CAPTIVE INSURANCE Labuan Financial Business > Financial Service Introduction Establishing a captive is not merely about incorporating a company, instead it is about forming a new insurance company. A captive is an insurance or reinsurance company established by a noninsurance parent company. A captive insurance business offers to insure the risks of its parent or related/associated corporations. Such risks include any legal risk that may be underwritten by a commercial insurer. Over 75% of the world’s Fortune 500 companies are parent owners of captive insurance companies, with total captive premium income exceeding USD100 billion, via the approximate of 7,000 captives established worldwide. In Asia Pacific, many large conglomerates are beginning to recognise captives as a key element in facilitating business efficiency. According to Aon's Asia Market Review 2017, the region is experiencing "an unprecedented level of sophistication in captive owners" and the increase in the take-up rate of captives shows that Asian corporations are using captives as a risk management and mitigation tool. A Labuan Captive Insurer may underwrite direct insurance/ reinsurance (general or life) business risks, Of their own Group, or Third party risks subjected to Labuan FSA’s approval A Labuan Captive Insurer may obtain reinsurance coverage from any insurance company in or outside Labuan irrespective of whether it is licensed under Labuan Financial Services and Securities Act 2010 (LFSSA). Labuan Captive Insurer may deal with direct Malaysian risks for activities as prescribed by law. PERMITTED ACTIVITIES Copyright © 2024 BBS TRUST INT’L LIMITED 备博思信托国际有限公司. All rights reserved. USD 3,000 (Labuan Captive) USD 4,000 (Master Rent-A-Captive) USD 1,000 (Subsidiary Rent-A-Captive) The annual license fee is payable when the license is approved by Labuan FSA and remains valid until 31 December of the year of approval. All licensees are required to pay to Labuan FSA subsequently the annual license fees on or before 15 January of each calendar year. ANNUAL FEE Why form a captive? Key benefits of setting up a captive include: To insure otherwise ‘uninsurable’ risk Control an entity’s own insurance program, which in turn will stabilize the premiums paid Create direct access to the reinsurance markets, thus reducing premiums payable Enjoy potential tax benefits Consolidate deductibles across the entity’s group of companies Reduce dependency on commercial insurers/ reinsurers Insulate the entity’s group of companies from insurance market cycles How is the taxation A captive insurance company is deemed a Labuan Trading Company under Section 2 of the Labuan Business Activity Tax Act; hence the company has to pay a 3% of audited net profit as its tax with fulfilled substance requirements. Failure to comply with the substance requirements for a basis period for a year of assessment shall be charged to tax at the rate of twenty-four per cent (24%) upon its chargeable profits for that year of assessment. Beyond Business Solutions Business Builds Success 备 博 思 信 托 国 际 有 限 公 司
HOW TO APPLY? BBS TRUST INT’L LIMITED can assist you for the application of Captive Insurance to Labuan FSA. Contact us now for a non-obligational consultation! Email: [email protected] or Call: +603-4815 6718 Copyright © 2024 BBS TRUST INT’L LIMITED 备博思信托国际有限公司. All rights reserved. What are the requirements to operate? Every Labuan Captive Insurer must: Have an operational management office in Labuan, managed by a management team that has an adequate knowledge and expertise in insurance business including captive, or Appoint a licensed Labuan underwriting manager. At least 2 directors (preferably a natural person) with insurance or insurance related experience. There is no recidency requirement with respect to the Paid-up Capital/ Working Funds Pure/ Single captive/ Group, Association & Multi-owner captives Unimpaired by losses of RM 300,000 or its equivalent in any foregin currency Rent-a-captive/ Master-rent-a-captive/ Cell captive/ Other similar vehicles Unimpaired by losses of RM 500,000 or its equivalent in any foreign currency Margin of solvency A Labuan Captive Insurer is required to maintain at all times a surplus of assests of liabilities, which is equivalent to, or more than the amount of its working fund, or 20% of the net premium income for the preceding year in respect of the general insurance business, or 3% of the actuarial valuation of the liabilities for life insurance business as at the last valuation date, whichever is greater. CAPTIVE INSURANCE TAX ADVANTAGES Tax efficiency under the Labuan Business Activity Tax Act 1990, in which that a captive is required to pay 3% of chargeable profits No withholding tax on dividends/ interest/ royalty payments No stamp duties Liberal exchange control environment Access to over 80 double taxation agreements via Malaysia’s wide treaty network Premiums on insurance and reinsurance that are 100% deductible. Types of Captives available in Labuan IBFC A captive insurance entity in Labuan IBFC may include, but is not limited to, the following forms: Pure/ Single captive – owned and controlled by one owner, typically the parent organization, and is formed as a subsidiary company. The captive subsidiary underwrites policies for the parent, and solely bears the risks of the parent. Group/ Association captive – owned and controlled by multiple insured. They may or may not be related entities or a part of a homogeneous group like industry or trade groups. Master rent-a-captive – acts as a master captive, which provides captive facilities and services to subsidiary rent-a-captive. Subsidiary rent-a-captive – an entity with separate licenses, assets and accounts but at the same time using the working capital of master captive. Captive using Protected Cell Company (PCC) – where legislation protects each individual cell or account from the liabilities of other cells within the captive. Multi-owner captive – owned by two or more unrelated persons or organisations and writing the risks of its owner and/ or affiliates and is designed to insure the risks of these different entities. SUBSTANCE REQUIREMENT Minimum number of two (2) full time employees in Labuan for 1st party captive Minimum number of three (3) full time employees in Labuan for 3rd party captive Minimum annual operating expenditure of RM100,000 in Labuan. A captive insurer in Labuan IBFC may: Act as either a direct insurer or a reinsurer. Underwrite property and casualty businesses as well as contingency coverage. A separate company must be established for a captive insurer who wishes to underwrite life insurance. Access to the reinsurance market at wholesale rates.