from reinsurance business, shrinking local tax bases and potentially forcing service cuts or tax increases elsewhere.
U.S. federal tax revenue may decline because dividends paid to foreign investors are exempt, which could increase budget deficits or shift tax burdens onto domestic taxpayers.
The exemptions create incentives to structure investments or shift profits through these entities to avoid U.S. tax unless anti‑abuse rules are effective, raising tax‑avoidance and fairness concerns.
Based on analysis of 3 sections of legislative text.
Creates a tax-preferred entity for catastrophic risk transfer, exempts certain dividends paid to non-U.S. holders, and limits state/local premium taxes on reinsurance to low per-dollar caps.
Introduced February 21, 2025 by Darin Lahood · Last progress February 21, 2025
Creates a new tax-preferred corporate form for firms that transfer catastrophic risk and exempts certain dividends those firms pay to non-U.S. investors from U.S. withholding tax, subject to specified exceptions and reporting rules. Also bars most states, territories, and localities from imposing premium taxes on reinsurance premiums paid to those companies, and limits any tax a non-formation jurisdiction may impose to specified low per-dollar rates. The changes are implemented by adding a new part to Subchapter M of the Internal Revenue Code, amending nonresident and foreign-corporation withholding rules, and by preempting or capping subnational premium taxes on reinsurance paid to these new entities. The law requires issuer reporting of exempt dividend amounts and includes carve-outs that preserve withholding in defined circumstances.