A “Captive Insurer” is simply an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer’s underwriting profits.

In simpler terms, Labuan captive business is defined as an insurance business where the insured is a related corporation or an associated corporation of the Labuan insurer or where the insured is any other person in respect of whom the Labuan insurer is authorised by Labuan FSA to provide insurance or reinsurance.

A Labuan captive insurance is also permissible to underwrite for a third party, subject to the approval of Labuan FSA. The underwriting profit made by the Labuan Captive Insurance company can be redistributed back in a form of dividends which is ZERO tax!

Captives are normally being domiciled in an offshore jurisdiction because an onshore environment is subject to very restrictive conditions and may not be conducive to the creating and operation of an insurance company.

The Labuan captive is also very flexible which can be structured to specific needs for their coverage and no longer subjected to the unpredictability of the external insurer or conventional insurance.

Labuan is a substance-enabling jurisdiction at an affordable cost! It is essential for a business to be able to demonstrate its commercial substance in the jurisdiction the captive is domiciled. Below are some of the examples of commercial substance which can easily satisfy the global implementation of the Action Plan on Base Erosion and Profit Shifting (BEPS) by the Organisation for Economic Co-operation and Development (OECD):

  • Annual General Shareholders’ and Board of Directors’ meetings held in the captive’s domicile
  • Directors’ duties are performed in the domicile
  • Accounting books and records are prepared and maintained in the domicile
  • The operational bank account in domicile
  • There is participation in the management of the captive by a resident of the domicile
  • Key management decisions are made at the domicile

Permitted Activities of A Labuan Captive Insurance License

  1. A Labuan Captive Insurer may underwrite direct insurance / reinsurance (general or life) business risks : -  of their own Group; or -  third party risks subject to Labuan FSA’s approval
  2. A Labuan Captive Insurer may obtain reinsurance coverage from any insurance company in or outside Labuan irrespective of whether it is licensed under the LFSSA.
  3. Labuan Captive Insurer may deal with direct Malaysian risks for activities as prescribed by law.

6 Types of Labuan Captive Insurance Entity Permited in Labuan

Pure / Single Captive Owned and controlled by one owner, typically the parent organisation, and is formed as a subsidiary company. The captive subsidiary underwrites policies for the parent, and solely bears the risks of the parent.
Group Captive / Association Captive Owned and controlled by multiple insureds. They may or may not be related entities or part of a homogeneous group like industry or trade groups.
Master Rent-a-Captive Acts as a master captive, which provides captive facilities and services to subsidiary rent-a-captives.
Subsidiary Rent-a-Captive An entity with separate licenses, assets and accounts but at the same time using the working capital of a master captive.
Cell Captive Protected Cell Companies (PCC) where legislation protects each individual cell or account from the liabilities of other cells within the captive.
Multi-Owner Captive Owned by two or more unrelated persons or organisations and writing the risks of its owner and/or affiliates and is designed to insure the risks of these different entities.

6 Reasons for Forming a Labuan Captive Insurance Company

  • Lower insurance costs
  • Access to the re-insurance market
  • Full control over risk management and the group’s insurance program
  • Able to customise coverage to meet specific needs and 'uninsured' risks
  • Tax minimisation and deferral
  • Permissible to underwrite third party insurance

6 Key Tax Advantages of A Labuan Captive Insurance Company

  • 3% corporate tax
  • No withholding tax on dividends / interest / royalty payments
  • Dividends are non-taxable
  • No stamp duties on Labuan shares transfer and all other instruments
  • Access to Malaysia wide treaty network of over 70 double taxation agreements
  • Premiums on insurance and reinsurance that are 100% deductible

Operational Requirements for A Labuan Captive Insurance License

  1. Every Labuan Captive Insurer must:-
    1. Have an operational management office in Labuan managed by a management team that has adequate knowledge and expertise in insurance business including captive; or
    2. Appoint a licensed Labuan underwriting manager
  2. At least two (2) directors (preferably a natural person) with insurance or insurance related experience. There is no residency requirement with respect to the
  3. Paid-up Capital / Working Funds
    1. Pure / Single / Group / Association / Multi-owner Captive  Unimpaired by losses of MYR 300,000 or its equivalent in any foreign currency
    2. Rent-a-Captive / Master Rent-a-Captive / Cell Captive / Other similar vehicles Unimpaired by losses of MYR 500,000 or its equivalent in any foreign currency
  4. Margin of Solvency
    1. A Labuan Captive Insurer is required to maintain at all times a surplus of assets over liabilities, which is equivalent to, or more than the amount of its working fund; or
    2. 20% of the net premium income for the preceding year in respect of the general insurance business, or 3% of the actuarial valuation of the liabilities for life insurance business as at the last valuation date, whichever is greater.

Application Timeframe

  1. Approximately 30 to 60 days subject to further information and supporting documents required by Labuan FSA during the approval process
  2. Interviews / Meetings with the key personnel may be requested by the Labuan FSA to understand or clarify certain processes

The Paid-Up Capital and Annual Fee of The Labuan Captive Insurance Varies According to the Type of Set-Up:

STEPS to Apply for A Labuan Captive Insurance License

Process flow for Obtaining A Labuan Captive Insurance Licence | QX Trust - Offshore Labuan

Find out the Different Types of Labuan Insurance License available for your Insurance Business!

QX TRUST, your one-stop Trust Company in Labuan!

We provide the following services to set up your Labuan Captive Insurance business:

  • Consultation of client’s eligibility and application procedures
  • Feasibility study write-up based on client’s profile
  • Due Diligence, Profiling and Guidance on documents preparation
  • Construct exclusive Business Plan to meet client objectives
  • Preparation of Financial Forecast, KYC, Operation and AML/CFT Manuals, Client Agreement etc
  • Submission and supervision of application process until approval
  • Setup the membership with Labuan International Insurance Association
  • Act as liaison and key contact person for both client and Labuan FSA on all correspondences, meetings and / or interviews (if any)