Captive Insurance in Malta

In Maltese law¸ Captive Insurance is referred to a Affiliated Insurance (AIC) and 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”.

AICs 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 AIC and members of trade¸ industry or profession associations insuring risks related to the particular trade¸ industry or profession.

Captives Registered in Malta are regulated by the Insurance Business Act (1998) and all the subsidiary legislation and directives adopted there under.

Why locate to Malta?

  • Various benefits can be harvested from setting up business in Malta.  Most significantly¸ the Maltese island¸ which is a European Union (EU) Member State¸ is a model jurisdiction in financial services regulation.  The Malta Financial Services Authority (MFSA) has taken a constructive approach in regulating the insurance industry basing itself on studies carried out among Maltese and international insurance operators.
  • One will also find the added benefit of operating within a recognised OECD (Organisation for Economic Co-operation and Development) tax environment.  Moreover¸ supporting our tax regime are many attractive and wholly compatible double tax treaties as well as other methods of relieving double taxation on cross border transactions.
  • Insurance Captives and Insurance Managers that establish their operations in Malta benefit extensively from a low cost base¸ both in terms of a workforce that is highly specialised and professional¸ as well as in terms of the cost facilities¸ such as office premises and maintenance.

Own funds

  • The minimum guarantee fund that is required to be maintained depends on whether the captive is engaged in general business or long term-business.  Such funds may be in Maltese liri or in other currencies acceptable to the MFSA and must be unencumbered at all times.
  • Generally¸ in the business of captives¸ a minimum guarantee fund ranging from €2m and €3m ought to be maintained.  Life insurance captives require a minimum guarantee fund of €3m whereas a reinsurance captive¸ whether it is carrying out a long-term or a short-term business¸ requires the minimum fund of €200¸000.
  • The components of own funds are to consist of: paid up share capital which must not be less than 50% of the value of Own Funds requirement; and a mixture of issued and unpaid share capital¸ preferential share capital¸ subordinated loans¸ retained profits and reserves.

Equalisation Reserve
AICs carrying on general business of a prescribed nature are required to maintain an equalisation reserve. Companies are exempted from this obligation in following situations:

  • the net premiums written in a financial year in respect of that financial year are less than Lm500,000 (approx. Euro 250,000);
  • the net premiums written in a financial year in respect of that business are less than 4% of net premiums written in the financial year in respect of all its general business are less than Lml million Maltese liri (approx. Eur0 2,500,000), and company has no equalisation reserve to bring forward from previous financial year.

Notwithstanding the above, 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.

Special Concessions for AICs in Malta

  • AICs are permitted to draw up accounts in abridged form.
  • AICs are also exempt from: publishing accounts in local newspapers; contributing to the protection and compensation fund; covering technical provisions by equivalent and matching assets to cover currency risk; localisation rules and custody of assets rules; the payment of duty on any contract of insurance relating to a risk situated in Malta; and depositing a minimum guarantee fund with an external institution.

Protected Cell Companies

  • Since the 1st of July 2004 an AIC may be registered or converted into a Protected Cell Company (PCC) with the written approval of the MFSA
  • A PCC is applicable to all licensed: insurance companies; reinsurance and affiliated insurance companies; insurance managers and insurance brokers.
  • A PCC creates within itself one or more cells for the purpose of segregating and protecting the cellular assets. This implies that the creditors of a particular cell have no recourse against the assets or other cells within the PCC. However, the PCC, with its cellular and non-cellular components, is a single legal entity.

Captive Insurance Managers
AICs may employ the services of an insurance management company. An insurance Manager is 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.

An insurance manager is required to possess Own Funds amounting to:

  • A minimum of Lm500 (c.€1,250) in paid up share capital, if the manager holds no appointment (temporary status);
  • A minimum of Lm5,000 (c.€12,500) if its activities are restricted to services to captive insurance companies, or it does not have authority to enter into contracts of insurance on behalf of its clients;
  • A minimum of Lm25,000 (c.€62,500) if its activities are not restricted to servicing captive insurance, and include the authority to enter into insurance contracts on behalf of its clients.

There are a number of fiscal incentives applicable to AICs.

  • A non-resident shareholder of company carrying on affiliated insurance is taxable at the effective rate of 4.17% on the profits of the captive
  • Technical provisions and equalisation reserves are allowed as a deduction in the computation of taxable income;
  • Duty is not chargeable under the Duty on Documents and Transfers Act 1993 in respect of any contract of insurance relating to a risk situated outside Malta;
  • A company is assessed and pays tax in the currency in which its share capital is denominated. Any refund of tax is made in the same currency;
  • Captive Management Services are also zero rated for VAT purposes;
  • If a protected cell company pays tax in a foreign country, it gets a credit for such foreign tax, provided that  the credit does not exceed the Maltese tax;
  • Malta does not have in place thin capitalisation rules or CFC-type provisions;
    Captives operating in Malta would not fall subject to transfer pricing regulations.