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myriad of operating plans, Puerto Rico’s international insurance sector is positioned to be the center of attention for external investment and a spark of innovation to our domestic human capital. LEGAL BACKGROUND Act No. 399 and Act No. 400 in Chapter 61 of Puerto Rico’s Insurance Code were adopted in order to establish the basis for the International Insurance Center (IIC), which provides a competitive environment for reinsurers to cover risks in and out of Puerto Rico under a secure and flexible regulatory system, with attractive tax benefits. On June 2011, Act No. 98 was passed to provide long-term tax status that will guarantee the tax treatment for an initial period of 15 years, renewable for two additional 15-year periods. Most recently, in an effort to stay on top of current trends and to make sure insurance legislation and regulation continues to meet the highest standards, Act 39-2014 was enacted. This new Act sets the guidelines for the assumption of domestic risks, regulates third party risk assumption by captives and facilitates the organization of insurance linked security programs. International insurance entities can choose how to organize and operate within the IIC. Their options include operating as an international insurance holding company, as an international insurer or a branch of an international insurer, or in protected cell arrangements. INTERNATIONAL INSURANCE HOLDING COMPANY • Is a holding company that must hold interests (shares and other securities) in an international insurer or international insurance holding company organized under Chapter 61 of the Insurance Code of Puerto Rico • May control international insurers or other international insurance holding companies, or businesses that are incidental and that provide services exclusively to international insurers with which they maintain a relationship as subsidiaries or affiliates • Maintains its cash, equivalents and other investments in a proportion of no more than 1:1 with other insurance related assets, including interest in the international insurer //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// S P E C I A L R E P O R T 2015 PUERTO RICO - 4 - INTERNATIONAL INSURER • An entity organized to conduct insurance business outside Puerto Rico • Includes reinsurers, captives and associated captive company structures BRANCH OF FOREIGN INSURER • Maintains a main office in Puerto Rico • Segregates assets under a trust constituted pursuant to the laws of the Government of Puerto Rico • The deed of trust and all its amendments made according to the manner established by the Insurance Commissioner • Has assets in trust in an amount at least equal to 150% of the capital and surplus required, or in the case of a Class 4 insurer, 110% PROTECTED CELL COMPANIES • With prior approval from the Commissioner, an international insurer may establish and operate one or more segregated asset plans • Assets of a Segregated Asset Plan approved by the Commissioner are available solely for the payment of obligations specifically identified in the corresponding operation plan, and not available for the payment of obligations of other segregated assets plans or of the general obligations of the insurer • No Segregated Asset Plan shall be considered as an entity with a jurisdictional personality separate from that of the international insurer TAX TREATMENT FOR INSURERS AND REINSURERS Tax exemptions conferred under the International Insurers and Reinsurers Act of Puerto Rico include: • $1.2 million tax exemption on net income. Exemption applicable at the individual cell level for protected cell company arrangements and at the company level. Preferred 4% tax rate on net income • Exemption from premium taxes • Exemption on dividends and other profit distributions made “THE TAX CONCESSIONS OFFERED UNDER LAW 399 MAKE IT VERY ATTRACTIVE FOR LATIN AMERICAN AND OTHER INTERNATIONAL COMPANIES TO CONSIDER PUERTO RICO AS A BASE OF OPERATIONS FOR CAPTIVE AND/OR REGIONAL INSURANCE AND REINSURANCE VENTURES.” Anthony Phillips, Managing Director of Willis Re Latin America and Caribbean ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////


PuertoRico2015
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