Malta: Insurance Captives - July 2013

Malta's sound regulatory and legal system as well as its beneficial tax system have, over the years, made it one of Europe's primary captive domiciles. Notable international interest in Malta's captive regime includes, amongst others, Aon Insurance Managers, Marsh Management Services, Heath Lambert, and Willis and JLT; all captive insurance managers of international repute, which have established operations in Malta

Why Malta?

Captives that establish their operations in Malta can benefit significantly from an environment which is politically stable, an English-speaking workforce that is highly specialised and professional, and a regulator (being the Malta Financial Services Authority ("MFSA")) that is pragmatic, accessible and maintains smooth communication flows with all players in the sector. Furthermore, Malta can be a relatively low-cost base, both in terms of cost of labour as well as the cost of facilities, such as office premises and maintenance.

Maltese captives can insure the risks of a wide range of persons, ranging from individuals or other entities having a majority ownership or controlling interest in the captive to parent companies or associated or group undertakings; including members of trade, industry or professional associations insuring risks related to the particular trade, industry or profession.

Taxation

Through the application of Malta's full imputation system, which completely eliminates economic double taxation, Malta offers a flexible tax environment for captives.

Captives not deriving income from Maltese immovable property are liable to tax on such income at 35%, subject to relief for any foreign tax suffered. However, upon a distribution of dividends, the shareholders may claim a 6/7ths tax refund of the Malta tax paid.

The tax refund, which can also be availed of by branches of foreign companies registered in Malta for tax purposes, has the effect of reducing the total tax paid in Malta to 5% or lower wherever double taxation relief is claimed, making Malta the European Union ("EU") jurisdiction with the lowest effective tax rate.

Expatriates working in Malta

Expatriates employed in the senior-most positions of captives may benefit from a beneficial flat rate of tax of 15% on their employment income for a determined amount of years. The minimum annual amount which may be taxable at 15% is €75,000. Any qualifying income above €5,000,000 is not subject to tax in Malta.

Alternatively, or if a person does not qualify for the 15% flat rate of taxation, a 10-year exemption on certain fringe benefits is available.

Indirect Tax Issues

Malta's Value Added Tax ("VAT") system is modelled on the EU VAT system, the standard rate of VAT being 18%. The supply of insurance and related services (excluding administration services), offered by captives and their managers are exempt without credit for VAT purposes. A captive would still need to register for VAT purposes where it receives services it is liable to pay VAT on.

Where insurance services are provided to non-EU established customers, captives and their managers are entitled to recover VAT incurred on supplies they procure which are attributable to the supply of insurance services to such non-EU established customers.

Insurance premium tax known as stamp duty, will be due only when the risk is located in Malta.

Other Tax Matters

Besides offering the lowest effective tax in the EU, and an attractive tax package for expatriates working for captives, Malta is also tax efficient for the following reasons:

  • Redomiciliation or continuation of foreign captives to or from Malta is allowed.
  • There are no:
    • Capital duty or wealth taxes;
    • Thin capitalisation rules;
    • CFC legislation;
    • Transfer pricing rules;
    • Withholding taxes on dividends paid to non-residents.
  • Captives resident in Malta can benefit from Malta's wide treaty network.
  • Non-residents are exempt from tax on interest and premia paid to them from Malta provided that the debt claim in respect of which the interest or premium is paid is not effectively connected with a Maltese permanent establishment through which a non-resident recipient carries on a trade or business in Malta.
  • Technical provisions and movements in equalisation reserves are allowable deductions in the computation of taxable income.

The Regulatory Framework

The licensing of a captive in Malta is a relatively straightforward affair. It is common practice for the promoters of the captive to meet the MFSA early on in the application process in order to create a cooperative platform between the regulators and the promoters and ensure that the goals and structures are clear to all involved.

Together with the licence application, the promoters are to submit a scheme of operations, which would generally include details such as the investment strategy, business strategy, outsourcing agreements and financial projections and resources. This scheme has to be signed off by the directors, while the financial projections need to be reported on by an approved auditor or the insurance manager, and the actuary in the case of life business.

The captive's objects must be limited to the business of affiliated insurance and operations arising directly therefrom to the exclusion of other commercial business.

