Introduction
We are pleased to provide you with this brief analysis of Malta as a Captive Insurance destination. We hope to give you a general overview of the legal and fiscal treatment of Captive Insurance companies, Captive managers and their foreign staff operating in Malta. We have also outlined the main features of Protected Cell Companies as vehicles for the business of insurance in Malta and also the changes that will be brought about through the implementation of the Solvency II regime.
1. General Environment – Why Malta?
Malta is:
- An independent democratic State with a history of political stability and Parliamentary Consensus to promote Malta as an international financial centre
- A member of the European Union as of 1st May, 2004
- English Speaking and fluent in Italian
- An established Financial Services centre of international repute with highly skilled and experienced professional expertise
- In the Central European Time Zone and only a stone’s throw away from Europe’s Capitals (all linked to Malta’s International Airport daily)
- Relatively inexpensive in most respects
- Temperate climate
In a bid to better place Malta as a contender in the Captive market, the legislator has introduced many innovative and attractive provisions to Malta's insurance and fiscal legislation (including Protected Cell Company and redomiciliation legislation) aimed particularly to attract captive insurers and captive managers. Malta is now recognised as an up and coming, sophisticated jurisdiction for Captives and now boasts almost 40 international authorised companies including 4 insurance PCCs.
This memorandum addresses some of the major components of this legislative package, and the legal implications for Captives and their Managers.
2. The Regulator - Malta Financial Services Authority ("MFSA")
The MFSA approach is commonly said to be ‘firm but flexible’ it encourages informal discussion at all levels with investors, applicants and other interested parties.
The MFSA Insurance Unit recognises the varying business techniques and numerous accounting conventions applicable in different countries where Captive parent companies may be situated and the overall approach is generally aimed at establishing acceptable requisites tailored to meet the applicant’s specific business requirements
3. Registration of Captives
Applicants are encouraged to hold informal discussions with the MFSA (generally through their representatives in Malta) before lodging a final application form. Applications and other documents may be submitted in draft initially and reviewed by the MFSA in order to avoid hiccups at a later stage.
The relevant application form and a list of materials that must be attached thereto are contained in Insurance Rule 6 of 2007 issued by the MFSA. A copy of same may easily be procured through a local representative.
4. General Legal Considerations
Captive Insurance is referred to as “Affiliated Insurance” in Maltese law and it is defined as:
“the business of an insurance company which is registered in Malta and whose business of insurance is restricted to risks originating with shareholders or connected undertakings or entities”
Captives may insure risks originating from a wide range of persons including:
- parent companies;
- associated or group companies;
- individuals or other entities having a majority ownership or controlling interest in the captive, and
- members of trade, industry or profession associations insuring risks related to the particular trade, industry or profession.
These shareholding or other connecting relationships between undertakings are determined by Insurance Rule 21 published by the MFSA.
5. Choice of Business Models - Insurers, Brokers & Managers
The Companies Act (Cell Companies Carrying on Business of Insurance) Regulations allow a licensed insurance company, insurance manager or an insurance broker to be registered as or convert to a protected cell company. A captive may therefore choose to be incorporated as a traditional company, as a PCC, or to form a protected cell within an established PCC. Malta is the only full EU Member with PCC legislation.
The PCC law allows for:
• formation of multiple cells forming part of a single corporate person;
• creation and issue of cell shares;
• segregation and protection of cellular assets from other assets of the company;
• transfer of cellular assets to other persons; and
• use of non-cellular assets as a secondary asset base where cellular assets are exhausted.
6. Taxation of Captives
Taxation of the Company
Maltese companies engaged in international trading and/or holding activities are normal, taxable, onshore limited liability companies registered in Malta in terms of the Companies Act, 1995 and are the same limited liability companies that can be used for any activities, whether domestic or international or both. Malta has no multiple (and often confusing) types of companies that can be incorporated depending on the particular needs of the promoters of the company, but rather has one type of limited liability company that is subject to tax at the rate of 35%.
