Labuan Protected Cell Companies

Protected Cell Companies (PCC) provide an alternative solution to standard corporate structures. As one of the innovative business structures on offer in Labuan IBFC, PCC may be structured to further enhance the insurance and mutual funds industries, particularly in optimising for maximum protection and benefit and also, flexibility in managing risk portfolios. They can also be used as an efficient tax planning tool, besides serving as an effective asset protection tool.

STRUCTURE AND REQUIREMENTS OF PCC

  • A Labuan PCC is a limited liability company with a legal entity that has the ability to form one or more cells for the purpose of segregating and protecting cell assets.
  • Neither the core nor the individual cells created are separate legal entities but nonetheless, each cell is legally separated from any other cell and each has sufficient attributes to carry on business independently under the “umbrella” of the Labuan PCC.
  • The cells of a Labuan PCC may comprise:
    > a core for holding non-cell assets or general assets; and
    > any number of cells with the intention of segregating and protecting the assets of each respective cell.
  • The name of a Labuan PCC shall include the expressions “Protected Cell Company” or “PCC”.
  • Each cell of a Labuan PCC shall have its own distinct name or designation.
  • Registered office in Labuan and minimum one (1) resident secretary.
  • Appoint approved auditor in Labuan.

 

USES OF LABUAN PCC

A Labuan PCC has the ability to hold assets or investments divided into a number of classes to cater to the different objectives of different individual investors, while at the same time preserving the independence of each cell.

A Labuan PCC shall only conduct:

  • Labuan captive insurance business, on such terms as provided under Part VII of the Labuan Financial Services and Securities Act 2010 (LFSSA);
  • Labuan captive takaful business, on such terms as provided under Part VII of the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA); or
  • business as a mutual fund;
  • business as an Islamic mutual fund.

 

APPLICATION TO SET UP LABUAN PCC WITH LABUAN

  1. An applicant may establish a Labuan PCC by incorporating a Labuan PCC or converting an existing Labuan company into a Labuan PCC.
    Kensington Trust Labuan Limited is a licensed trust company in Labuan and may assist you with establishment and administration of your Labuan PCC.
  2. A Labuan PCC must seek prior approval of Labuan FSA for establishment of its cell(s).

 

CAPITAL REQUIREMENTS

The following lists the capital requirements of a Labuan captive insurance/takaful business:

  • Capital requirement unimpaired by losses of RM500,000 applies to the Labuan PCC as a whole.
  • Cells are required to remain solvent at all times as specified in the Guidelines on the Establishment of Labuan Protected Cell Companies issued by Labuan FSA.
  • The establishment of working funds for cells may be achieved through the issuance of cell shares by the Labuan PCC.

A Labuan PCC undertaking mutual funds/Islamic mutual funds must have sufficient capital/working funds that commensurate or are in accordance with its operations and activities.

CORPORATE GOVERNANCE AND COMPLIANCE WITH LABUAN LAWS

A Labuan PCC and its cell(s) shall observe all statutory requirements under any relevant laws, policies and/or guidelines issued by Labuan FSA or the jurisdictions in which it has operations, including corporate governance and market conduct as a minimum requirement and commensurate with the nature and complexity of its operations from time to time.

The board and senior management of a Labuan PCC shall:

  • be responsible to ensure compliance with the regulatory and corporate governance requirements at all times;
  • keep the funds for cell assets separate from the general assets; and
  • keep the cell assets and liabilities attributable to each cell separate from other cells.

 

REPORTING REQUIREMENTS OF LABUAN PCC

  • Submit an audited consolidated financial statement of the Labuan PCC and its cell(s) within six (6) months after the close of each financial year;
  • Prepare separate set of financial statements for each cell and shall be made available for inspection or examination by Labuan FSA; and
  • Submit other statistics and information as may be required by Labuan FSA from time to time.
  • Notwithstanding the above, for a Labuan PCC undertaking mutual fund or Islamic mutual fund activities, a copy of the cell’s financial statements should also be extended to each of the investors of the respective cells.

 

LABUAN FSA FEES

A Labuan PCC is required to pay the following annual fees with Labuan FSA upon approval and thereafter, on an annual basis on or before 15 January each year

  • Insurance and Takaful
    > On general assets of the Labuan PCC (Core) : USD9,500
    > On each individual cell: USD3,000
  • Mutual funds and Islamic mutual funds
    > On general assets of the Labuan PCC (Core): USD1,500
    > On each individual cell: USD600

 

TAXATION OF LABUAN PCC

  • Labuan Business Activity Tax Act 1990 (“LBATA”) governs the imposition, assessment and collection of tax on a Labuan business activity carried on in, from or through Labuan. Labuan business activity” means:
    > a Labuan trading or a Labuan non-trading activity carried on in, from or through Labuan,
    > excluding any activity which is an offence under any written law.
  • Labuan PCC is taxed under LBATA as a taxable Labuan entity.
  • This means that the taxable person in a PCC is NOT each cell established under the PCC but the PCC itself. This translates to a 3% tax on audited net profits of the whole PCC entity regardless of the number of cells or their profits in the cells within the said PCC.

 

SUBSTANCE REQUIREMENT UNDER LBATA (with effect from 1st January 2019)

> Pursuant to section 2B(1) (b) of LBATA, the Labuan entities shall, for the purpose of the Labuan business activity, have :-

  • an adequate number of full time employees in Labuan; and
  • an adequate amount of annual operating expenditure in Labuan, as prescribed by the Minister by regulations made under this Act.

> Section 2B (1A) of LBATA provides that a Labuan entity carrying on a Labuan business activity which fails to comply with the substance requirement for a basis period for a year of assessment shall be charged to tax at the rate of twenty four per cent (24%) upon its chargeable profits for that year of assessment.

> To benefit under LBATA, a Labuan PCC Captive will need to comply with the substance requirements of minimum number of three (3) full time employees in Labuan and minimum annual operating expenditure of RM100,000 in Labuan.

> As the business activity of a Labuan PCC Fund is generally involved in either Pure Equity Holding or Non Pure Equity Holding, the Substance Requirements are as follows:

  • Pure Equity Holding - To comply with management and control requirement in Labuan, the entity is to hold at least a minimum of one board meeting in Labuan for each calendar year and incur a minimum annual operating expenditure of RM20,000 per annum in Labuan.
  • Non Pure Equity Holding - To comply with minimum of one (1) full time employee in Labuan and a minimum annual operating expenditure of RM20,000 per annum in Labuan.

DEALINGS WITH RESIDENT

All Labuan entities are allowed to conduct transactions with Residents of Malaysia in Ringgit Malaysia subject to the filing of a notification to Labuan FSA within 10 days from the transaction effective date.

 “Resident” here means:

  • in relation to a natural person, a citizen or permanent resident of Malaysia; or
  • in relation  to any other person, a person who has established a place of business, and is operating in Malaysia.
  • and includes person who is declared to be a resident pursuant to s.43 of the Malaysian Exchange Control Act 1953.

The amount of deductions allowed in respect of payments made by Residents to Labuan entities are as follows:-

>  Interest expense

75% deductible

>  Lease rental

75% deductible

>  General reinsurance premiums

100% deductible

>  Other type of payments

3% deductible