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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.

A Labuan PCC is a Labuan company incorporated as, or converted into, a protected cell company under the Labuan Companies Act 1990 (LCA).

A.Scope of Activities of Labuan PCC

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); and
  • 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 as defined under Part III of the LFSSA; and
  • Business as an Islamic mutual fund as defined under Part IV of the LIFSSA.
B.Application for setting up Labuan PCC with Labuan FSA
  1. An applicant may establish a Labuan PCC by incorporating a Labuan PCC or converting an existing Labuan company into a Labuan PCC to conduct business activities as specified under item A of this document together with a processing fee of RM1,000.
  2. A Labuan PCC must seek prior approval of Labuan FSA for establishment of its cell(s). An application to create a cell shall be made to Labuan FSA accompanied by the following information together with a processing fee of RM1,000:
    1. Name of the cell;
    2. Profile of the cell owner;
    3. Principal activity that the cell will be undertaking; and
    4. Expected date of commencement of business operation.

  3. Approval to Conduct Labuan Captive Insurance/Takaful Business
    The application for approval on the Labuan PCC structure to conduct Labuan captive insurance or captive takaful business shall be accompanied by relevant LFSA’s Form together with the following information:
    1. Application for new incorporation of or conversion into a Labuan PCC.
    2. Type of business activities.
    3. Proposed PCC structure including number of cells.
    4. Other document/information as required under LFSSA/LIFSSA and relevant guidelines issued by Labuan FSA.

  4. Approval to Conduct Labuan Mutual Funds/Islamic Mutual Funds Business
    The application for approval as a Labuan PCC to undertake mutual fund/Islamic mutual fund business, shall be accompanied by relevant LFSA’s Form (for public fund and Islamic public fund only) together with the following information:
    1. The name, or proposed name, of the Labuan PCC.
    2. Details of the person who is, or will be appointed as the fund manager/administrator of the Labuan PCC.
    3. A list of the initial cell(s) to be created including the name, identification or designation of each of the cell(s), if available.
    4. Details of the fund manager/ fund administrator/ investment advisor/ custodian/ any other as Labuan FSA may require, who will be appointed by the company in respect of each cell.
    5. A copy of the information memorandum or prospectus for each cell.
    6. Other document/information as required under LFSSA/LIFSSA and relevant guidelines issued by Labuan FSA.

  5. For Labuan PCC that is registered as a private fund, only the information as listed in paragraph (4)(a) to (f) above must be submitted to Labuan FSA for approval. LFSA’s Form would not be required.
  6. Labuan FSA may be notified on the creation of the cell(s) of Labuan private fund, if the cell(s) is managed by the same fund manager and/or fund administrator as per paragraph (4)(b) above.
C.Structure of Labuan PCC
  1. General Structure and Name
    1. Labuan PCC is a single legal person and may establish one or more cells for the purpose of segregating and protecting cell assets.
    2. The creation of a cell by a Labuan PCC does not create a legal person separate from the Labuan PCC.
    3. The name of a Labuan PCC shall include the expressions “Protected Cell Company” or “PCC”.
    4. Each cell of a Labuan PCC shall have its own distinct name or designation.
    5. Main registered office in Labuan and appointment of minimum one (1) resident secretary.

  2. Cell and General Assets
    1. The assets of a Labuan PCC shall be either –
      1. cell assets which comprise the assets the Labuan PCC held within or on behalf of the protected cells; or
      2. general assets which comprise the assets of the Labuan PCC which are not cell assets.
    2. Labuan PCC shall –
      1. maintain separate records for each of its cell;
      2. keep the cell assets held for each cell separate from cell assets held for other cells and from general assets; and
      3. arrange proper protection of cell assets, both as between cells and in respect of general assets by way of segregation, firewalls and clear identification.

  3. Cell Shares and Cell Share Capital
    1. A Labuan PCC may create and issue cell shares and the cell capital which shall be referenced to the cell assets attributable to the cell in respect of which the shares were issued in accordance with subsection 130T of LCA.
    2. A Labuan PCC may pay cell dividend in respect of cell shares by reference only to the cell assets and liabilities attributable to the issued cell shares.
    3. The proceeds from issuance of shares other than cell shares created and issued by a Labuan PCC shall be comprised in the general assets.

  4. Rights of Creditors and Liabilities
    1. The rights of creditors are only limited to the assets of the cell incurring the liability and would not be able to attach their rights to the other cells or general assets of the Labuan PCC.
    2. The assets allocated to the cell are only liable to satisfy liabilities incurred by such cell and thus should not be attached by liabilities of the other cell.
    3. Where a liability is not attributable to a particular cell of the Labuan PCC, it shall be satisfied solely from the general assets.
    4. In the case of receivership and winding up of Labuan PCC or any of its cells, the approved liquidator shall be bound to deal with the general assets of the Labuan PCC or the cell assets of each individual cell of the Labuan PCC respectively, in accordance with the requirements set out under paragraph 130ZB of LCA.

  5. Transfer of Cell Assets and Consolidation of Cells
    1. A Labuan PCC may with prior written approval of Labuan FSA –
      1. transfer a cell asset attributable to a cell to another cell of the Labuan PCC; or
      2. amalgamate or consolidate a cell with, or into, one or more other cells of the Labuan PCC.
    2. In addition, Labuan PCC may transfer cell assets attributable to any cell of the Labuan PCC to other person whether resident or incorporated, and whether or not a Labuan PCC if it is authorized by a special resolution of the shareholders made on the recommendation of a director’s resolution with prior written approval of Labuan FSA.
    3. No prior approval of Labuan FSA is required to the transfer of cell assets attributable to any cell of a Labuan PCC in the ordinary course of business of the Labuan PCC through payments, investments or otherwise.

