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Discover the wide range of business and financial services available in Labuan IBFC
Insurance
  • 1. What is a Labuan insurance and insurance-related business?
    A Labuan insurance business means an insurance business transacted in foreign currency and includes life, general, reinsurance, captive insurance, insurance manager, underwriting manager and insurance broking, but does not include domestic insurance business.
  • 2. What are the criteria to set up an insurance entity in Labuan IBFC?
    An applicant is eligible to apply for a licence to conduct Labuan insurance and insurance-related activities in Labuan IBFC if it meets the following criteria:
    • Has a good financial performance track record, at least in the three years preceding the application 
    • Has the necessary expertise (management competency) and staffed with appropriate and adequate personnel to run the insurance business 
    • Has no adverse report from the respective home regulatory authorities or announcement in financial journals, newspaper or any other reliable sources; and 
    • Has a good business plan.
  • 3. What is a permitted business activity of a Labuan captive insurer?
    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.
  • 4. What is a rent-a-captive?
    A rent-a-captive is a captive insurance company that can be utilised by a number of users, or so called renters without voting control of the captive. While none of the users will own the rent-a-captive, each will enjoy the commercial benefits of a captive. The captive facility "rents" out its capital, surplus and licence to the policyholder and usually provides administrative services, reinsurance and/or an admitted fronting company. 
  • 5. What kind of insurance can be insured by a captive insurance company?
    Almost any kind of risk can be insured by a Labuan captive insurance company.
  • 6. What is a protected cell company?
    A Labuan company may be incorporated as a protected cell company (PCC). In addition, an existing Labuan company can be converted into a PCC. The PCC has the ability to form “cells”. The cells of a 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.
    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. A Labuan PCC may be established to conduct captive insurance / reinsurance in accordance to either conventional or Islamic principles.
  • 7. How is a Labuan PCC taxed?
    The income of PCCs from a Labuan business activity is taxed under the Labuan Business Activity Tax Act 1990 (LBATA). The rate of tax imposed is 3% of audited net profits or fixed tax of RM20,000, as elected.
  • 8. What is the tax implication on the cells of the PCC?
    The income of the cell(s) under the PCC is taxed on a consolidated basis in the name of a Labuan PCC.
  • 9. What is the tax implication on the distributions of profits by the cells in a PCC?
    The dividends received from the Labuan PCC by the cells are tax-exempt.
  • 10. What is the governing legislation for the Labuan insurance and insurance-related companies business?
    The Labuan insurance and insurance-related companies business is governed by the following Labuan laws:
    • Labuan Financial Services and Securities Act 2010 
    • Labuan Islamic Financial Services and Securities Act 2010 
    • Labuan Companies Act 1990 
    • Labuan Business Activity Tax Act 1990.
  • 11. What are the fees payable by insurance entities in Labuan IBFC?
    The fees payable are illustrated in the table below:
    Fees
    Amount
    Processing Fee
    RM1,000
    USD350
    Annual Fee
    Amount
    General Insurer/Life Insurer/Labuan Reinsurer/
    RM50,000
    USD15,000
    Insurance Broker/Insurance Manager/Underwriting Manager
    RM20,000
    USD6,500
    Captive Insurance
    RM10,000
    USD3,000
    Master Rent-a-Captive
    RM13,000
    USD4,000
    Subsidiary Rent-a-Captive
    RM3,000
    USD1,000
    PCC Captive (Core)
    RM30,000
    USD9,500
    PCC Captive (Cell)
    RM10,000
    USD3,000
    Co-location Office Fee
    RM10,000
    USD3,500
    Marketing Office Fee
    RM7,500
    USD2,500
    All licensees are required to pay to Labuan FSA annual licence fees on or before 15 January of each year.
  • 12. Goods and Services Tax (GST) - Labuan Insurance
    REGISTRATION
    1. How to register GST for its cells?
    A cell can register for GST under the name of the core as the taxable person. www.gst.customs.gov.my or contact the Customs officers for the information.
    2. Is there a limit for an Intermediary to be registered for GST i.e. exceeding a certain premium volume threshold or will the GST apply to everyone in the business irrespective of the volume transacted in a year?
