A Captive Insurance Company is called an “Affiliated Insurance Company” (AIC) under Maltese law and relates to “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.”
Captive insurance (AICs) and Own Funds
One-third of the required margin of solvency constitutes the guarantee fund, provided that:
- The guarantee fund shall not be less than the minimum guarantee fund, whether the required margin of solvency is greater or less than that amount.
- In the case of long term business, items that are not implicit items shall be at least large enough to cover either the minimum guarantee fund or 50 per centum of the guarantee fund, whichever is the greater.
Own funds are to be unencumbered at all times.
The components making up the own funds are to consist of:
- Paid up share capital which must be not less than 50% of the value of the own funds requirement;
- A mixture of issued and unpaid share capital, preferential share capital and subordinated loans, retained profits and reserves.
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Captive Insurance and Equalisation Reserves
Subject to cases of exemptions, AICs carrying on general business of a prescribed nature are required to maintain an equalisation reserve.
This notwithstanding, since technical provisions and equalisation reserves are allowed as a deduction in the computation of taxable income, an affiliated company carrying on reinsurance business may still elect to hold an equalisation reserve if its business is less than the aforementioned thresholds.
Captive Insurance and Financial Statements
AICs are permitted to draw up accounts in abridged form. Moreover, they are exempted from publishing accounts in local newspapers, subject to the condition that any person may apply for a copy of the audited financial statements of the company at a reasonable fee.
Captive Insurance and Protected Cell Companies
An AIC may be registered as or converted into a Protected Cell Company thus allowing for, inter alia, segregation and protection of cellular assets from other assets of the company; creation and issue of cell shares; transfer of cellular assets to other persons, and extension of protected cell assets to transferee; use of non-cellular assets as a secondary asset base where cellular assets are exhausted.
The transfer of cellular assets is subject to approval by the Malta Financial Services Authority, the autonomous public authority responsible for the licensing, regulation and supervision of insurance companies and intermediaries, including AICs.
AICs Registered in Malta to Date
- Ergon Insurance Limited
- Falcon Insurance Limited
- Nautilius Indemnity (Europe) Ltd
- Rhenas Insurance Ltd
AICs Procedures & Fees
An application for authorisation by an affiliated company is processed within a statutory period of three (3) months.
The fees applicable to AICs are as follows:
- Application for authorisation c. € 1,250
- Acceptance of Apllication c. € 1,250
- Continuance of authorisation c. € 2,500 annually
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Insurance Management Companies and AICs
Companies carrying on affiliated insurance may employ the services of an insurance management company. The Insurance Business Act defines an Insurance Manager as a person authorised to carry out activities that consist of accepting an appointment from a company to manage any part of its business, or to exercise managerial functions therein, or to be responsible for maintaining accounts or other records of such company.
Currently there are 8 Insurance Management Companies domiciled in Malta that can provide you with such services, namely:
- Alternative Risk Management (Malta) Ltd
- Aon Insurance Managers (Malta) Ltd
- Ark Insurance Management (Malta) Ltd
- Heath Lambert Insurance Management (Malta) Ltd
- HSBC Insurance Management (Malta) Ltd
- International Insurance Management Services Ltd
- Marsh Management Services Malta Ltd
- United Insurance Management Ltd
Captive Insurance Companies Tax: Corporate Taxation
The effective rate of Taxation for an AIC registered as an International Trading Companies is 4.17 %.
An AIC is taxable at the normal company rate of tax which currently is 35%. Yet, if such a company underwrites risks situated outside Malta, it is able to operate the foreign income account and non-resident shareholders may benefit from the refund of tax on distributions from this account. In respect of income allocated to the foreign income account it is possible to claim, at company level a flat rate foreign tax credit which produces an effective rate of 18.75%. Moreover, pursuant to a dividend distribution non-resident shareholders may claim back two thirds of the tax paid by the company in respect of the profits out of which the dividend was paid.
One might also suggest dividend feeder companies being set up for receiving dividends and return it to re-capitalise the insurance company.
Other Tax Benefits
- technical provisions and equalisation reserves may be deduced in the computation of taxable income;
- double tax relieves – such as the 44 double taxation treaties currently in force in Malta and the flat rate foreign tax credit;
- duty is not chargeable under the Duty on Documents and Transfers Act in respect of any contract of insurance relating to a risk situated outside Malta;
- captive management services are also zero rated for VAT purposes.
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