The Investment Services Act (Chapter 370 of the laws of Malta) establishes the principal legislative framework governing investment services and Collective Investment Schemes and is supplemented by a comprehensive rulebook issued by the MFSA under the said Act.
Unlike other collective investment schemes, private collective investment schemes (“Private Schemes”), do not require a licence in order to conduct their activities, although they are required to obtaining formal “recognition” from the MFSA.
In addition to satisfying the eligibility criteria applicable to collective investment schemes, a Private Scheme must also satisfy the following requirements in order to be recognised as such by the MFSA:
- limit the total number of participants to fifteen persons;
- the participants must be close friends or relatives of the promoters;
- the MFSA must be satisfied that the scheme is essentially private in nature and purpose; and
- the scheme must not qualify as a professional investor fund in terms of guidelines issued for this purpose by the MFSA.
Whilst participants in Private Schemes are usually individual persons (i.e. physical persons), one of the participants in such a Private Scheme is permitted to be a body corporate, subject to the following conditions:
- taking into account the ultimate individual beneficial owners of such company, the maximum number of 15 participants is still satisfied;
- the company’s ultimate individual beneficial owners are close friends or relatives of the promoters;
- the company is in no manner involved in the management or administration of the scheme and its connection with the scheme is merely that of investor.
The MFSA does not a priori subject Private Schemes to any investment or borrowing restrictions but these may be imposed in the relative recognition certificate issued by the MFSA following application.
Moreover, in view of their private nature, it follows that Private Schemes cannot be listed on the Malta Stock Exchange.
To the extent that Private Schemes are not licenced but recognised, the special income tax rules applicable to other types of collective investment schemes do not apply and, as such, they do not enjoy the exemption from tax applicable in respect of the income of an investment fund. This notwithstanding, Private Schemes would still be entitled to benefit from Malta’s attractive corporate tax rates.
Unlike other licensed Maltese investment funds, a recognised Private Scheme need not appoint an external manager.