    Calculation of turnover for registration is based on the total value of the taxable supplies for a 12 month period. With effective from 1 April 2015, registration is mandatory within 28 days from the end of the month where taxable turnover exceed or expected to exceed the threshold of RM500, 000. The effective date of registration will be on the first day of the following month.
    TRANSITIONAL PERIOD
    3. What is the GST treatment during the transitional period for the following scenarios:-
    • XSL Premium/Brokerage are invoiced on a half yearly basis for an insurance contract that covers 1 Jan 2015 to 31 Dec 2015. Assuming GST of 6% applies to both premium & brokerage, do we need to time apportion the invoice into Q1 2015 and Q2 2015. 
    • How do we address pro-rata premium which is received after the cedant closes for the quarter ended 31 March 2015. 
    • Does the reinsurance premium & brokerage for the quarter ended 31 March 2015 attract GST?
    Fees charged prior to 1 April 2015 are not subject to GST. However, with effect from 1 April 2015, the fees are subject to GST. If the provision of the insurance/takaful policy has been charged service tax, the supply made on or after 1 April 2015 is not chargeable to GST. It is advisable to include a clause on possible GST charges in the future correspondence document. Please refer to the Guide on Insurance and Takaful as at 22 October 2014 from paragraph 79 to 83 for the apportionment details. 
    GST TREATMENT – INSURANCE
    4. Generally, supply of general insurance or general takaful products are taxable supplies which attracts GST at a standard rate i.e. a rate of 6%. Likewise the treatment on general reinsurance and general retakaful is also standard rated (Para 7). How do we determine if a reinsurance is a taxable supply in Malaysia?
    • By counter-party? 
    • By underlying insured?
    By counter-party.
    5. What is the GST treatment for an insurance company ceding out insurance to home office (reinsurance outward) including the commission revenue from home office treaty? If it is by the underlying insured, do we have to allocate the premium to Malaysia / non-Malaysia supply?
    The GST treatment will depend on the place of supply as shown below:-
    Location
    Goods
    Services
    World to DA
    Not subject to GST
    Not subject to GST
    World to PCA
    Importation of goods and subject to GST
    Not subject to GST
    DA to World
    Zero rated
    Zero rated
    DA to PCA
    Importation of goods and subject to GST
    Standard rated
    DA to DA
    Not subject to GST
    Not subject to GST
    PCA to World
    Zero rated
    Zero rated
    PCA to PCA
    Standard rated
    Standard rated
    PCA to DA
    Zero rated
    Standard rated
    6. What is the GST treatment on the provision for different types of insurance services?
    Only provision of life and family takaful/retakaful products are exempted from GST. Any other income received or fees charged (e.g. brokerage fee, introducer fee or reinsurance commission) on the provision of general insurance/reinsurance and intermediaries’ services including captive are subject to GST.
    7. For placement to overseas reinsurer - Since they are not subject to GST, please advise whether “Reverse Mechanism” method is correct when we issue our invoice. If not, please advise the correct transaction for overseas reinsurer.
    Reverse mechanism is only applicable for importation services from outside Malaysia into Malaysia. As for the placement to overseas reinsurer, the GST treatment will be zero-rated and is allowed to claim input tax incurred.
    8. What is the GST treatment for insurance covering connecting flights?
    E.g. KUL (Domestic) – BKI (Domestic) – OOL (International)
    Should GST apportionment be split between domestic & international flights since premium is charged based on International plan?
    There are two GST treatment:-
    • Where the single general policy covers the domestic and international component of the risk, the insurance services is subjected to GST at zero rated. 
    • Where there are two separate policies where one covers the international component and another covers a domestic risk, the coverage outside Malaysia is zero-rated and the latter is standard rated.
    GST TREATMENT - REINSURANCE
    9. What is the GST treatment on the following reinsurance business in Labuan or PCA:-
    • Business accepted from Cedents in Malaysia? 
    • Business accepted from Cedents outside Malaysia?
