Since it joined the European Union in 2004, Malta has fully harmonised its ﬁnancial regulatory framework with the EU and the OECD rules, including passporting rights of collective investment schemes and its managers.
The principal Maltese legal act regulating activity of collective investment schemes is the Investment Services Act. It is further explained and supplemeted by the Investment Services Rules. Moreover, Malta has implemented the AIFM Directive1 and UCITS Directive (including UCITS V Directive2 ) into its laws.
Collective investment schemes, fund management companies, investment advisors, custodians and prime brokers operating on Maltese ﬁnancial market need to obtain a license relevant to their activity. The issue of licenses as well as regulation and supervision of investment vehicles is vested in the Malta Financial Services Authority (“MFSA”), widely known for its proactive and ﬂexible approach. The MFSA often organizes face-to-face meetings with individual applicants, which helps the regulator to understand the applicant’s structure and explain how to efﬁciently meet the legal requirements.
In case an investment vehicle has already been established in another jurisdiction, the Maltese law enables its redomiciliation to the island after fulﬁllment of certain conditions. Moreover, funds are allowed to have administrators and custodians from other jurisdictions recognized by the MFSA.
As a general rule, investment funds domiciled in Malta are exempt from Maltese income and capital gains tax as long as they do not have over 85% of their assets situated in Malta. Non-resident investors are not subject to any withholding tax. Capital gains realised by investors who are not resident in Malta are not subject to tax as well. Transfers of shares in a licensed fund are exempt from stamp duty. There is no value added tax on fund management, fund administration and custody services.
Types of legal forms of investment vehicles incorporated in Malta:
– Investment company with variable or ﬁxed capital;
– Incorporated cells;
– Contractual fund;
– Limited liability partnership;
– Unit trust.
The main types of investment schemes, which can be established in Malta:
PROFESSIONAL INVESTOR FUNDS (PIFs)
A Professional Investor Fund (PIF) is a collective investment scheme designed strictly for professional investors. There are three types of PIFs, different from each other in terms of minimum investment and presence of some investment restrictions:
– PIFs promoted to experienced investors;
– PIFs promoted to qualifying investors;
– PIFs promoted to extraordinary investors.
PIFs can be externally- or self-managed and invest in a range of assets, including private equity, immovable property and transferable securities. Due to the fact that this type of investment vehicle is not offered to the general public, PIFs beneﬁt from minimum investment restrictions and relatively fast licensing procedure.
UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES (UCITS)
The main features of UCITS include:
– the sole object of a UCITS is collective investment in transferable securities or in other liquid ﬁnancial assets;
– a UCITS raises its capital from the public;
– it operates on the principle of risk-spreading;
– units of a UCITS are, at the request of holders, repurchased or redeemed, directly or indirectly, out of UCITS’ assets.
A UCITS constitutes a less ﬂexible investment scheme with a number of investment restrictions concerning the type of assets, in which it can invest its capital, various deversiﬁcation requirements and borrowing restrictions.
A UCITS can be structured as an investment company, a contractual fund, a unit trust or a limited partnership. The minumim share capital of a UCITS managed by a third party amounts to EUR 125,000 if it chooses the form of a company, while for a self-mamaged UCITS in the form of a company it is EUR 300,000, and it is expected to keep its NAV higher than this amount on an on-going basis.
It can be self-managed or have an external manager approved by the MFSA. The minumim share capital of a UCITS managed by a third party amounts to EUR 125,000 if it chooses the form of a company, while for a self-mamaged UCITS in a form of a company it is EUR 300,000, and it is expected to keep its NAV higher than this amount on an on-going basis.
A UCITS is obliged by law to choose a Custodian, appoint an Auditor, Compliance Ofﬁcer and a Money Laundering Reporting Ofﬁcer, while having an Administrator and an Investment Advisor is optional.
Once licensed in Malta, a UCITS can be passported to the other EU Member States subject to completion of notiﬁcation procedures.
ALTERNATIVE INVESTMENT FUNDS (AIFs)
Alternative Investment Fund (“AIF”) is a collective investment scheme, which raises capital from a number of investors, with a view to investing it in accordance with a deﬁned investment policy for the beneﬁt of those investors, and which does not qualify as a UCITS Scheme in terms of the UCITS Directive.
The deﬁnition captures a wide range of funds structured in a variety of ways. An AIF may be organized as a single-fund or a multi-fund structure in order to divide different investment strategies and types of assets in separate sub-funds.
An AIF can be established as an open- or close-ended investment vehicle with a possiblity to list its shares on the Malta Stock Exchange subject to fulﬁllment of certain conditions.
AIFs can be self-managed or use services of an external AIF Manager, who needs to be licensed in Malta or another jurisdition recognized by Malta.
Passporting procedure introduced by the AIFM Directive allows to promote shares or units of a Maltese AIF in the other EU Member States as well as attracts AIFs from other jurisdictions to market their shares in Malta.
1. Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative 1 Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 Text with EEA relevance.
2. Directive 2014/91/EU of the European Parliament and of the Council of 23 July 2014 amending Directive 2 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).