Join us to promote Toronto insurance business to migrate to local captives

Where multinational companies choose to insure their business risks has become an increasingly important strategic and financial decision. For decades, jurisdictions such as Barbados have attracted foreign-owned insurance companies through favourable tax arrangements ( a 2 % tax on profits )  and specialised regulatory frameworks. However, changing international tax rules are prompting businesses to reconsider some of these structures. As Canada tightens its approach to offshore insurance arrangements and simultaneously deepens its economic relationship with the European Union, opportunities could emerge for established European financial centres such as Malta. One area where these developments could have an impact is captive insurance, a model that allows businesses to manage some of their insurance needs within their own corporate groups.

Barbados has historically been an important domicile for Canadian-owned captives. The Barbados International Business Association reported that Canadian-owned captives accounted for 43% of its captive market in 2025, down from 51% in 2021. Historically, qualifying profits from non-Canadian insurance business could benefit from Canada’s foreign-affiliate rules and be distributed to a Canadian parent as “exempt surplus”. The Canada–Barbados double-taxation treaty, signed in 1980, formed part of the wider framework. However, this was never an automatic route to tax-free profits. A 2011 protocol, effective from December 2013, excluded entities benefiting from specified Barbados tax regimes, including certain insurance regimes, from many treaty benefits.

Those rules are central to the latest development. Under Canada’s foreign accrual property income (FAPI) regime, certain income earned by a controlled foreign affiliate is included in its Canadian parent’s taxable income, even if profits remain offshore. Existing provisions already treat income from insuring or reinsuring specified Canadian risks as FAPI. These generally concern risks linked to a Canadian resident, property in Canada or a business carried on in Canada.

In July 2026, Canada’s Department of Finance published draft legislation proposing to clarify how the rules apply when a foreign affiliate holds investments backing Canadian insurance liabilities, even though another company in the group actually underwrites the policies. The aim is to prevent investment income from falling outside the rules simply because the assets and insurance contracts sit in separate entities. The proposal is not a blanket ban on offshore captives, nor does it target assets backing genuine non-Canadian risks. While it remains draft legislation, the proposed effective date is for foreign-affiliate tax years beginning after 4 November 2025, if enacted.

For Canadian companies primarily seeking to insure domestic risks, moving a captive from Barbados to another foreign jurisdiction would not, by itself, remove Canadian tax exposure. An alternative could instead be to bring the insurance structure back onshore. Alberta has developed its own captive framework, and industry commentary published in October points to companies moving Canadian risks back there, citing regulatory flexibility and potential premiums  tax  of 3% on life ,general insurance whereas 4 % on property, casualty etc and an 8% general corporate tax.

For businesses with substantial international operations, however, the considerations may be different. Rather than simply bringing their insurance activities back to Canada, multinational groups may be looking for a regulated base from which to manage risks across several markets. This is where Malta could enter the picture. The Malta Financial Services Authority (MFSA) authorises and supervises insurance and reinsurance undertakings, including captives, under a framework aligned with EU insurance rules. An authorised Maltese insurer can, subject to regulatory requirements, use the EU’s passporting system to operate across the European Economic Area. Malta also offers protected cell company structures, which segregate the assets and liabilities of different insurance programmes within one corporate structure. Its legislation further provides for captives and, subject to conditions, the continuation in Malta of an insurer established elsewhere.

These features may interest Canadian-owned groups with subsidiaries, employees, property or supply chains across Europe. A Maltese captive could provide a regulated base for pooling and managing those non-Canadian exposures, rather than serving as a device to move Canadian insurance income offshore. Any structure would still need to meet Canadian tax rules, EU prudential requirements and the commercial substance expected of a genuine insurer.

The potential opportunity also coincides with a broader shift in EU–Canada relations. At their 30 October 2026 summit in Montréal, leaders launched the Canada–EU Alliance for the Future, identifying financial services and markets as a priority for closer cooperation and aiming to increase cross-border capital flows and access to financial services. They also agreed to define by the 2027 summit the concept of a closer association, short of EU membership.

 In the past PKF Malta was active in promoting captives in Toronto to set up locally and with the approval of MFSA we shall book another promotional visit for 2027.For the Island, this emerging relationship may present an opportunity. Canada’s tax proposals may prompt multinational groups to review how they organise insurance risks and supporting assets, while closer EU–Canada ties could reinforce their interest in European markets. In anticipation of FDI , may be in offering internationally active Canadian businesses a well-regulated European platform from which to insure and manage their European and other foreign exposures.

Dr Lina Klesper is an International Legal Assistant at PKF Malta