Malta – information for setting up a fund

Malta
Fund legislation:  Investment Services Act, (Cap. 370 – Laws of Malta);

Number of funds

Malta
Fund legislation:  Investment Services Act, (Cap. 370 – Laws of Malta);

Number of funds

Domiciled and administered fund assets by category:
Professional Investor Funds (PIFs): 251
UCITS 51
Non-UCITS Local 40
Non-UCITS Foreign 72
Net Asset Value of Locally Based Collective Investment Schemes: EUR9 billion.

Regulator 

Malta Financial Services Authority (MFSA), Notabile Road, Attard BKR 3000, Malta, tel. (+356)21441155; email. communications@mfsa.com.mt 

Service providers

Recognised Fund Administrators
There are 15 firms in possession of recognised fund administrator certificate:

 Apex Fund Services (Malta) Limited
 Benchmark Advisory Limited
 Calamatta Cuschieri Fund Services Limited
 Custom House Global Fund Services
 Global Capital Financial Management Limited
 HSBC Global Asset Management (Malta) Limited
 HSBC Securities Services (Malta) Limited
 Praxis Fund Services (Malta) Limited
 SGGG Fexco Fund Services (Malta) Limited
 Somerset Management (Malta) Limited
 TMF Fund Administrators (Malta) Limited
 TMF Fund Services (Malta) Limited
 Union Capital Management Limited
 Valletta Fund Management Limited
 Valletta Fund Services Limited

Custodians/Trustees of Collective Investment Schemes

 HSBC Bank (Malta) plc
 Bank of Valletta plc
 Custom House Global Fund Services
 Sparkasse Bank Malta plc
 Mediterranean Bank plc

Lawyers, Accountants and Auditors

There are 55 law firms in Malta although only around 10 undertake fund-related work. 

There are around 40 accountancy and auditing firms listed by the Malta Institute of Accountants. These include the ‘big four’. 

Local Stock Exchange: 

Malta Stock Exchange, Garrison Chapel, Castille Place, Valletta VLT 1063, Malta: CEO: Mr Mark Guillaumier

Local fund industry body: 

Malta Funds Industry Association (MFIA) c/o Level 6, The Mall Offices, The Mall,  Floriana, VLT 16, Malta. 

Promotional bodies for funds/financial sector:

Malta Funds Industry Association (MFIA) c/o Level 6, The Mall Offices, The Mall,  Floriana, VLT 16, Malta, and FinanceMalta, Garrison Chapel, Castille Place, Valletta VLT 1063, Malta

Double taxation treaties

Malta has an extensive double taxation treaty network. The following are the agreements currently in force with the respective countries:

Albania, Australia, Austria, Barbados, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Italy, Korea, Kuwait, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Malaysia, Morocco, Netherlands, Norway, Pakistan, Poland, Portugal, Romania, San Marino, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland1, Syria, Tunisia, United Arab Emirates, United Kingdom, United States of America2.

Tax information exchange agreements 

Tax information exchange provisions are included in the Double Tax Treaties. (See above)

Memoranda of Understanding with other Regulators:

The Malta Financial Services Authority (MFSA) has signed over 30 bilateral or multilateral Memoranda of Understanding or other agreements with other regulatory authorities. These MoUs cover regulatory co-operation and exchange of regulatory information in a number of sectors. A full list of these agreements may be found on www.mfsa.com.mt (Memoranda of Understanding)

Alternative Fund, Manager and Service Provider information

Types of fund vehicle

 Open-ended investment company (SICAV)
 Close-ended investment company (INVCO)
 Unit Trust
 Mutual fund
 Limited Liability Partnership

Available types of corporate vehicle:

Segregated fund and portfolio structures are available under the Companies Act.

Types of licences available: 

Collective Investment Scheme (single or divided into sub-funds), authorised as:
 a Professional Investor Fund – of which there are 3 Categories: (i) Experienced Investor Fund, (ii) Qualifying Investor Fund, (iii)  and Extraordinary Investor Fund
 a Maltese UCITS Scheme;
 a Maltese Non-UCITS Scheme (retail);
 an Overseas Non-UCITS Schemes (retail)
Funds may be licensed both as self-managed funds or funds managed by a licensed third party manager.