All qualifying shareholders, up to the level of the ultimate beneficial owners, need to be properly identified, and these together with the proposed directors and shareholders will have to undergo a due diligence process by the MFSA in order to ensure the company's sound and prudent management.

Capital Requirements

Captive insurance companies are required to possess own funds amounting to not less than the applicable minimum guarantee fund, which varies depending on the business of the captive. The minimum guarantee fund for a reinsurance captive is €1.2m, whilst for a general business captive it ranges between €2.5m - €3.7m, subject to the type and class of business. In the case of life insurance captives, the minimum guarantee fund is €3.7m.

These funds must be unencumbered at all times and are to consist of:

  1. Paid-up share capital amounting to not less than 50% of the value of own funds requirement; and
  2. A mixture of issued and unpaid share capital, preferential share capital, subordinated loans, retained profits and reserves (not incorporating technical provisions or equalisation reserve).

Solvency Requirements and Technical Provisions

Captive companies are required to maintain at all times a margin of solvency and maintain adequate technical provisions. Captives engaged in direct writing of general or life business are required to cover the technical provisions by admissible assets, which assets must be diverse and spread.

Applicable Exemptions

Captives are exempt from:

  1. Publishing accounts in newspapers;
  2. Contributing to the Protection and Compensation fund;
  3. Localisation rules and custody of assets rules;
  4. Covering their technical provisions by equivalent and matching assets to cover currency risk;
  5. Depositing the minimum guarantee fund with an external institution; and
  6. A number of obligations on cessation of business of insurance.

Captive Insurance Managers

An insurance manager is a person appropriately licensed by the MFSA to accept appointments from companies to manage any part of their business, to exercise managerial functions therein, or to be responsible for maintaining accounts or other records of such company. Management functions may include the authority to enter into contracts of insurance on behalf of such company under the terms of appointment.

An insurance manager is required to possess own funds amounting to:

  • A minimum of €16,803 if the activities of the Insurance Manager are restricted to servicing captive insurance companies;
  • The higher of €16,803 or 4% of annual gross premiums receivable if it does not enter into contracts of insurance on behalf of its clients or the manager has the authority to collect and hold premiums on behalf of its clients;
  • The higher of €58,234 or 4% of annual gross premiums receivable if its activities are not restricted to servicing captive insurance, and include the authority to enter into insurance contracts on behalf of its clients.

Procedures and Fees

The application for licensing a captive is processed within a maximum statutory period of 3 months. This would however depend on whether all progresses smoothly, such as whether all documentation is accurate and complete.

The fees applicable to captives are:

Application for authorisation €1,800
Acceptance of application € 2,500
Continuance of authorisation € 5,000

Protected Cell Companies (PCC) and Incorporated Cell Companies (ICC)

Malta is the only EU Member State which allows companies to set-up as protected cells segregating assets and liabilities.

A Captive may be registered as, or converted into, a PCC with each cell in a PCC being treated as separate from other cells for income tax purposes.

A PCC is a single legal person, having within itself one or more cells, classified as different classes of shares for the purposes of segregating and protecting the cellular / non-cellular assets of the company. It is the PCC which is treated as a single legal person, a cell does not enjoy a separate legal personality from the PCC. The advantage of this is that the minimum capital requirements applicable to a non-cell company apply to the PCC as a whole and not individually to each cell.

A PCC must:

  1. Inform all persons with whom it transacts that it is a PCC;
  2. Keep cellular assets 'separate and separately identifiable' from the core assets of the company and from the assets of other cells of the company; and
  3. Keep separate records, accounts and statements for the different cells of the company.

An ICC is similar to a PCC but each cell has a distinct separate juridical personality and hence also allows contracting amongst cells.

Passporting

With Malta being a Member State of the EU, European insurance undertakings may freely passport their activities into Malta, and likewise this right applies for Maltese insurance undertakings to passport into EU/EEA countries. This may be done either through the setting up of a branch or through the freedom to provide cross-border services. Insurance companies availing themselves of these rights have to adhere to the notification requirements in force.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Juanita Brockdorff
Diane Vella
Magnus Weiderling
Similar Articles
Relevancy Powered by MondaqAI
EMD Advocates
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
EMD Advocates
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions