Malta has established itself as a leading international hub for Protected Cell Companies (PCCs) and Incorporated Cell Companies (ICCs), offering unique opportunities for businesses, particularly in the insurance and investment sectors. Both structures, although distinct, provide a cost-effective and flexible corporate vehicle for the segregation of assets and liabilities within a single company framework.
Malta remains unique within the European Union as the only member state with legislation covering both PCCs and ICCs. PCC legislation was first introduced in 2004 through the Companies Act regulations and was further refined in 2010. In 2010, recognizing the need for more sophisticated structures, the Malta Financial Services Authority (MFSA) introduced ICC regulations, which became effective in early 2011. These regulatory frameworks provide a flexible corporate environment suited for evolving business needs, ensuring compliance with both national and EU-wide standards across multiple sectors.
What are the key differences between a Protected Cell Company (PCC) and an Incorporated Cell Company (ICC)?
The main difference between PCCs and ICCs lies in the legal status of their cells. In a PCC, the individual cells do not have separate legal identities from the core company. While the assets and liabilities of each cell are segregated to protect against cross-cell liabilities, they remain part of the same legal entity. The core company is responsible for overseeing regulatory compliance and corporate governance for all cells, and a cell itself cannot enter into contracts, sue, or be sued independently. Typically, PCCs are widely used for insurance-related activities, providing a cost-effective solution for companies that need to segregate risks across different insurance portfolios.
Example: A reinsurance company may establish separate cells for auto reinsurance, property catastrophe reinsurance, and casualty reinsurance, ensuring that the risks of each market are segregated while benefiting from operational efficiencies under one PCC.
In contrast, ICCs provide each cell with its own distinct legal personality, allowing the cells to function as separate entities under the larger ICC umbrella. Each incorporated cell (IC) can independently enter into contracts, sue, or be sued, and is fully responsible for its liabilities. This structure enhances flexibility and security for stakeholders and is particularly suited for more complex setups. ICCs are commonly utilized in the financial services and investment sectors, particularly for collective investment schemes, where each incorporated cell acts as an independent investment vehicle. ICCs are also ideal for businesses that want operational autonomy for each unit but benefit from the larger ICC umbrella for administrative oversight.
Example: A global asset management company might establish an ICC in Malta, with each incorporated cell dedicated to different investment strategies such as equity, bonds, real estate, or hedge funds. Each cell can raise capital and operate as an individual investment fund, providing a clear legal separation between different investor pools.
Categories of ICCs:
- SICAV ICC: This form of ICC operates as a collective investment scheme (CIS) and is licensed to perform investment-related activities. It is specifically regulated for activities associated with collective investment schemes, allowing incorporated cells to act as individual investment vehicles under a larger SICAV structure. The ICC in this case can be formed, continued, or transformed as an ICC, limited to collective investment activities under the applicable regulations.
- Recognised Incorporated Cell Company (RICC): Unlike the SICAV ICC, an RICC does not engage in any licensable activities. Instead, it provides purely administrative services to incorporated cells within the platform structure. The RICC is a limited liability company recognized by the MFSA and operates as a platform facilitating the management of incorporated cells, but it cannot act as a Recognised Fund Administrator.
The legal separation of ICC cells also facilitates smoother exits or transformations, as cells can migrate or change legal forms without disrupting the entire structure. This makes ICCs particularly appealing for investment funds and captive insurance businesses looking for higher autonomy for each business unit.
What advantages does Malta offer over other jurisdictions for setting up a cell company?
Malta’s appeal as a jurisdiction for establishing PCCs and ICCs is driven by several key factors:
✔ Flexible legal framework tailored to cell companies: Malta offers a robust and flexible legal framework for the establishment and regulation of PCCs and ICCs. Since the introduction of the cell company concept in 2004, the Maltese legal system has continuously evolved to ensure compliance with European Union regulations, giving companies different structuring options depending on their needs. Moreover, Malta’s legislation allows the transformation between different cell structures (e.g., from a PCC to an ICC), enhancing business flexibility. This comprehensive legal approach provides companies with options for efficient risk management and expansion.