    From
    To
    Services
    PCA
    PCA
    PCA
    DA
    Standard rate
    World
    World
    PCA
    DA
    Not subject to GST. Recipient needs to account for GST as though he supplied to himself. However, if the recipient is in the course or furtherance of business, GST needs to be accounted by reverse charge mechanism
    GST TREATMENT - CAPTIVE
    10. How does the 21 days rule for time of supply applicable to Labuan captive insurance industry?
    The time of supply is the time at which the services are performed by the insurer (basis tax point). If the tax invoice is issued within 21 days after the basic tax point then time of supply is the time of tax invoice. If tax invoice is issued after 21 days then the time of supply will fall on the basic tax point.
    11. A Labuan Captive receives claim recoveries from a reinsurance broker based in Labuan. The same amount would then be paid to the Local Insurers. What is the GST treatment on the claim recovery from the local or overseas reinsurers?
    It is not subject to GST as claim recoveries are not treated as a supply of goods or services. Reference can be made to 2nd schedule of the Goods and Services Tax Act 2014.
    GST TREATMENT - BROKERS
    12. What is the GST treatment for Labuan life insurance broker, being the intermediary between the fund providers and the client. Provision of financial advice and earning commission based on the amount invested by the clients are the main source of revenue. Assuming the clients are expatriates in Malaysia, local Malaysians and etc.
    Fee charged for intermediaries services (i.e. broker) will be subjected to GST irrespective of whether it relates to a contract of general or life insurance
    13. Can Labuan insurance brokers claim for the GST paid to their suppliers on goods and services consumed?
    Goods and services acquired in the course or furtherance of business is claimable provided that the Labuan insurance broker is a GST registrant. If the inputs are used for making taxable supplies and private used, relevant apportionment is required. In addition, the Labuan insurance broker must hold a valid tax invoice in respect of a supply issued under its name.
    14. If the net amount of GST payable is positive will be paid to the Customs, and if the net amount is negative, the amount will be carried forward to the following month. If the negative amount is being accumulated till a year or more, is the refund claimable from Customs?
    Yes it is claimable subject to the requirements of Customs pursuant to section 38 and 39 of Goods and Services Tax Act 2014.     
    15. What are the types of direct insurance business exempted from GST?
    Only life insurance/reinsurance and family takaful/retakaful policies are exempted from GST.
    GST TREATMENT FOR INCOME (PREMIUM, COMMISSION, FEES) 
    16. A Labuan insurance licensee promoting its product via a Labuan insurance brokers. What is the GST treatment on the product charged by the Labuan insurance company and commissions earned by the broker when the plan is marketed in Malaysia?
    Both will be subjected to GST if the product is offered in PCA.
    17. Are commissions paid by a foreign insurer to a Labuan life broker subject to GST?
    The GST treatment will be depending on the place of supply as follows:
    From
    To
    Services
    World
    World
    Out of scope
    World
    World
    PCA
    (co-located office)
    DA
    Not subject to GST. However, in the course or furtherance of business, GST to be accounted by reverse charge mechanism for the purposes of claiming GST
    18. What is the GST treatment on consultation fees charged by a Labuan life broker to a foreigner located:
    • Outside of Malaysia 
    • Inside of Malaysia (PCA)
    The GST treatment depends on the place of supply as follows
    Labuan life broker from
    Foreigner in
    Services
    DA
    World
    Zero rated
    DA
    PCA
    Standard rate
    PCA
    World
    Zero rated
    PCA
    PCA
    Standard rate
    World
    World
    Out of scope
    World
    PCA
    Not subject to GST. However, in the course or furtherance of business, GST to be accounted by reverse charge mechanism for the purposes of claiming GST
    19. For a Labuan based life reinsurance company, is it true that only non-life rider reinsurance premiums (i.e. rider for personal accident, accidental death and critical illness) for Malaysian based clients are subjected to GST?
    Yes. (Note: Only provision of life and family takaful/retakaful products are exempted from GST.)
    20. Would the Malaysian corporate entity be subjected to GST if it pays premium directly to its Labuan cell captive as direct writer through a Malaysian fronting insurer? E.g. A Labuan cell captive issues a direct policy covering its risks?
