Taysun Corporate Services Ltd

Protected Cell company

Under the Protected Cell Company (PCC) Act 1999 which came into force in January 2000, a PCC is a single corporate personality which may create one or more cells.  The Act enables a company holding a Category 1 Global Business Licence, from the Financial Services Commission, to create cells within its capital for the purposes of segregating the assets within that cell from claims related to other assets.  In short a PCC provides for the division of  the assets of a company  into one or more self contained classes called “cells” for the purposes of separating and protecting individual cell assets from the threat of contamination by the failure of another cell . The cellular assets attributed to a cell will only be affected by the liability of the company arising from transaction attributable to that cell. Further, a PCC may pay dividend, cellular dividend, in respect of which the cell shares by reference only to the cellular assets and liabilities attributable to the cell in respect of which the cell shares were issued.

The creation of a PCC does not create in respect of that cell, a legal personality separate from the company.

Until recently, under the PCC Act 1999 which is in force in Mauritius since 1 January 2000, the incorporation of a company as a PCC has been limited to the business of global insurance and investment funds. However, new regulations amending the PCC Act 1999 to permit wider use of protected cell companies for global business activities have recently been adopted such that the qualified global business activities that qualify for a PCC is henceforth:

  • Asset holding
  • Structured finance business
  • Collective investment schemes and close-ended funds
  • Specialised collective investment schemes and close-ended funds
  • Insurance business
  • Incorporation as a PCC will not be authorised by the Financial Services Commission (FSC) to Category 1 Global Business Licence Companies (GBCs 1) carrying ordinary global business transactions. The requirements and documents to be submitted to FSC in case of incorporation as a global investment fund is more onerous than an ordinary GBC1.


Other salient features of the PCC Act are as follows:

  • Cell share capital may be reduced with the authorisation of the Registrar of Companies provided a solvency test is satisfied.
  • Transfer of cellular assets from one cell to another is also permissible once the proper resolution is passed.
  • A PCC offers flexibility in the allocation of capital between the core and individual cells.


MAIN CHARACTERISTICS

  • Single legal entity.
  • Legal segregation and protection of assets and liabilities for each cell.
  • No minimum capital requirement is imposed for the PCC or the cell(s) except in the case of insurance business.
  • Creation of cellular and non-cellular assets.
  • Unlimited number of cells may be provided with, each cell having its own name or designation.
  • Incorporation may be continued or converted from an existing company.
  • A formal procedure is provided for the liquidation, receivership or administration order for any individual cell.
  • An important feature of the PCC Act is the provisions for the protection of creditors. A person dealing with a PCC must be informed of the PCC status and the cell with which the relevant transactions are taking place must be identified, as stipulated in sections 11 and 13(2) respectively. Additionally, the Directors of a PCC are bound by law to keep the cellular assets separate and separately identifiable from cellular assets attributable to other cells. If a Director fails to inform a person that he is dealing with a PCC, and that person is otherwise unaware of, and has no reasonable basis for knowing, which cell he is dealing with, the Directors incur personal liability to that person in respect of the transaction. Nevertheless, the Directors have a right of indemnity against the non-cellular assets of the PCC in respect of their personal liability unless they acted in a fraudulent, reckless or negligent manner or in bad faith.


Incorporation & Registration

  • A PCC may be directly incorporated or may be registered as a foreign company by way of continuation as a PCC, provided that the incorporation and registration requirements prescribed in the Companies Act 2001 are satisfied.
  • The incorporation procedure for a PCC is similar to that of a GBC1 and, therefore the application is channelled through FSC. So once we receive all requisite details and documents from a prospective client, we prepare the application and lodge same with FSC.
  • The name of each PCC must reflect that it is a PCC and each cell must have its own name and designation.
  • Cellular assets must be both separately identifiable from non-cellular assets and separately identifiable from the cellular assets attributable to other cells. Hence, each cell must have its own distinct name or designation.


Capital Requirement

  • No minimum capital requirement is imposed for the PCC and each cell. However, on a case to case basis and depending on the nature of the business, FSC may prescribe certain capital requirements.


Cellular Assets

  • Assets of a PCC can be allocated to individual cells. Assets allocated in this way become cellular assets. They comprise the proceeds of any cell share capital and any other assets attributable to the cell. All other assets held by the PCC not allocated to individual cells are regarded as non cellular assets.
  • Transfer of cellular assets from one cell to another or to another person wherever resident or incorporated is authorised under the PCC Act.
  • Cellular assets must be both separately identifiable from non-cellular assets and separately identifiable from the cellular assets attributable to other cells.
  • Dividends are paid from the profits attributable to the respective cell.