✔ Strategic access to the EU market: As a member of the European Union, Malta provides significant advantages for companies looking to expand their reach. PCCs and ICCs established in Malta can benefit from the EU’s passporting rights, allowing them to operate and offer services across all member states without the need for multiple legal entities in each country. Malta’s position as a gateway to the European market makes it an attractive jurisdiction for international firms.
✔ Supportive regulatory environment and cost efficiency: The Malta Financial Services Authority (MFSA) plays a key role in creating a favorable regulatory environment for businesses. The MFSA offers guidance and streamlined processes for setting up and managing PCCs and ICCs, ensuring compliance with both local and EU regulations. Additionally, Malta’s competitive operational costs make it a more cost-effective alternative compared to other financial hubs in Europe.
What is the role of the Malta Financial Services Authority (MFSA) in regulating cell companies?
The MFSA ensures that PCCs and ICCs operate within the legal framework established by Maltese law and the relevant EU directives, such as Solvency II for insurance-related businesses. The MFSA is responsible for issuing licenses to both the core and the individual cells, ensuring that they meet the regulatory requirements and maintain adequate capital and governance standards.
For PCCs, the MFSA ensures a clear separation of assets and liabilities between the core and its cells, safeguarding against cross-liability risks. In the case of ICCs, the MFSA treats each incorporated cell as a separate legal entity, requiring individual regulatory checks for each cell. Additionally, the MFSA supervises the establishment, ongoing operations, and winding up of cells, ensuring they adhere to regulatory requirements throughout their lifecycle. By fostering a supportive regulatory environment, the MFSA helps businesses grow while ensuring compliance and protecting investor interests.
What are the capital requirements for a PCC in Malta under Solvency II regulations?
Under the Solvency II framework, the capital requirements for PCCs in Malta are designed to ensure that both the core and its cells maintain sufficient capital to cover their operational risks. The core is required to meet a minimum capital requirement (MCR) based on its insurance or reinsurance activities. The MCR typically ranges from €1.2 million to €3.7 million, depending on the nature of the business.
In addition to the core, each cell within a PCC must calculate a notional Solvency Capital Requirement (nSCR), which is derived by aggregating the risks associated with the cell’s specific activities. While the cells’ assets are protected and cannot be used to meet the liabilities of other cells, the core’s capital can be used to cover the deficits of individual cells, provided this is stipulated in the cell agreements.
If a cell operates under a non-recourse agreement, it must maintain its own solvency ratio without any access to the core’s capital. This ensures that each cell within a PCC is sufficiently capitalized to meet its obligations independently, promoting financial stability across the structure.
What are the tax benefits of establishing a PCC or ICC in Malta?
One of the most attractive features of establishing a PCC or ICC in Malta is the favorable tax regime. Malta operates a full imputation tax system, which ensures that the tax paid by a company can be credited to the shareholders, reducing the incidence of double taxation. Additionally, the structure of PCCs and ICCs allows for efficient tax planning, particularly in the allocation of profits and losses across cells.
Malta offers a range of tax incentives for international businesses, including tax credits, exemptions on certain income types, and a highly competitive corporate tax rate, which can be as low as 5% after refunds on distributed profits. Companies can also benefit from Malta’s extensive network of double taxation treaties, which provides relief from withholding taxes on dividends, royalties, and interest.
For companies engaged in insurance or investment activities, the ability to segregate assets and liabilities within cells can lead to further tax efficiencies, particularly in cross-border operations. This, combined with Malta’s robust regulatory framework, makes the jurisdiction a prime location for establishing and managing PCCs and ICCs.
At LINDEMANNLAW, we offer comprehensive support from structuring and licensing to ongoing compliance and transformation. Our in-depth knowledge of Malta’s unique legal framework allows us to provide tailored solutions for businesses in the insurance, investment and other sectors, ensuring compliance, efficiency and optimal tax structuring. With our close relationships with the Maltese regulatory authorities, we ensure a smooth set-up and operational process, effectively guiding you through every stage. Contact us today to explore how we can assist with your cell company needs.
