1. Asia Pacific Tax Training (PwC)
Shariah Compliant Pure Captive via Labuan IBFC
LABUAN IBFC INC SDN BHD IS THE OFFICIAL AGENCY AUTHORISED BY THE MALAYSIAN GOVERNMENT TO MARKET LABUAN AS THE PREMIER INTERNATIONAL BUSINESS AND FINANCIAL CENTRE IN ASIA PACIFIC

2. Summary Definition and operational structures. Who qualifies?
How to set-up a Labuan Shariah compliant pure captive (“Labuan SPC”)?
Permitted business activities.
Operational requirements.
Shariah compliance.
Labuan SPC - How it works?
Opportunities in the Malaysian market.

3. Definition and Operational Structures
Captive business is a form of a risk management technique by which a business forms its own insurance company subsidiary to finance its retained losses in a formal structure
Labuan Shariah compliant pure captive company (“Labuan SPC”) is a Labuan Company that operates a pure captive structure conducted in a Shariah compliant manner in its entire operations including the contract between parent and captive company as well as investment undertakings
The contract between parent company and Labuan SPC may be based on the agency (“Wakala”) that involves risk transfer for a fee or without a fee. It is not purely risk transfer as the captive owner is still bearing investment and operational risk
The operational model shall be based on contracts preferred by the Labuan SPC and approved by its Shariah adviser and its activities shall define the relationship and fiduciary duties between contracting parties

4. Who qualifies?
A Labuan Company incorporated or registered under the Labuan Companies Act 1990 (including Protected Cell Companies); and
SPV set up to undertake Shariah compliant captive business in Labuan IBFC; or
Any other person as may be approved by Labuan FSA
The following may apply to undertake a Labuan SPC business:

5. How to set-up a Labuan SPC?
Submission should include the following:
Authenticated copy of proposed M&A stipulating operations to be Shariah compliant; including provisions for establishing an internal Shariah advisory board to advise on operations of its business to ensure compliance with Shariah principles
Approval of relevant authorities (where required) and certified extracts of board resolutions and minutes of general meeting
Business plan for the first three years of operations
Audited annual accounts for the 3 years preceding application if business is licensed and authorised to conduct insurance business outside Labuan
Corporate profile (including name, place and date of establishment, and details of directors/officers responsible for management)
Shareholding structure
Declaration of probity by directors/officers responsible for managing the Labuan SPC

6. Labuan SPC permitted business activities
May underwrite direct general and family takaful business risks of their own Group
Direct Labuan Takaful business
May obtain retakaful coverage from any takaful/retakaful operators in or outside Labuan (irrespective of whether they are licensed under the LIFSSA)
Labuan Retakaful business
May deal with reinsurance of Malaysian risks and direct Malaysian risks for activities approved by Labuan FSA and/or BNM
Other approved activities

7. Labuan SPC operational requirements
Have an operational management office in Labuan or appoint a licensed Labuan Takaful underwriting manager
Every Labuan SPC must:
Person must be of fit and proper person and shall have no adverse reports
Obtain prior approval from LFSA to appoint person in control of Labuan SPC
RM 300k for the Labuan Company;
a surplus of asset over liabilities of at least RM300k to be maintained in the book of its Labuan office for a foreign Labuan Company
Paid-up capital/working funds:
Labuan SPC required to maintain at all times a surplus over liabilities which is at least the amount of its working fund; or
20% of net contribution income for preceding year for general insurance business or 3 % of actuarial valuation of the liabilities for family takaful business as at last valuation date
Margin of solvency requirement:
Submit audited accounts within 6 months after close of FYE and statistics/information required by LFSA from time to time
Reporting requirement:
RM10k payable on or before every 15th January
Annual license fee

8. Shariah compliance
Types of risks to be transferred into the Labuan SPC should be related to Shariah compliant businesses
Entities that are not categorised as investable equities by any prevailing Islamic benchmark or indices may also transfer their risks into a Labuan SPC provided risks are related to activities which are Shariah-compliant
Guiding criteria on the type of risks to be transferred into the Labuan SPC shall be determined by the appointed Shariah adviser or any other recognised Shariah advisory bodies
Investment activities must be channeled to Shariah approved business and the distribution of dividends, profits, etc are in line with Shariah principles

9. Insured with International Reinsurers
Labuan Shariah Compliant Pure Captive -
How it works?
Scenario
Company A – Singapore company
Company B – Licensed Labuan SPC wholly owned by A
C – Licensed domestic insurance company in Singapore
A & companies within its group insures with C (fronting)
C reinsures most of the risks with B
B retains some risks (e.g. 15%) and reinsures the rest with international reinsurers at competitive rates
Advantages
Low tax regime – 3% of audited profits or MYR20,000
Tax deduction for premiums
No WHT on dividends paid by B
Creation of profit centre in B
Retains control of the group’s risk management
Access to competitive market rates for re-insurance
Conducive regulatory environment
Retained Risks
Insures with
Singapore co. A
Domestic Singapore Insurance co. C
Reinsures with
Insured with International Reinsurers
15%
85%
Labuan co. B
0% WHT dividends

10. Opportunities in Malaysian market
Opportunities in the Malaysian market
Opportunities in Malaysian market
More than ten major Malaysian listed companies have one or more captives in Labuan
Total premium exceeds RM700 million
Improved awareness and better risk management causing more companies to “Think Captive”

11. Please visit – www.LabuanIBFC.my
LABUAN IBFC IS THE OFFICIAL
AGENCY SANCTIONED BY
THE MALAYSIAN GOVERNMENT
TO MARKET LABUAN AS THE
PREMIER INTERNATIONAL
BUSINESS AND FINANCIAL
CENTRE IN ASIA PACIFIC