Labuan Protected Cell Companies, the only jurisdiction in Asia to offer Protected Cell Companies
Updated: Oct 19, 2018
There are more than 40 domiciles globally offering Protected Cell Company structure, including Labuan International Business and Financial Centre (“Labuan IBFC”) offering both conventional and Shariah-compliant Protected Cell Companies. The Labuan Protected Cell Company (“PCC”) was introduced in Labuan International Business and Financial Centre in 2010 in line with the enactment of the amended legislation, Labuan Companies Act 1990. A Labuan PCC may be incorporated as a Labuan company or converted from an existing Labuan company.
A Labuan PCC is a limited liability company with a legal entity that has the ability to form “cells”. The cells of a Labuan PCC may comprise (i) a core for holding non-cell assets or general assets; (ii) 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. In the words, the core concept underpinning the Labuan PCC structure is that it acts as a single and separate entity which in turn has the ability to create multiple cells and provides these segregated cells the ability to take on differentiated assets and liabilities per cell, while allowing each cell to operate independently and providing segregation of these assets and liabilities.
This unique feature of the Labuan PCC allows a single entity with only one board of the directors, regardless of the number of cells it creates. However, the ownership of the cells and the underlying assets, on the other hand, can be held by different individuals or owners.
With its specific feature, Labuan PCC become an innovative business structures offer an alternative solution to standard corporate structures. Labuan PCC may be structured to cater for the needs of self-insuring organisations, especially the captive insurance industry. Apart from the captive insurance industry, Labuan PCC are structure in the fund management industry, as part of a larger diverse asset allocation investment strategy. It further enhance the insurance and mutual funds industries, particularly in optimising for maximum protection, benefit and the flexibility in managing risk portfolios. It can also be used as an efficient tax planning tool.
A Labuan PCC shall only conduct the following scope of activities:
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 provide 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.
The following provide examples of how the Labuan PCC unique character can be utilised:
Setting up a customised collective investment fund from scratch can be a daunting task for new investment advisers. The issues of credibility and the lack of expertise from potential customers are always called into question. To avoid these difficulties, the Labuan PCC structure may be used by an established service provider to offer a collective investment fund product to new investment advisers. It is also possible in turn for the new investment advisers to create cells or multiple cells to cater their multiple business strategies.
In addition to offering a reputable collective investment fund product to their potential customers, the new investment advisers have access to the expertise, assistance from the investment managers, and proper corporate governance.
Cost efficiency and straightforward process for group companies
For a group company consisting of the parent and its subsidiaries that addresses the problem of “cross-class liability” and the segregation of assets in a cost-effective and straightforward manner, Labuan PCC is able to reduce friction and the complications of setting up a separate subsidiary company. Additionally, the setting up of further cells or “companies” is much simpler with the framework of the core already in place.
In certain circumstances, a Labuan PCC may be a convenient and effective structure for joint venture arrangements when a particular party wishes to retain its ownership of an asset or income stream within the joint venture structure.
Shariah compliant structures
Labuan IBFC is the only jurisdiction in the region, to provide shariah-compliant Protected Cell Companies structure, providing an option for organisations that either prefers or are mandated to be shariah-compliant in their activities. For instance, companies that are interested to set up a takaful captive or plan to enter into Islamic mutual funds can consider structuring this option.
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 Labuan PCC or upon election, a maximum tax liability of MYR20, 000.00 for the Labuan PCC regardless of the number of cells or their profits in the cells within the said Labuan PCC.
If the Labuan PCC carry on Labuan non-trading activities, the company as a whole is exempt from tax in Labuan.
We, Pacific Trustees Group have more than 20 years of experience in providing trust and fiduciary services to our clients. Through our Labuan subsidiary, Pacific Trustees Labuan Ltd, we are able to assist you in the setting up of Labuan Foundations, Labuan Trusts and also assist in your private wealth planning. In addition, we are also able to assist you in the incorporation of Labuan companies to hold investments and to engage in trading activities. Please do feel free to contact us for more information.
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