InsurancesInsurance is:a contract whereby one person (the insurer) undertakes to compensate another person (the assured) by paying him a sum of money on the happening of a specific eventThe consideration of the insurers promise is the payment by the assured premium

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InsurancesCategories of Insurance Business:Life insuranceGeneral insuranceboth will be treated as separate source of insurance business

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TerminologiesActuary - person evaluate risk and financial consequences.Re-insurance minimize risk, offload their risk to another insurer (not alone, and vulnerable to large unexpected loss)Reserve fund for unexpired risk intention to cover insurers potential to risk for general insurance still in force *

TerminologiesActuarial surplus- applies for life insurance, the actuarys assessment of the excess of life funds held over the amount needed to be held back to cover future claims.*

LIFE INSURANCE BUSINESS

The operator will be deemed to have 2 source of income life fund & shareholders fundIf an insurance co also carries on: life re-insurance business and inward life re-insurance business, both businesses shall be separated from life insurance business and shall be treated as general insurance business sources

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Scope of charge:

Resident - world basis - is taxed on income derived from investments or sale of investments made out from life fund or s/holders fund - entitled for bilateral or unilateral reliefNon-resident - is taxed on income from investments and sale of investments from the Malaysian life fund, whether arising from Malaysia or elsewhere * Malaysian life fund: the fund established pursuant to S38 of the Insurance Act 1996 in respect of life business

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Life InsuranceIncome of life fund refer as Malaysian Life Fund (Insurance Act 1963) all receipts attributable to life business including investment made from life fundIncome from shareholders fund in respect of life business - funds representing his capital and other resources not required by Malaysia life fund.*

Resident Life Insurance Business:

1. Types of income (S60(3), S60(3A)

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Life Fund: S60(3)S/holders fund:S60(3A)Gross income from investments made from any of the insurersLife fundS/holders fundGross proceeds (whether or not of an income nature) which are first receivable in that period in connection with the realization of those investment or any rights fromLife fundS/holders fundThe amount of the actuarial surplus from the life fund that is transferred to the s/holders fundN/AS/holders fund

Life Insurances2. Gross premium for life insurance policies The premium received is not to be treated as profits of the insurerthe actuarial surplus (transferred from life fund) is taken as gross income of the s/holders fund (income)the actuarial deficit (transferred to the life fund) is deducted from s/holders fund (deductions)no deduction is given for claims paid or payments made on maturity of life policies

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Life Insurances3. Types of expenses:[S60(3)(b), S60(3A)(b)]

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Life Fund:S60(3)(b)S/holders fund:S60(3A)(b)The cost of acquiring and realizing the investment or rights arising fromLife fundS/holders fundAmount transferred from the s/holders fund to set off the actuarial deficit (subject to any adjustment as the DG may think fit) for that period arising from the life fundN/AS/holders fund

Life InsuranceCommission and management expenses are not allowed as deduction against gross income to derived adjusted income.*

Life InsurancesThe treatment of capital allowance [S60(4B), S60(10B), S60(10C)]the adjusted income from the s/holders fund is deemed to be statutory income of that source

unabsorbed & current year capital allow of life insurance business shall only be set off against the adjusted income of the life fund of the insurer

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Life InsurancesThe treatment of losses S60(10A):Any unabsorbed losses in respect of the life business shall only be set off against the statutory income of the life fund.

Current year loss:The act is silent; normal tax treatment under S44(2) is accorded (allowed in arriving total income)

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Life InsurancesTax rate and S108 accountLife fund:the chargeable income is levied at 8% taxNo franking of dividend (No exemption account)tax payable is not allowed to be credited to S108 account

S/holders fundthe CI is taxed at 25%tax payable is credited to S108 account and available to frank dividend to its s/holders

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Tax Format Life Insurance*

Life FundShareholders FundDividend IncomeXXInterest IncomeXXRental IncomeXXGross proceed on realisation of investmentXXActuarial surplus transferred from life fund to s/holders fundN/AXLess:Cost of acquiring and realizing investmentManagement ExpensesN/AN/AAdjusted income

Tax Format Life Insurance*

Life FundShareholders FundLess: CA b/fCurrent CAXN/AStatutory incomeXXLess:Unabsorbed losses b/fXN/A

Chargeable incomeXXTax rate8%25%Income TaxXXLess : sec 110XXTax payable

Non-resident life insurance business

The tax treatment is the same as the resident life insurance businessLife fund: refer to the Malaysian life fund onlyS/holders fund: refer to non-resident s/holders fund

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GENERAL INSURANCE

comprises of marine, fire, accident, motor, engineering, aviation, burglary and public liability insuranceInward re-insurance - re-insurance policies where the risk is outside Msia and original policy issued by NR insurer (not a branch in Malaysia) or by resident insurer through a branch outside Msia.Offshore insurance - risk is outside Msia issued by resident insurer or NR through a branch in Malaysia. Risk in transit in Msia deemed to be outside Msia

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Adjusted IncomeIncomeGross insurance premiums received less returnsOther gross income fr general insurance including commissions and income fr investment of general businessGross proceeds of realising such investmentAmount received or receivable under re-insurance contractsReserve for unexpired risk at the end of the previous period*

Adjusted IncomeLess : DeductionsClaims in connection with general insurance policiesRe-insurance premiums payableCommission payable and discounts allowedManagement expensesReserve for unexpired risk at end of the current periodCost of acquiring and realising any investment disposed,

