What makes Malta so attractive as a hedge fund domicile?
The primary catalyst for the exponential growth of Malta’s financial services industry was the island’s accession to the European Union in 2004, which effectively introduced ‘passporting’ rights so that Malta-registered funds may be passported to any other EU country, with instant access to the EU’s internal market of over 500 million people in 28 EU economies.
This EU passport coupled with an ‘onshore’ robust and comprehensive regulatory framework and bolstered by unparalleled cost- and tax-efficiency crystallised Malta’s current role as a European hub for financial services.
How is Malta’s fund sector regulated?
The Malta Financial Services Authority (MFSA) is the single regulator for financial services in Malta. It regulates and supervises credit and financial institutions, investment, trust and insurance business and also houses Malta’s central Companies Registry.
The Investment Services Act (Chapter 370 of the laws of Malta) establishes the principal regulatory framework governing investment services and Collective Investment Schemes or funds and any investment fund operating in or from Malta is required to procure a licence from the MFSA.
What type of funds may be established in Malta?
The current MFSA Investment Services Rules provide a regulatory framework for the following types of investment funds:
- retail funds (including Maltese non-UCITS and UCITS schemes);
- non-retail funds including Alternative Investor Funds (AIFs) and Professional Investor Funds (PIFs).
Self-managed AIFs which have assets under management in excess of €100 million, or €500 million if the AIF is unleveraged, will be required to operate within the heightened regulatory strictures of the AIFM Directive. Operators not exceeding the said prescribed thresholds qualify as ‘de minimis’ AIFMs.
The Maltese regulatory framework also provides for ‘private funds’. Unlike other fund structures, ‘private funds’ escape full licensing, instead requiring ‘recognition’ by the MFSA.
Maltese funds may also established as “umbrella” type structures, whereby the assets and liabilities of each sub-fund are treated as a patrimony separate from the assets and liabilities of each other sub-fund of such company.
What are the tax benefits of establishing a fund in Malta?
Malta-registered funds are generally not subject to Malta tax.
When properly structured, such schemes would benefit from the following:
- No income or company tax is imposed on hedge funds having more than 85% of their underlying assets situated outside Malta;
- No tax on the Net Asset Value of the fund;
- No withholding tax on dividends paid to non-residents;
- No taxation on capital gains on the sale of units by non-residents;
- No stamp duty on issues or transfers of units.
Which fund vehicles are available in Malta?
Under Maltese law, funds may take the following legal forms:
- an investment company constituted by Memorandum and Articles of Association (i.e. SICAVs and INVCOs);
- a commercial partnership constituted by means of a partnership deed;
- a unit trust constituted by a trust deed between a management company and a licensed trustee (regulated by the Trusts and Trustees Act); or
- a mutual fund established by way of contract (otherwise referred to in civil law jurisdictions as “fond commun de placement”);
How are the assets of a Malta fund managed?
The fund may be structured in one of two ways:
- Managed by an external fund manager, holding the necessary authorisation/s; or
- A self-managed fund.
Are there any minimum capital requirements?
If the self-managed fund route is followed, the NAV of the scheme must not be less than €125,000 for PIFs and €300,000 for AIFs, or the equivalent in any other currency, on an on-going basis.
How long is the licensing process expected to take?
Ordinarily, the licensing of a fund in Malta may take anything between 3 to 6 months. This would also be heavily dependent on the quality of the original submission documents and on response times to requests for any clarification/s and/or additional information.
What does Malta’s funds industry mean to the Maltese economy?
Financial services and the funds sector in particular, now represent a major force in the country’s economy, contributing approximately 13% to the country’s GDP. This growth has resulted in the establishment of some 600 investment funds with a combined net asset value (NAV) of circa €10 billion. 98% of all foreign direct investment in 2014 stemmed from financial services and insurance.
Malta was affirmed the ‘most favoured domicile in Europe’ by the prestigious Hedge Funds Review in its Service Provider Rankings in 2013 and 2014 and has also retained its status as one of the most advanced global economies and was ranked amongst the top twenty financial services jurisdictions worldwide by World Economic Forum.
