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If you buy coverage from a non-U.S. insurer, the first compliance question is who pays foreign insurance excise tax, and the answer usually follows the money: the U.S. person that pays or remits the premium is expected to account for the tax. For a broader background on the tax itself, see our guide to Foreign Insurance Tax (IRC 4371).

For policyholders, risk managers and brokers, this is not a small technical detail. The tax can apply even when the insurer is outside the United States, and it is reported on Form 720 under IRS No. 30. If the responsibility is not assigned before the premium is paid, the filing deadline can pass before anyone realizes a federal excise tax return was required.

What Is the Foreign Insurance Excise Tax?

The foreign insurance excise tax is a federal tax imposed under Internal Revenue Code Section 4371 on certain insurance and reinsurance policies issued by foreign insurers. It commonly applies when a U.S. person buys a taxable policy from an insurer that is not admitted or authorized to conduct the insurance business in the United States.

For U.S. compliance purposes, foreign insurance excise tax liability is tied to the premium payment, not just to where the policy document is signed. This is why the person paying the premium, or the broker sending the premium to the foreign carrier, often becomes the focus of IRS compliance.

The tax is separate from state surplus lines tax, state premium tax and other insurance regulatory charges. A policy can create both state-level obligations and a federal Form 720 filing requirement, depending on the facts.

Who Is Responsible for Paying the Foreign Insurance Excise Tax?

The practical answer to who pays foreign insurance excise tax is usually the U.S. person or entity that pays the premium to the foreign insurer or to an intermediary acting for the foreign insurer. That person may be the policyholder, the insured business, a beneficiary, a broker or another party that remits the premium.

If you are asking who is responsible for foreign insurance tax, start by identifying the party that controls the premium payment. Under IRC Section 4374, liability is broadly framed to include persons who make, sign, issue or sell the taxable policy, or for whose use or benefit the policy is made, signed, issued or sold. In day-to-day filing, that often points to the U.S. insured or the broker handling the transaction.

That makes foreign insurance excise tax liability different from many routine insurance charges. The foreign carrier may issue the policy, but the U.S. payer or remitting broker may still need to calculate, report and pay the federal excise tax.

When Does the Foreign Insurance Excise Tax Apply?

The tax generally applies when a taxable insurance or reinsurance premium is paid to a foreign insurer for coverage connected to the United States. The key factors are the type of policy, the status of the insurer and the U.S. connection of the insured risk or policyholder.

It can apply when casualty coverage protects U.S. risks, when life, sickness, accident or annuity contracts cover U.S. persons, or when reinsurance covers policies that would be taxable under the foreign insurance excise tax rules.

Treaty relief is one of the main foreign insurance tax exemptions IRS guidance addresses, but it must be handled carefully. The IRS explains that some foreign insurers may qualify for exemption under applicable income tax treaties, often through specific documentation, closing agreements or certifications. The IRS page on exemption from Section 4371 excise tax is a useful starting point.

The tax generally does not apply when the policy is issued by an insurer fully licensed or authorized to conduct the insurance business in the United States for that line of coverage. Still, policyholders and brokers should keep proof of admitted status instead of relying on assumptions.

What Types of Foreign Insurance Policies Are Subject to the Tax?

Section 4371 applies to several categories of foreign insurance and reinsurance. The category matters because the tax rate is not the same for every type of policy.

Common taxable categories include:

• Casualty insurance policies covering U.S. risks
• Indemnity bonds issued by foreign insurers
• Life insurance policies issued by foreign insurers for U.S. persons
• Sickness and accident policies connected to U.S. insureds
• Annuity contracts issued by foreign insurers
• Reinsurance of taxable insurance contracts

Not every foreign-related policy is taxable. For example, a policy issued through a properly admitted U.S. insurer may fall outside the foreign insurance excise tax rules. A treaty exemption may also apply if the insurer and transaction meet the IRS requirements.

How Is the Foreign Insurance Excise Tax Calculated?

The tax is calculated as a percentage of the gross premium paid. The rate depends on the policy type.