Taxation of the Company’s Shareholders
As Malta has a full imputation system of taxation, the shareholders of a Maltese Company are entitled at law to a tax credit for the tax paid in Malta by the Maltese Company.
The six-sevenths (6/7ths) Refund
In the case of profits derived from the business and distributed by way of dividend, shareholders are generally entitled to a refund of 6/7ths of the tax paid by the Malta company at the rate of 35%. After this 6/7ths relief is given, there is a net tax leakage in Malta of 5%. Please see the illustration below:
MALTACO USED FOR HOLDING or TRADING ACTIVITIES
CALCULATION OF TAX PAYABLE BY MALTACO
AND 6/7THS REFUND TO ITS SHAREHOLDERS
(other than profits from a Participating Holding
or profits representing passive interest or royalties)
Item |
Monetary Unit |
| 1. Profit (before tax): |
1,000 |
| 2. Tax paid by MaltaCo (at 35%): |
-350 |
| 3. Net dividend received by shareholder/s: |
650 |
| 4. Refund to shareholder of 6/7ths of tax paid by MaltaCo: |
300 |
| |
|
Net Tax Leakage in Malta: |
|
| a. Tax paid by MaltaCo (at 35%): |
350 |
| b. Less sum of shareholder refund: |
- 300 |
Net Tax Leakage in Malta:
|
50 |
(expressed as a percentage of income in Item 1):
|
5% |
7. Captive “Own Funds” or Capital requirements
Companies carrying on affiliated insurance are required to possess “own funds”, whether in Euro or in other currencies acceptable to the Authority amounting to not less than the applicable minimum guarantee fund as determined in the Fourth Schedule to the Insurance Business (Assets and Liabilities) Regulations. Such funds must be unencumbered.
The components making up the own funds may consist of (i) paid up share capital which must not be less than 50% of the value of the own funds requirement; and (ii) a mixture of issued and unpaid share capital, preferential share capital and subordinated loans, retained profits and reserves
8. Solvency II
As with all other EU jurisdictions, companies carrying out the business of insurance in Malta will be subject to proposed new rules on solvency under the ‘Solvency II’ regime.
Although compliance with the Solvency II rules may result in more costs in the short term, it is intended to ensure better management in the long term with a consequent improvement to the industry as a whole. Good corporate governance and better risk management systems should eventually lead to a lower risk profile, thus lowering capital requirements and resulting in lower premiums for policyholders and added capital return for investors.
MFSA is working hard together with industry to bring about the new regime in as smooth a transition as possible and it is hoped that the application of the Solvency II regime in Malta will ensure that it remains at the forefront of the insurance industry.
9. Redomiciliation
In terms of the Insurance Business (Continuance of Companies Carrying on Business of Affiliated Insurance) Regulations 2003, an insurance company, insurance management company or insurance broker licensed in another jurisdiction may be authorised by the MFSA to be registered as continuing in Malta. Other than the requirement of MFSA’s authorisation, the procedures for continuation of these regulated companies are similar to those applicable to continuation of companies generally.
Continuance of companies ensures the continuation of the corporate existence of the body corporate or similar entity in its new domicile.
10. Contact Persons and Further Information
This memorandum has been prepared for information purposes only and should not be treated as legal advice.
Further information on Redomiciliation may be found in the ‘G&A Guide to Redomiciling your Captive to Malta’.
Further information on setting up an insurance business in Malta can be found in the ‘G&A Guide to Setting up an Insurance Business in Malta”.
We would also be very pleased to assist you in person. Please do not hesitate to contact Dr. Matthew Bianchi or Mrs. Eleanor Charlton as follows:
E-mail addresses:
Dr. Matthew Bianchi: mbianchi@jmganado.com
Mrs. Eleanor Charlton: echarlton@jmganado.com
171 & 176, OLD BAKERY STREET,
VALLETTA VLT 1455, MALTA
Telephone (+356) 242 096; (+356) 235406/7/8;
Fax: (+356) 225 908
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