Taxation

Under current Bermuda law, Maiden Holdings and Maiden Bermuda, have received an undertaking from the Bermuda government exempting them from all local income, withholding and capital gains taxes until March 31, 2035. At the present time, no such taxes are levied in Bermuda. Maiden Holdings and Maiden Bermuda believe that they operate in a manner such that they will not be considered to be engaged in a trade or business in the U.S. Accordingly, Maiden Holdings and Maiden Bermuda have not recorded any provision for U.S. taxation.

Our U.S. subsidiaries are subject to federal, state and local corporate income taxes and other taxes applicable to U.S. corporations. The provision for federal income taxes has been determined under the principles of the consolidated tax provisions of the U.S. Internal Revenue Code and Regulations. Should our U.S. subsidiaries pay a dividend outside the U.S. group, withholding taxes will apply. During 2015 the Internal Revenue Service completed its audit of our U.S. subsidiaries for tax years 2009, 2010 and 2011. The audit has been closed without any impact on our operations. Tax years 2012, 2013 and 2014 are not under examination but remain subject to examination in the U.S.

The Company has subsidiary operations in various other locations around the world, including Australia, Austria, Germany, Ireland, Netherlands, Russia, Sweden and the U.K., that are subject to relevant taxes in those jurisdictions. These subsidiaries, are not under examination, but generally remain subject to examination in all applicable jurisdictions for tax years from 2011 through 2014.

Deferred income taxes have not been accrued with respect to certain undistributed earnings of foreign subsidiaries as it is the intention that such earnings will remain reinvested or will not be taxable. If the earnings were to be distributed, as dividends or otherwise, such amounts may be subject to withholding tax in the country of the paying entity. Currently, however, no withholding taxes have been accrued.

There were no unrecognized tax benefits at December 31, 2015, 2014 and 2013. Income before taxes and income tax expense for the years ended December 31, 2015, 2014 and 2013 was as follows:



For the Year Ended December 31,	2015			2014			2013
Income before income taxes – Domestic (Bermuda)	$	134,012		$	117,780		$	125,926
Loss before income taxes – Foreign (U.S. and others)	(7,690		)	(14,083		)	(21,207		)
Total income before income taxes	$	126,322		$	103,697		$	104,719

Current tax expense – Domestic (Bermuda)	$	—		$	—		$	—
Current tax expense – Foreign (U.S. and others)	780			945			873
Total current tax expense	780			945			873
Deferred tax expense – Domestic (Bermuda)	—			—			—
Deferred tax expense – Foreign (U.S. and others)	1,258			1,219			990
Total deferred tax expense	1,258			1,219			990
Total income tax expense	$	2,038		$	2,164		$	1,863

15. Taxation

The following table is a reconciliation of the actual income tax rate for the years ended December 31, 2015, 2014 and 2013 to the amount computed by applying the effective tax rate of 0.0% under Bermuda law to income before income taxes:



For the Year Ended December 31,	2015			2014			2013
Income before income taxes	$	126,322		$	103,697		$	104,719
Income tax expense	2,038			2,164			1,863
Net income	$	124,284		$	101,533		$	102,856
Reconciliation of effective tax rate (% of income before income taxes)
Bermuda tax rate	—		%	—		%	—		%
U.S. taxes at statutory rates	(2.2		)%	(7.3		)%	(8.7		)%
Valuation allowance in respect of U.S. taxes	3.2		%	8.5		%	9.8		%
Other jurisdictions	0.6		%	0.9		%	0.7		%
Actual tax rate	1.6		%	2.1		%	1.8		%

Deferred income taxes reflect the tax impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The significant components of our deferred tax assets and liabilities at December 31, 2015 and 2014 were as follows:



December 31,	2015		2014
Deferred tax assets:
Net operating losses	$	60,147	$	54,524
Unearned premiums	9,459		8,860
Discounting of net loss and LAE reserves	11,756		12,250
Net unrealized losses on investments	4,374		—
Accruals not currently deductible	109		1,994
Amortization of intangibles	2,796		3,021
OTTI	1,198		827
Others	543		1,043
Deferred tax assets before valuation allowance	90,382		82,519
Valuation allowance	78,845		65,743
Deferred tax assets, net	11,537		16,776
Deferred tax liabilities:
Deferred commission and other acquisition expenses	10,664		10,119
Indefinite lived intangible	1,750		2,870
Amortization of goodwill	8,319		7,158
Net unrealized gains on investment	—		4,831
Others	866		1,789
Deferred tax liabilities	21,599		26,767
Net deferred tax liability	$	10,062	$	9,991

The net deferred tax liability at December 31, 2015 was $10,062 (2014 - $9,991). A valuation allowance has been established against the net U.S. deferred tax assets which is primarily attributable to net operating losses, unearned premium and loss reserve discounting. At this time, we believe it is necessary to establish a valuation allowance against the net deferred tax assets due to insufficient positive evidence regarding the utilization of these losses. During 2015, the Company recorded an increase in the valuation allowance of $13,102 (2014 - decrease of $1,270). At December 31, 2015, the Company has an available U.S. net operating loss carry-forward of approximately $171,848 (2014 - $155,782) for income tax purposes which expires beginning in 2029.