    Yes it is subject to GST as the service is provided from DA to PCA.
    21. Is purchase of Ringgit investments such as Malaysian bond and receipt of income subjected to GST?
    Investment income is not subject GST.
    22. Are marketing expenses paid by an oversea Holding Company to a Labuan life broker subject to GST?
    The GST treatment for the marketing services provided by the Labuan life broker in Labuan or Malaysia to the oversea holding company will be zero rated.
    23. If a licensee purchase insurance from a Malaysian Insurance company for its assets (moveable & immoveable), is it subjected to GST?
    Yes it is subject to GST.
    TREATMENT FOR TREATY AND FACULTATIVE
    24. Is there any suggested wording/clause from Royal Malaysia Customs (which can be used as reference) that is appropriate for reinsurance contract, both treaty and facultative.
    None. It is suggested that the parties entering into contract mutually agreed to an appropriate clause.
    25. Does the guideline consider insurance/takaful and reinsurance/retakaful inter-related, hence they belong to the same chain or they are considered as separately?
    They are treated as the same.
    26. The treaty reinsurance for Marine Cargo and Hull is normally arranged under one combined treaty. For direct insurance, the 2 mentioned classes are considered as zero-rated insurance policy. Is the same understanding applied to treaty reinsurance (Proportional and XSL) arranged to cover Marine Cargo and Hull?
    They are treated as the same.
    27. Travel Insurance is normally classified under Personal Accident Portfolio and the reinsurance cover is arranged on combined basis with other PA products. As Travel Insurance is zero-rated insurance policy and the other PA product might be subjected to standard GST rate, please advise how GST is to be charged on the reinsurance cover (Proportional and XSL).
    Relevant apportionment is required as the insurance cover consists of standard rated supply (PA) and zero rated supply (travel insurance).
    28. For classes like Fire, Engineering and General Accident (GA) treaty, it is common to note that overseas risks with Malaysian Interest can be ceded into Proportional Treaty or protected under XOL treaty. Therefore, where premium consists of domestic and overseas risks, we would like to know how GST will be charged under these circumstances.
    Relevant apportionment is required for insurance covering both domestic and overseas risk.
     
    There may be two GST treatment:
    • Where the single general policy covers the domestic and international component of the risk, the insurance services is subjected to GST at zero rated. 
    • Where there are two separate policies where one covers the international component and another covers a domestic risk, the coverage outside Malaysia is zero-rated and the latter is standard rated.
    29. With reference to "Relief of Tax on Specific Insurance Services Spanning 1 April 2015", we gather that for Motor Insurance and Fire Insurance supplied before 1 April 2015 and the services span 1 April 2015, the premium charged and paid in full or in part before 1 April 2015 for that supply is not subject to GST.
    • For Proportional Treaty, Statement of Account (SOA) (captured transactions ceded during the period) is normally rendered and settled on quarterly basis, and in very rare case, on half yearly basis. For example, a Fire Surplus treaty is arranged from 1 January 2015 to 31 December 2015. The 1st Quarterly SOA (Jan to April) is rendered in May 2015. Please confirmed is it under the "Relief of Tax on Specific Insurance Services Spanning 1 April 2015", GST is not applicable for the transactions booked under 1Q 2015 SOA and subsequent transactions booked from 2nd Quarter 2015 onwards will be subjected to GST. 
    • For XOL Treaty, price for the annual cover is determined prior to treaty inception and Minimum Deposit Premium (MDP) will be charged over 4 quarters in equal amount. In this example, a Motor XOL is arranged for the period from 1 January 2015 to 31 December 2015. On the same understanding, kindly advise if MDP for 1Q 2015 is not subjected to GST and MDP for 2Q, 3Q and 4Q 2015 are to be charged with GST.
    The premium charged and paid in full or in part before 1 April 2015 for the insurance coverage is not subject to GST.