The calculation should be based on the taxable premium amount. If the premium is adjusted, refunded, returned or partially exempt, the supporting records should clearly show how the taxable amount was determined.

Brokers should be especially careful when commissions, service fees or intermediary deductions are involved. The federal tax is based on the premium subject to Section 4371, not simply the net cash that eventually reaches the foreign insurer.

What Is the Role of Policyholders in Paying the Tax?

For policyholders, knowing who pays foreign insurance excise tax matters before the premium leaves your account. Once payment is made, the Form 720 quarter is already in motion.

Policyholders should confirm whether the insurer is foreign, whether the insurer is admitted in the United States for the relevant coverage and whether any treaty exemption is being claimed. If a broker is involved, the policyholder should ask in writing whether the broker will calculate and remit the federal excise tax or whether the policyholder must file Form 720 directly.

Determining who is responsible for foreign insurance tax before funds move also protects both sides if the IRS later asks for support. Good records should include the policy, invoices, proof of payment, insurer status documentation, treaty exemption support if applicable and correspondence showing who agreed to handle the Form 720 filing.

A policyholder that does not already have an EIN may need one for federal filing purposes. Do not wait until the quarter closes to set up the tax account, gather invoices and identify the taxable premium.

What Responsibilities Do Insurance Brokers Have?

Because brokers often control the remittance process, the question of who pays foreign insurance excise tax should be resolved before binding coverage. A broker that collects the premium from a U.S. client and sends it to a foreign carrier may be in the best position to identify the tax, collect it from the client and remit it with Form 720.

Broker liability foreign insurance excise tax concerns arise when the broker handles premium flow but assumes someone else will file. A client may think the broker included every tax in the invoice. A foreign insurer may assume the U.S. payer will handle U.S. excise tax. If nobody documents the responsibility, the filing can be missed.

Practical broker responsibilities often include explaining the potential federal excise tax to the client, identifying the policy category, applying the correct rate, maintaining invoices and premium remittance records and confirming who will file Form 720. Brokers should also separate federal foreign insurance excise tax from state surplus lines tax in client communications.

How Is the Foreign Insurance Excise Tax Reported on Form 720?

When deciding who pays foreign insurance excise tax, also decide who will file the return. The foreign insurance excise tax is reported quarterly on IRS Form 720, Quarterly Federal Excise Tax Return, under IRS No. 30.

The filer generally needs to identify the quarter, report the taxable premium amount in the appropriate foreign insurance category and calculate the tax using the correct rate. The IRS Form 720 instructions should be reviewed for the current filing year, especially if other excise taxes are reported on the same return.

Form 720 is also used for many other federal excise taxes, including certain fuel taxes, communications taxes, air transportation taxes, indoor tanning tax and the PCORI Fee. If you need a broader refresher, this guide explains what Form 720 is used for and why it matters for quarterly excise tax filing.

For foreign insurance, keep the Form 720 workpapers with the policy and premium payment records. If a return needs correction later, review whether an amended Form 720-X or a claim process may apply based on the nature of the error.

When Is the Foreign Insurance Excise Tax Due?

The answer to who pays foreign insurance excise tax does not change the Form 720 filing calendar. Form 720 is generally filed quarterly, and the return is due by the last day of the month following the end of the quarter. If the due date falls on a weekend or federal holiday, the deadline generally moves to the next business day.

Always check current Form 720 due dates against the IRS instructions for the filing period. Late filing, late payment or underpayment can lead to Form 720 penalties and interest. If multiple taxable policies are paid during the same quarter, they should be reviewed together so the return is complete.

Common Foreign Insurance Excise Tax Filing Mistakes to Avoid

Foreign insurance excise tax mistakes usually come from unclear responsibility, incomplete policy review or missed treaty documentation. The risk is higher when a transaction involves multiple brokers, foreign intermediaries or bundled premiums.

A clean process is simple: identify the insurer, classify the policy, calculate the tax, document any exemption, assign the filer and retain proof. That process protects policyholders and brokers if the IRS later reviews the transaction.

Foreign Insurance Excise Tax FAQs