Liabilities & Creditors

  • The assets of an individual cell are protected from being taken to satisfy the debts of any creditor who is not a creditor in relation to that cell.
  • The creditors of any one cell of a PCC are not entitled or cannot have recourse to the assets of any other cell.

If the assets of a particular cell fall short to satisfy its creditors, the creditors could have recourse to the PCC’s non-cellular assets.


Management of a PCC

  • A PCC is managed by its Directors. However, the management may be transferred or shared through a management contract to an Investment Manager in the case of collective investment schemes.
  • Each cell may be managed independently by its own Board of Directors or by the Directors of the PCC acting as nominee.


Taxation

  • As far as taxation is concerned, the PCC is taxed as an entity and has the same tax treatment as a GBC1.


USES OF PCCs

  • As provided under the PCC Act, a PCC can be used to carry out two types of global business namely global insurance business and investment funds (i.e. Collective Investment Schemes).
  • Life assurance companies can legally separate the assets of life, pension and individual policyholders.
  • Composite insurers - where the assets of life insurance business need to be legally separated from those of non-life business.
  • Conglomerates - where several cells are established, each holding a particular insurance exposure of the parent and segregated, for example, in relation to the various geographical locations, corporate division or types of risk of those exposures.
  • Insurance and re-insurance - where insurers or reinsurers can accommodate the differing needs of clients.
  • Reinsurance - where finite reinsurance contracts and securitisation issues can be placed within separate cells.
  • Multi-nationals - where companies can operate their captive insurance, treasury and other functions globally in a single entity using the same core capital.
  • Captive insurance companies - segregate distinct areas of risk and activity into different 'cells'.
  • Rent-a-captive - where the owners of the PCC offers capital financing to clients, who, because of their own size, would find it impractical to set up their own individual captive insurance arrangements.
  • This type of structure is particularly attractive for global business funds (collective investment schemes) with various classes of shares, umbrella or multi-class funds, affording each individual share class the same limited liability that would be obtained if separate corporate structures were used for each different category of investor. (NB: It is a requirement that there is pooling of investors' funds at the level of the cell).



TAXATION

  • A PCC is liable to Mauritius income tax at the rate of 15% which may be reduced to 3 % after application of the provisions on foreign tax credit.
  • Alternatively, the PCC can claim, against the nominal tax payable, credits for actual taxes suffered. These are generally of three types, namely:
  • Withholding taxes which have been retained in the source country.
  • Where the income consists of dividends received from a foreign investment, credit can also be claimed for underlying taxes which have been paid in the source country on the corporate profits out of which the dividends have been declared.
  • Tax sparing - although tax may not have been paid in the source country, credit can be claimed in Mauritius if the tax has been spared in the source country (i.e lower or zero tax rate for the promotion of industrial, commercial, scientific, educational or other development in the source country. It should be noted that the tax sparing clause is embodied in the local tax legislation and this is granted on income flows into Mauritius regardless of the ambit of a specific treaty.
  • Residual tax is often nil since corporate tax rates in most countries are above 15%.

In such a situation, the PCC may even have surplus tax credits which can go to waste. However, the entity is allowed to claim the credits against any nominal taxes payable on any type of income (interest, royalties, business profits, etc), from any source country. This makes full use of all available credits. This can be particularly attractive for holding entities which derive income from many source countries, and of different nature. The claim for underlying tax credits is available provided the PCC holds at least 5% in the foreign company paying the dividends. However, it is also available if the dividends come through a chain of intermediate holding companies before reaching the PCC, provided the shareholding at each stage is at least 5%.  

A PCC that is centrally controlled and managed in Mauritius can accede to the benefits of Double Taxation Agreements. There is no withholding tax on dividends, capital gains and interests.

Learn more about  taxation.

Filing of Accounts

  • A PCC is required to submit annual audited accounts to FSC only. If it is deemed necessary FSC may request each cell to report independently.


Conversion of an existing GBC1 into a PCC

  • The Act also offers the possibility to convert an existing GBC1 into a PCC. Regulations pertaining to conversion have already been made by the Authorities and are fully in force. Application for conversion shall be made to the FSC. A special resolution passed by the shareholders of the company authorising the conversion is required and amendments in the company’s Constitution (Memorandum & Articles of Association) are also required.