Foreign life insurance policies generally complicate the USA tax return. There is no particular exemption from U.S. tax for foreign life insurance policies. In other words, if your foreign life insurance policy generates income, then you are required to report the income on your U.S. tax return. This holds true, even if the income is accrued but not distributed (in other words, it is growing within the fund).
When it comes to the IRS there are five (5) main considerations involving foreign life insurance, U.S. taxation, and reporting.
- Excise Tax – The IRS levies a 1% excise tax on the foreign life insurance premiums that you pay each year. The tax is submitted along with a form 720, and is submitted quarterly to the IRS. Therefore, for each year that you pay foreign life insurance premiums, you would submit four (4) form 720s (one for each quarter). Form 8833 for when Form 720 does not apply, thanks to a treaty-based exemption.
- Taxation – Income Generated by the Policy.* If your foreign life insurance policy is considered a PFIC, there may be far more complex tax factors to consider.
- FinCEN114 (FBAR) required to be filed annually by any U.S. person if the person has more than $10,000 in annual aggregate total in their foreign accounts. Foreign life insurance policies are considered foreign accounts.
- you have to include the surrender value of your foreign life insurance policy in your calculation..
- FATCA Reporting (Form 8938) – FATCA is the Foreign Account Tax Compliance Act. It is similar to the FBAR, but has higher threshold requirements for filing, depending on a person’s marital status and whether they are considered a U.S. Resident or Foreign Resident.
Have you taken care of these ? If not, Are you Out of Offshore Compliance?
If you are out of compliance, you should speak with the professional in order to comply with US tax laws.
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