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.
- Appointment of an approved auditor.
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
- 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.
- A Labuan PCC must seek prior approval of Labuan FSA for establishment of its cell(s).
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) : RM30,000
> On each individual cell: RM10,000
- Mutual funds and Islamic mutual funds
> On general assets of the Labuan PCC (Core): RM5,000
> On each individual cell: RM2,000
Any Labuan company that wishes to convert into a Labuan PCC is required to pay a conversion fee of RM750.
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.
- “Labuan trading activity” includes banking, insurance, trading, management, licensing, shipping operations or any other activity which is not a Labuan non-trading activity. If the PCC carry on Labuan trading activities, the company as a whole shall pay 3% of net profits as per audited accounts.
- “Labuan non-trading activity” means an activity relating to the holding of investments in securities, stock, shares, loans, deposits or any other properties by a Labuan entity on its own behalf. If the PCC carry on Labuan non-trading activities, the company as a whole is exempt from tax in Labuan.
- Labuan companies carrying on both Labuan trading and non-trading activities will be deemed to be carrying on Labuan trading activities. Hence, it will have the same tax treatment as those undertaking Labuan trading activity mentioned above.
- Labuan entities that carry on a non-Labuan business activity are subject to the provisions of the Malaysian Income Tax Act, 1967 (ITA).
- Substance requirements under Labuan Business Activity Tax Regulations 2018:
To benefit under LBATA, the PCC will need to comply with the substance requirements of minimum number of four (4) full time employees in Labuan and minimum annual operating expenditure in Labuan of RM100,000.