Audit requirement

 Yes

Financial statement requirements

Directors are required by law to prepare financial statements for each financial period in accordance with the IFRS (International Financial Reporting Standard)  requirements.

REGULATORY FEES

Collective Investment Schemes (Maltese UCITS Schemes, Maltese Non-UCITS Schemes and Overseas Based Non-UCITS Schemes)

European UCITS Schemes

Professional Investor Funds

Regulatory approval time

The MFSA is used to working within agreed timeframes and deadlines. These may vary according to circumstances such as the prompt submission of information and feedback required from the fund promoter and the nature and complexity of the funds and the verification process. However the following are indicative response times:

Collective Investment Schemes (Retail UCITS/Non-UCITS): The MFSA will review the draft application form and the supporting documentation and will provide feedback within three weeks from submission of the application documents.

Professional Investor Funds for Experienced or Qualifying Investors: The MFSA will review within seven business days from receipt of the application documents. 

Professional Investor Funds for Extraordinary Investors: The MFSA will review within three business days. 

Alternative Investment Funds

Alternative investment funds, including hedge funds, may be licensed as Professional Investor Funds (PIFs)
The Investment Services Rules for Professional Investor Funds classify these funds into three types, depending on the experience and sophistication of the end investor and the level of protection required. 

Investor restrictions 

Experienced Investor Funds:    Min investment 15,000
Qualifying Investor Funds:        Min investment 75,000
Extraordinary Investor Funds:   Min investment 750,000 

The total amount invested may not fall below this threshold unless this is the result of a fall in the net asset value. 

In the case of an umbrella fund comprising of sub-funds each of which is set up as a Professional Investor Fund, the minimum investment threshold may be applicable on a per scheme basis rather than on a per sub-fund basis.

Investment Advisor

The role of the investment advisor is that of providing financial advice to the scheme/fund or its Manager with regards to the investment and re-investment of the assets of the Scheme/Fund. The Investment Advisor will not have any discretion with respect to the investment and re-investment of the assets of the Scheme/Fund.

Professional Investor Funds are generally not required to appoint a third party Investment Adviser.

Fund Manager

In the case of Professional Investor Funds, where a third party Manager is to be appointed and the proposed Manager is established in Malta, the Manager should be in possession of a Category 2 Investment Services Licence issued in terms of Article 6 of the Act and should be duly licensed and authorised by the MFSA to provide management services to collective investment schemes.

The MFSA expects the Manager to exercise care and diligence in the selection of a Sub-Manager and to assume responsibility for the acts of the Sub-Manager

Custodian/depository bank requirements 

An experienced investor PIF should appoint a third party Custodian responsible for the safe keeping of the assets of the PIF and for undertaking monitoring duties over the PIF’s Manager. Qualifying and extraordinary investor PIFs are not required to do so.

The Custodian may be:

 an entity holding a Category 4 licence under the Investment Services Licence issued under the Investment Services Act, 1994;
 an entity authorised to provide such services in an EU/EEA Member State; or
 an entity of sufficient standing and repute and having the experience and expertise deemed necessary to act as Custodian.
The Minimum Initial Capital Requirement in the case of Custodians/Depositaries is 125,000.

Director requirements

Every public company is legally bound to have at least 2 directors whereas private companies must have at least 1 director.
Prospectus/offering document
A Professional Investor Fund promoted to Experienced or Qualifying Investors is required to draw up an Offering Document which should at least include the prescribed information.
A Professional Investor Fund targeting Extraordinary Investors may either draw up an Offering Document or a Marketing Document which should at least include the minimum specified information.
Fund ongoing regulation requirements
Once licensed, the fund is subject to ongoing supervisory and general reporting requirements.
Service provider conditions

The Investment Services Act prescribes that any person wishing to carry out an investment service in Malta needs a licence in terms of the Act. Service Providers generally include, amongst others, a Manager, a Custodian, an Administrator and an Investment Adviser. 