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General InsuranceTypes of income [S60(5)(a)]Gross premium first receivable in that period in respect of general policies (less any premium on general policies returned)Other income including commission, interest or other income held in connection with that businessGross proceeds (whether or not of an income nature) which are first receivable in connection with the realization of those investments or rights arising from themAny amount recovered/ recoverable under reinsurance contractsReserve fund for unexpired risks (opening balance)

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General InsuranceTypes of Expenses [S60(5)(b)]a)Claims incurred in that period in connection with general policiesB)Re-insurance premium payable in that period in connection with general policies, if the re-insurer does not have a business/branch in Msia, only 95% of the amount is deductible [S60(7)]*

General Insurancec) commission payable and discounts allowed in connection with gen bussd) management expenses incurred in connection with gen busse) reserve fund for expired risk (closing balance)f) the cost of acquiring and realizing the investments or rights

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General InsuranceReserve fund for unexpired risk [S60(9)]an estimate of future liabilities which will be incurred on existing gen ins policies i.e a provision for unearned premiumthe unearned premium would not be recognized as income as the risk has not been expiredis ascertained as follows:25% of the net adjusted premiums in respect of marine, aviation, transit policies40% of the net adjusted premiums of accident, fire and other gen ins. (prior to 2001)*

General InsurancePrior to 2001 :40% net adjusted premiums of accident, fire and other gen ins. YA2001 onwards: the amount calculated for accounting purpose is accepted, provided consistently used.*

General Insurancenet adjusted premium = difference between the gross premiums receivable and the amount of re-ins premiums payable (being the 95% if paid to a re-insurer who does not carry on re-insurance in Malaysia orinsure such risk through a Msian branch or 100%)*

General Insurancenote: marine, aviation, transit, accident etc ins would be aggregated as one source (gen ins)The segregation is only used to compute the reserve fund for unexpired risks

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General InsuranceReinsurance premiumsNon-resident gen ins, offshore ins and inward reinsurance:may elect that no deduction shall be made for reins premiums payableany amounts recoverable under re-ins contracts shall not be taxed

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General InsuranceInward re-insurance business (S60A)Definition [S60(11)]Any re-insurance of a risk under a gen policy where the risk is outside Msia and the original insurance policy:Is issued by an insurer who is not resident in Msia (but not issued by a branch in Msia of such insurer); orIs issued by a foreign branch of an insurer resident in MsiaRisk in transit in Msia shall be deemed to be outside Msia

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General Insurancethe adjusted income is to be calculated in the same manner as for general insurance businessinsurance carries all general business in one operation.Mgmt expenses and capital allowance need to apportion btwn diff types of general business.*

Tax Ratethe tax rate on chargeable income 5% (for inward re-insurance and offshore insurance for both resident and non-resident) for resident inward re-ins and offshore ins co, CI after tax shall be credited to an exempt account (two tier basis)Normal corporate rate 25% for general insurance with a reduced rate for SME.

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General Insurancewhere mixed insurance business is carried on, the CI is arrived at with reference to the statutory income from inward reinsurance buss and the aggregate statutory income from all sources of the insurer

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General InsuranceLife-reinsurance businessWhere life-reins buss is carried on together with life ins buss, it shall be treated as separate source and regarded as general business reserve fund for unexpired risks will be substituted with actuarial valuation reservepremium from life-reins will be taxedclaims and management expense would be deductible

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General InsuranceInward life re-ins businessWhere inward life-reins buss is carried on together with life ins buss, it shall be treated as separate source and regarded as general business The tax treatment is the same as inward re-ins buss with the preferential tax rate of 5%.

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General InsuranceOffshore Insurance Buss (S60B)Definition:S60(11) insurance of risk under a general policy where the risk is outside Msia and the policy of insurance is issued by an insurer resident in Msia or by a branch in Msia of an insurer not resident in Msia.Any risk in transit in Msia is deemed to be outside MsiaSpecial incentive and computation of CI is similar to inward reinsurance bussThe tax rate is 5% (both for resident and non-resident)Exempt dividend: For a resident, the CI after tax shall be credited to an exempt account

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Tax Format General insurance*

General InsuranceInward Re-insurance

Income:Gross premium less returnsCommission receivableInterest, dividend, rent , investment income)Sale proceeds of investmentAmount recovered under re-insuranceBalance b/f of reserve fund for unexpired risk

Tax Format General insurance*

General InsuranceInward Re-insuranceLess : allowable expensesClaims incurred for general policiesRe-insurance premiums payable(100% allowed if re-insured in Malaysia)(95% allowed if re-insured outside Malaysia)Commission payableDiscount allowedManagement expensesCost of acquiring investment or rightsExpenses incurred on sale of investment/rightsBalance to be c/f of reserve fund for unexpired risk

Tax Format General insurance*

General InsuranceInward Re-insuranceTotalGross Income Allowable expensesAdjusted IncomeXxXCapital allowancexxXStatutory IncomeXXXAgregrate IncomeXLess: current loss donations (limit 10%)XXChargeable income (CI)X

Tax Format General insuranceApportionment of CI and Tax payable SI(Inward Re-Ins) ------------------------ x CI X TR (5%) = Total SI (Inw+Gen) Tax on Inward Reins + tax on General less sec 110Exempt Account (only for Inward Re- Ins and Offshore (CI-Tax payable)

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