  6. Disclosure Requirement
    1. Labuan PCC must inform through written communication to any person that enters into business transactions with Labuan PCC that –
      1. they are dealing with a Labuan PCC;
      2. the particular cell that the person is entering into transaction is identified and specified unless that the transaction is not in respect of a particular cell; and
      3. only the assets of that particular cell are available to meet the cell’s obligations and liabilities.
    2. For a Labuan PCC operating as mutual fund/Islamic mutual fund, all risks associated with the fund must be clearly disclosed to the investors.
    3. The Labuan PCC shall also disclose the following as part of the main promotional document to customers/investors:
    4. “XYZ PCC Limited (“name of the Labuan PCC”) is established as a protected cell company, under Part VIIIB of the Labuan Companies Act 1990 (LCA). This means that under Labuan laws, and provided the conditions of the LCA have been complied with, the assets attributable to each cell of the Company will only be available to creditors of that cell.
    5. Prospective investors should bear in mind that the segregation of assets and liabilities as provided for in this manner, whilst recognised and protected under the Labuan laws, may not be recognised in certain other jurisdictions in which the company’s assets may be located.”

  7. Regulatory Requirement
    1. Capital Requirement
      1. Labuan captive insurance/takaful business –
        1. Capital requirement unimpaired by losses of RM500,000 apply to the Labuan PCC as a whole.
        2. Cells are required to remain solvent at all times as specified under paragraph 8(a) of this document.
        3. The establishment of working funds for cells may be achieved through the issuance of cell shares by the Labuan PCC.
      2. Labuan PCC undertaking mutual funds/Islamic mutual funds must have sufficient capital/working funds to commensurate or in accordance with its operations and activities.
    2. Corporate Governance & Compliance to Labuan Laws
      1. 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 to the nature and complexity of its operations from time to time.
      2. The Board and senior management of the Labuan PCC shall –
        1. be responsible to ensure compliance with the regulatory and corporate governance requirements at all times;
        2. keep the funds for cell assets separately from the general assets; and
        3. keep the cell assets and liabilities attributable to each cell separate from other cells.
    3. Reporting Requirement
      1. A Labuan PCC is required to –
        1. submit an audited consolidated financial statement of the Labuan PCC and its cell(s) within 6 months after the close of each financial year;
        2. prepare separate set of financial statements for each cell and shall be made available for inspection or examination by Labuan FSA; and
        3. submit other statistics and information as may be required by Labuan FSA from time to time.
      2. Notwithstanding the above, for Labuan PCC undertaking mutual funds or Islamic mutual funds activities, a copy of the cell’s financial statements should also be extended to each of the investor of the respective cell.
    4. Auditor

      Labuan PCC shall appoint an approved auditor who shall be responsible for auditing its financial statements.

  8. Specific Requirement for Labuan Captive Insurance and Takaful Business
    1. Margin of Solvency
      1. Minimum margin of solvency for Labuan PCC must be calculated on a cell by cell basis in order to determine whether the PCC as a whole meets its solvency requirement as specified under the Guidelines on Captive Insurance Business in Labuan IBFC issued by Labuan FSA.
      2. Any solvency deficits arising in the individual cells must be covered either by cell-specific financial instruments, such as letters of credit etc. Where any such solvency deficits are not covered in full by the above, the Labuan PCC will not be deemed to have met its solvency requirements as specified by Labuan FSA.
    2. Management Office
      1. Labuan PCC conducting captive insurance/takaful business is required to –
        1. establish its management office in Labuan; or
        2. appoint a licensed Labuan insurance/takaful manager or underwriting/ takaful underwriting manager.
      2. Labuan PCC may also establish an office or offices in any part of Malaysia subject to the requirements stipulated under the Guidelines on Co-Location of Labuan Insurance and Takaful Licensee issued by Labuan FSA.

  9. Annual Fees

    A Labuan PCC is also 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 -

    Captive Insurance/Takaful
    On the general assets (Core) RM30,000
    On each individual cell RM10,000

    Mutual Funds & Islamic Mutual Funds
    On the general assets of the Labuan PCC RM5,000
    On each individual cell RM2,000

  10. Taxation on Labuan PCC

    Labuan PCC is taxed under Labuan Business Activity Tax Act 1990 (LBATA) as a taxable Labuan entity.

    This effectively 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 PCC or upon election, a maximum tax liability of MYR20,000.00 for the PCC regardless of the number of cells or their profits in the cells within the said PCC.

    If the PCC carry on Labuan non-trading activities, the company as a whole is exempt from tax in Labuan.

    Other benefits –

    • No withholding tax
    • No capital gains tax
    • No stamp duty on offshore instruments.

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The information in this document is not advice of any kind but general information only and should not be relied on as legal advice. Kensington Trust Group recommends seeking professional advice on legal or tax issues affecting you before relying on it. While Kensington Trust Group tries to ensure that the content of this document is accurate, adequate or complete, it does not represent or warrant, express or implied, its accuracy, correctness, completeness or use of any of the information. Kensington Trust Group does not assume legal liability for any loss suffered as a result of or in relation to the use of this document. To the extent permitted by law, Kensington Trust Group excludes any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this document.