A Professional Investor Fund may appoint any Service Provider as it may deem necessary – although PIFs promoted to Experienced Investors are required to appoint a Custodian. Service Providers should be established and regulated in a Recognised Jurisdiction. Recognised Jurisdictions include EU and EEA Members, and signatories to a Multilateral MoU or Bilateral MoU with the MFSA covering the relevant sector of financial services. The MFSA may, in the following scenarios, also accept Service Providers which may not be established and regulated in a Recognised Jurisdiction:

 where the Service Provider is the subsidiary of a firm that is regulated in a Recognised Jurisdiction, that retains control of its subsidiary and undertakes to provide all the necessary information to the MFSA; or
 where the MFSA considers that the Service Provider is subject to regulation to an equal or comparable level in the jurisdiction concerned.
In the latter case, it is recommended that prior to the submission of an Application for a PIF Licence, the promoters submit an application for preliminary indication of acceptability of a PIF as outlined below. 

The Authority expects all services providers to be ‘fit and proper’ that is to be able to show high degrees of competence, integrity and solvency.
Regulatory procedure:

Professional Investor Funds – Preliminary Indication of Acceptability 

The promoter of a Professional Investor Fund may apply for a preliminary indication of acceptability on the basis of the proposed structure of the PIF and service providers. In such case, the MFSA will review the proposed structure of the PIF and its prospective Service Providers and will inform the applicant whether the proposed structure of the PIF and its Service Providers are acceptable to the MFSA. This does not substitute the application for a PIF Licence. 

Applications for a Collective Investment Schemes Licence/ Professional Investor Fund Licence
When submitting an application for a licence under the Investment Services Act, the promoter should ensure that the appropriate Application Form is completed. 

Phase One – Preparatory

The MFSA recommends that the promoters meet up with the regulatory authority to describe their proposal. This meeting should take place prior to the actual submission of the application.
After preliminary discussions, the promoters should submit a draft Application Form, together with the supporting documents specified in the Application Form itself. The ‘fit and proper’ checks – which entail following up the information which has been provided in the Application documents – begin at this stage.

The MFSA will consider the nature of the proposed Scheme/Fund and a decision will be made regarding which ‘Standard Licence Conditions’ (SLCs) should apply. The licence conditions represent the ongoing requirements to which the Applicant will be subject, if and when licensed.

Phase Two – Pre-Licensing

Once the review of the draft Application and supporting documents has been completed, the Authority will issue its ‘in principle’ approval for the issue of a licence. At this stage, the Applicant will be required to finalise any outstanding matters. A licence will be issued as soon as all pre-licensing issues are resolved.

Phase Three – Post-Licensing/Pre-Commencement of Business

The Applicant may be required to satisfy a number of post-licensing matters prior to formal commencement of business. 

Leverage restrictions

Qualifying Investor Funds and Extraordinary Investor Funds are not subject to any investment or borrowing (including leverage) restrictions other than those which may be specified in their Offering Document/Marketing Document.

Professional Investor Funds promoted to Experienced Investors are not subject to any investment restrictions. Whilst borrowing on a temporary basis for liquidity purposes is permitted and not restricted, borrowing for investment purposes or leverage via the use of derivatives is restricted to 100% of NAV.

Valuation rules

Valuation rules are normally dealt with in the offering prospectus.

Tax Framework

Malta has an internationally accepted and EU-recognized tax regime, with an extensive network of bilateral tax treaties3. There are 51 of these treaties currently in force. These include all European Union Member States and many other countries in North Africa, the Middle East and Asia, as well as Canada and Australia. The Treaty with the US has been signed and is expected to come into force in the near future.

Taxation of funds

Collective Investment Schemes (fund vehicles) are exempt from tax on income and capital gains, so long as these are not investing in immovable property situated in Malta.4 There are no withholding taxes.
In the case of Value Added Tax, the activities of a CIS are considered exempt without credit for VAT purposes.

Taxation of investment service providers: 

Malta’s tax imputation system is designed to eliminate the double taxation of corporate profit and dividend in the hands of shareholders. All companies incorporated in Malta (including investment management, custody services and fund administration companies) pay a 35% income tax on company profits. Upon distribution of dividends however shareholders are entitled to a refund of tax paid on the underlying profits. The amount of the tax refund to the shareholder is set at 6/7ths of the tax paid by the company on the underlying profit (5/7ths in the case of passive interest and royalties).