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Captive "Own Funds" or Capital requirements

The 'Own Funds' of a Captive insurance company in Malta must amount to the value of not less than Lm100,000 (approx. US$250,000), provided that the Centre may require such other higher amount as it deems appropriate.

The components making up the Captive's 'Own Funds' include:

• The paid up share capital of the company, which cannot be less than Lm50,000 (approx. US$ 125,000)
• Reserves including the equalisation reserve where applicable
• Any profits brought forward
• Cumulative preferential share capital and subordinated loan capital which cannot exceed Lm50,000 (approx. US$125,000) of which no more than 25% may consist of subordinated loans with fixed maturity, or fixed term cumulative preferential share capital (provided that such subordinated loans or preferential share capital shall rank after all other creditors of the Captive in the event of bankruptcy or liquidation)

Captive Managers

Under Maltese law Captives can be 'self managed' or administered by 'captive insurance managers' appointed by the Captive company in terms of a management contract. In terms of the IBA, all Captive managers conducting business in Malta must be authorised to do so by the MFSC. At the moment there are two licensed managers in Malta.

Insurance managers must be incorporated in Malta as limited liability companies or partnerships en nom commandite may seek authorisation as :

• Insurance managers without 'without appointment' (pending appointment as managers), or
• Insurance managers 'with appointment'

Insurance managers seeking authorisation as 'appointed managers' may choose:

• To be licensed to enter into contracts of insurance on behalf of the Captive company, or
• Not to be licensed to enter into contracts on behalf of the captive, in which case the regulatory and supervisory requisites are considerably lower.

The relevant application form is contained in Insurance Directive 10 of 1999 and a copy may be easily procured from any local practitioners.

The IBA offers Captive managers substantial benefits including considerably lower capital requirements than 'regular' insurance managers in Malta and lower reporting standards and requirements.

Moreover, under the Income Tax Act (as amended in 1998) Captive managers have recently been offered a generous fiscal package. Managers are subject to the normal rate of tax (35%) but they are entitled to the following deductions:

• 200% on rent, lighting, building maintenance, insurance and other occupancy rates for the first 10 years
• 100% on plant, machinery and industrial buildings (including office premises) for the first 5 years
• 200% deduction of salaries paid to Maltese employees
• Any other expenses incurred wholly and exclusively for the purpose of carrying on its business and which might not have otherwise been deductible
• Pre-trading expenditure (not exceeding 5 years prior to its commencement of business) as if the expenses had been incurred on the first day of business

Captive Manager's "Own Funds" or Capital requirements

The 'Own Funds' requirements of an Insurance Manager acting for a Captive insurance company must amount to the value of not less than Lm5,000 (approx. US$12,500) provided that the Centre may require such other higher amount as it deems appropriate. The Components making up the management company's "Own Funds" include:

• The paid up share capital of the company which in all cases cannot be less than Lm5,000 (approx. US$12,500)
• Reserves
• Any profits brought forward

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