13 June 2013Accounting & tax analysis

50 percent of new captives opt for their home state, says USA Risk Group

Gary Osborne, president of USA Risk Group, told Captive International that he expects up to 50 percent of newly formed captives will select their home state over even the most established domiciles. Attributing the shift to concern over self-procurement tax, Osborne said: “it may cost you $10,000 to $15,000 to deal with an inexperienced regulator, but for a single parent that isn’t a big issue. If it takes care of a potential tax problem that could cost $1 million, it doesn’t take much of risk assessment to figure out that it’s probably worthwhile to stay in the company’s home state.”

According to Osborne, partial or full redomestication is also a possibility. “You may see companies who don’t want to do it the whole way, but if they’ve got a major presence in a fairly aggressive state they might form a branch of their existing captive to invite their in-state business there. I definitely see the trend accelerating. It’s just too much of a no-brainer as long as the home state’s regulators are not difficult to deal with.”

But the increasing popularity of home state captive formations shouldn’t worry more established domiciles too much— yet. Osborne said: “If you’re a relatively small captive, as the vast majority are, the downside of forming outside of your home state is much more limited. Vermont,  South Carolina and Hawaii are still the major powers. I think Vermont is going to continue to see its 30 to 40 new formations a year, but you’re going to see a much more diverse spread of domiciles behind it.”