    30. In certain circumstances, there could be involvement of a few reinsurance brokers in arrangement of treaties. This is considered as Co-brokers Arrangement. In certain situation, each reinsurance broker will administer reinsurance premium/claim directly with reinsured while in other situations, only the lead reinsurance broker will deal with reinsured on premium / claim matter. This is more or less like the co-insurance plan where the GST treatment has been narrated under "Guide on Insurance and Takaful" FAQ / Co-insurance Plan / Q27 and Q28 (pg 38 to 40). We wish to find out if the same treatment is applicable to Co-brokers Arrangement under Treaty Reinsurance.
    Yes, GST treatment is the same for all taxable person making taxable supplies.
    31. For facultative reinsurance, individual risk/insurance is offered to reinsurer for facultative support. In view of this, it is not shown in a portfolio of risks. Despite the case, as this is still a type of reinsurance, our understanding remains with the statement made under GST guidelines for Insurance and Takaful i.e. determination of treaty of GST on reinsurance premiums is not based on the underlying policies. Please confirm if the concept on GST as applied to Treaty Reinsurance is similar to Facultative Reinsurance.
    Yes, GST treatment is the same for both treaty reinsurance and facultative reinsurance.
    DEEMEND INPUT TAX CREDIT - CASH PAYMENT
    32. The insurer/takaful operator is entitled to a credit of input tax deemed incurred known as "deemed input tax credit" subject to all of the following conditions:
    • Where cash payment is made in pursuant to an insurance policy that attracts GST at a rate of 6%;
    • Where cash payment is made to the insured who is not registered for GST on the effective date of the insurance policy; 
    • Where cash payment is made pursuant to an insurance policy where the input tax is excluded from any credit such as medical insurance policy or personal accident insurance policy and the insured is a registered person. 
    • Where cash payment is made pursuant to an insurance policy to an insured who is a GST registered sole proprietor and he uses the insurance policy other than for the purpose of carrying on his business (personal use). 
    • Computation of deemed input tax credit 
    • Manner to claim deemed input tax credit (Para 20) 

    Please provide clarification on the above statements.
    Please refer to GST “Guide on Insurance and Takaful as at 22 October 2014 Paragraph 21 issued by Customs.
    INPUT TAX RECOVERY
    33. GST was charged by a Malaysian Insurer to the policy acquired by a Labuan Captive Insurer. Can the Labuan Captive claim the input tax?
    Only goods and services acquired for in the course or furtherance of business is claimable provided that the Labuan captive is a GST registrant. The Labuan captive must hold a valid tax invoice in respect of a supply issued under its name.
    34. Can a Labuan insurance broker recover GST for purchases made in Malaysia? What are the pre-requisites for the directly insured to recover GST on premiums paid and against purchase made?
    Recovery of input tax can only be made by a GST registrant if the purchases made by a person in the course or furtherance of business and subjected to the requirements of Customs pursuant to section 38 and 39 of Goods and Services Tax Act 2014.
    TAX INVOICE
    35. Labuan Captive reinsure all or part of the risks ceded from a Malaysian insurer through a Broker based in Labuan to various reinsurers. The customers of a Labuan Captive/Labuan Reinsurance Broker could be based in Labuan/PCA or Oversea. The Labuan Reinsurance Broker will receive commission/brokerage for successful placement of risks with the reinsurers.
    • Since the Labuan Captive and the Labuan Reinsurance Broker are Labuan entities, does GST apply? 
    • Should the Labuan Reinsurance Broker issue tax invoice to the Labuan Captive, Labuan reinsurers or foreign reinsurers?
    • If both the Labuan Captive and Labuan Reinsurance Broker are based in Labuan which is within the DA, the transactions are not subjected to GST. 
    • Only a GST registrant making taxable supply of goods or services in the course or furtherance of business in Malaysia is required to issue a tax invoice. 
    36. Does a Labuan insurance company required to issue tax invoice on the supply of goods and services?
    All GST registrant who makes any taxable supply of goods and services in the course or furtherance of business in Malaysia shall issue a tax invoice.
    FILING OF GST RETURNS AND PAYMENT
    37. Monthly reporting for taxable turnover RM 5 million or more is administratively burdensome. Hence can the report be made on a quarterly basis especially for treaty reinsurance?
    Application can be made to Customs for the Director General’s consideration and approval for other taxable period.
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