The insurance industry is well established in Cyprus with a number of international insurers represented on the island. Fourteen of the 17 offshore insurance companies currently registered in Cyprus are captives. The insurance company law that governs their incorporation and operation is similar to English law although it relaxes certain provisions in the case of captives. Tax is levied on the chargeable annual profits at 4.25% and, in addition, captives may be in a position to enjoy additional tax benefits resulting from the various existing double taxation treaties between Cyprus and other countries. Offshore captives, like other offshore entities, are not subject to exchange control.
Hong Kong introduced. regulatory concessions in May 1997 to provide incentives for multinationals to establish their captives there.It achieved its first success last year.On 10 June 1999, GT Insurance (HK) Co Ltd, a wholly owned subsidiary of Itochu Corporation of Japan, was authorised to carry on captive insurance business on the island.The captive insurer handles reinsurance underwriting for the Itochu Group which ranks sixth on the list of the Fortune “Global 500” and has been strengthening its insurance operation in Asia. As part of its strategic rationalisation, Itochu Corporation relocated its captive insurance business from Singapore to Hong Kong.
Angel Hon of the Office of the Commissioner of Insurance (OCI) says that the attractions of Hong Kong as a captive domicile include its sound regulatory framework, government support (the government of Hong Kong advocates and practises a regulatory policy characterised by the maxim “maximum support and minimum intervention”), excellent banking services provided by some of the world's leading banks, free flow of funds and the support of well developed professional services and advanced telecommunications facilities.It also has a simple tax regime with a corporate tax rate as low as 16%, while the maximum rate of personal income tax is 15%.There is no value added tax or capital gains tax, and dividend and interest income are not subject to tax.Tax exemption is granted to profits arising from offshore interest and sales of overseas investments even if the profits are received in Hong Kong. Hong Kong's close proximity to the huge market of China may give it added appeal.With its open door policy and gradual deregulation of the insurance industry, China is expected to grow very fast economically over the next few decades. Hong Kong is strategically positioned to serve the insurance needs of undertakings in this fast developing economy.
Labuan, located in the centre of East Asia, offers a convenient place to establish a captive for large companies and groups with businesses in the region. Licensing and operation of Labuan captives is governed by the Offshore Insurance Act 1990 (OIA), which provides for a realistic margin of solvency requirement and the flexibility to adopt any recognised accounting standards, investment guidelines, reserving methods and product-designs in accordance with the nature of business. A Labuan captive also has the option of whether to establish its own resident management team or appoint an underwriting manager to operate its business in Labuan. In addition, the operation of a Labuan captive is free from exchange control regulations when dealing with non-residents.
A captive in Labuan operates in a competitively low tax regime of either 3% of net profit or a fixed rate of RM20,000. The option to choose the basis of payment of tax can be exercised every year. It could also benefit from the double taxation agreements between Malaysia and over 40 countries. In addition, expatriate professionals and managers are given 50% tax abatement thus 14.5% is the top rate instead of 29%.
At present, the Labuan insurance industry comprises a mixture of big and small players to support a free insurance market. As at 31 October 1999, there were 15 professional reinsurers, 3 general insurers, three life insurers and six captives licensed in Labuan. In addition, there were several licensed insurance-related companies such as insurance brokers (21), insurance underwriters (4) and insurance managers (3). They are well spread in terms of their countries of origin, with Malaysia (13), United Kingdom (8), Singapore (8), Bermuda (7), BVI (3), United States of America (3), Australia (3), Hong Kong (3), Canada (2), Sweden (2), Switzerland (2) and one each from Cayman Islands, Ireland, Japan, Indonesia, Philippines, Saudi Arabia, Tunisia, Netherlands, Guernsey, France, Cyprus and Brunei.
The Labuan Offshore Financial Services Authority says that, in times when traditional centres are becoming unsustainably expensive, pressurised by parent and neighbour countries, over-regulated and overcrowded, Labuan offers a very real, credible alternative as a base for captive operations.
There were 261 captives registered in Luxembourg as at 31 March 2000, according to the Commissariat aux Assurances. Captives' premium volume for 1998 was 101 billion Luf (1999 figures are not yet available).
The fact that it was only attractive to form reinsurance rather than direct writing captives in Luxembourg has hampered the country's captive insurance growth in recent years. Luxembourg has a tax rate of almost 40% on direct writers and does not make any concessions to foreign- owned companies. However, the ability to set up large equalisation reserves in reinsurance companies, and offset the contributions to them against tax, made reinsurance captives popular until the introduction of controlled foreign company tax legislation (CFC), that did not recognise the contributions as allowable against tax. It remains to be seen whether Luxembourg can overcome threats to its tax advantages, allowing it to continue in its role as an established captive domicile.
The number of captives domiciled in Singapore fell by one in the year ending 31 March 2000. The island continues to compete vigorously to attract newcomers, with a beneficial fiscal policy.
Taxation in Singapore is subject to the Income Tax Act. The corporate tax rate in Singapore with effect from year of assessment 1997 is 26%. However, captive insurers can enjoy a concessionary rate of 10% on:
- offshore premium income;
- shareholders' funds used to support the offshore insurance business.
Captive insurers who wish to obtain the 10% concessionary tax rate must apply in writing to the Monetary Authority of Singapore within three months of starting to write offshore insurance business.
Part of its conducive fiscal regime for foreign investments includes the double tax agreements which Singapore has established with many countries, including: Australia, European countries (including UK), India, Japan, Korea and United Arab Emirates.
According to the Federal Office of Private Insurance, the number of captives registered in Switzerland rose by two to 17 in the year ending 31 March 2000.
These figures, however, relate purely to captives doing reinsurance business only. Figures for direct insurance captives are not available since, under Swiss law, these are treated as “normal” direct insurance companies. Switzerland does not believe that tax incentives are the way forward to attracting captive insurer business although, where income to a captive is from a foreign source, the company benefits from a low rate of tax of 11%.
While Switzerland has negotiated a number of tax treaties with other countries (including the EU, the Nordic countries, USA, Japan, Korea and Singapore), its exclusion from the EU means that it has not got the advantage of the single European passport.