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Malta Investor Funds - A Walk Through - By Acumum; Legal & Advisory

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Detailed look at investment funds / hedge funds regulations / set up in the low tax EU jurisdiction of Malta. …

Detailed look at investment funds / hedge funds regulations / set up in the low tax EU jurisdiction of Malta.

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  • 1. 1Malta’s International Legal &Advisory BoutiqueE: info@acumum.com |www.acumum.com | Skype ID: acumumT: Malta +356 27781700 | UK +44 (0)20 6060 4277 | USA +1646 569 9003Acumum Legal |Acumum Services Ltd d/b/a Acumum Legal Group. Registered address: 26 Efesu Street, St Paul’s Bay, Malta,SPB 2700. Company Registered No. C.57125. Vat No. MT20911929 v1.2012PROFESSIONAL INVESTOR FUNDSCommercially Focused RegulationAs an ex-British colony the commercial laws of Malta are modelled on English law and with Malta joining theEuropean Union (EU) in 2007, Malta has integrated the applicable EU directives, making the laws of Malta inrelation to Professional Investor Funds (“PIFs”), up to date, flexible, consistent and comforting to both schememanagers and investors alike. Further with some of the most beneficial tax and fiscal treatments of PIFs, Malta isa very attractive, legitimate, onshore jurisdiction - as a fund domicile and for the financial services sector ingeneral.Collective investment schemes that qualify as Professional Investor Funds (“PIFs”) are subject to a significantlylighter and more flexible regime than retail funds. Hedge funds, funds of funds, private equity funds, and propertyfunds, would be typical examples of funds that may benefit from being set up as a PIF in Malta.The Investment Services Rules for Professional Investor Funds, issued by the Malta Financial Services Authority(“MFSA”), cater for a regulatory framework that is both robust and adaptable, allowing managers and promotersto innovate and to develop new products to meet the changing needs of the market. The level of regulationdepends on the type of investors targeted, a distinction being made between PIFs promoted to ‘ExperiencedInvestors’, PIFs promoted to ‘Qualifying Investors’ and PIFs promoted to ‘Extraordinary Investors’.Advantages of Malta as a Fund DomicileThe principal advantages which give Malta a competitive edge in terms of choice of fund domicile are: Costs of set up, establishment and management including professional fees, are relatively low and verycompetitive; The MFSA operates as a ‘one stop shop’, is approachable and provides a timely and efficient service; PIFs can be self‐managed – there is no need to appoint a third party manager.Furthermore, PIFs do not need to appoint a manager, custodian, administrator or any other service provider whois licensed in or who has otherwise exercised passport rights into Malta - if all underlying investments are held
  • 2. 2E: info@acumum.com |www.acumum.com | Skype ID: acumumT: Malta +356 27781700 | UK +44 (0)20 6060 4277 | USA +1646 569 9003Acumum Legal |Acumum Services Ltd d/b/a Acumum Legal Group. Registered address: 26 Efesu Street, St Paul’s Bay, Malta,SPB 2700. Company Registered No. C.57125. Vat No. MT20911929 v1.2013abroad and such services will be provided from outside of Malta. A service provider can be appointed that isauthorised in a recognised jurisdiction for this purpose - including EU/EEA States and jurisdictions with which theMFSA has entered into bilateral or multilateral MOUs). As a result, clients have the flexibility of continuing to usethe services of any external service provider licensed in any such jurisdiction with which they are accustomed towork.Nevertheless, there are a multitude of options, located in Malta, which can provide all necessary human andother resources that adequately cater for and provide such fund‐specific services and generally all legal,accountancy/audit and other professional services which may be required by funds are also available locally, witha number of local and foreign credit institutions, fund administrators and investment firms having a presence andoperating in Malta.Special Purpose VehiclesFund may invest in underlying assets through special purpose vehicles (“SPVs”). SPVs can and have often provedto be an efficient tool in tax planning for funds (particularly in order to benefit from a double tax treaty betweenMalta and the relevant jurisdiction where the assets are held or to provide the connecting factor between Maltaand such jurisdiction where no double tax treaty (“DTT”) has been concluded between the two countries, byestablishing the SPV in a jurisdiction having a DTT with both jurisdictions) - as well as in respect of assetacquisition and holding structures.Shari’ah Complaint FundsMalta’s PIF regulatory regime is sufficiently flexible so as to enable fund promoters to structure their set‐ups inthe way that best suits their needs. The MFSA and the Government of Malta is mindful in maintaining Malta’scompetitiveness in the financial services sector. For instance, in order to accommodate Islamic funding structuresand financing vehicles and has lead the MFSA to issue a Guidance Note for Shari’ah Complaint Funds.Licensing RequirementsCollective investment schemes (“CIS”), including PIFs, require a CIS licence in terms of the Investment Services Act(Chapter 370 of the Laws of Malta) in order to (i) issue, create any units, carry on any activity in or from withinMalta, or, (ii) if the scheme is formed in accordance with or existing under the laws of Malta, to issue or createunits or carry on any activity in or from within a country, territory or other place outside if Malta.
  • 3. 3E: info@acumum.com |www.acumum.com | Skype ID: acumumT: Malta +356 27781700 | UK +44 (0)20 6060 4277 | USA +1646 569 9003Acumum Legal |Acumum Services Ltd d/b/a Acumum Legal Group. Registered address: 26 Efesu Street, St Paul’s Bay, Malta,SPB 2700. Company Registered No. C.57125. Vat No. MT20911929 v1.2013PIF StructuresThe most usual structures for a PIF, is to establish an: investment company with variable share capital (SICAV): an investment company with fixed share capital (INVCO): a limited partnership: a unit trust or a common contractual fund.The most common of all PIF structures is that of the corporate vehicle, the SICAV; due to its flexibility and Malta’smodern company legislation, which is modelled on English company law.Sub-Funds – the Ultimate FlexibilityA collective investment scheme may be structured as a multi‐fund (umbrella) scheme, comprising of a number ofsub‐funds, each sub-fund has the possibility of: having one or more different classes of shares; being denominated in different currencies; having its own investment objectives, policies and restrictions.Furthermore, the assets and liabilities of each sub‐fund are considered to constitute a separate patrimony -distinct from the assets and liabilities, as well as being ring‐fenced from the creditors, of and from the othersub‐funds in the scheme.Application – The ProcessMalta’s single regulator, the MFSA has the supervisory responsibility over the granting of licences and the on-going supervision of PIFs. The MFSA will only license a PIF if it is satisfied that the PIF will comply in all respectswith relevant legislation, regulations and rules and that its directors and officers, or in the case of a unit trust orlimited partnership, its trustee(s) or general partner(s) respectively, are fit and proper persons to carry out thefunctions required of them in connection with the scheme.Upon submission of all documentation relative to the licence application in draft form, subject to the MFSA’ssatisfaction, the MFSA may issue an ‘in principle’ approval in respect of the fund – this may only take a few weeks.Thereafter, following submission of all final documents, and subject to compliance with all necessary internal
  • 4. 4E: info@acumum.com |www.acumum.com | Skype ID: acumumT: Malta +356 27781700 | UK +44 (0)20 6060 4277 | USA +1646 569 9003Acumum Legal |Acumum Services Ltd d/b/a Acumum Legal Group. Registered address: 26 Efesu Street, St Paul’s Bay, Malta,SPB 2700. Company Registered No. C.57125. Vat No. MT20911929 v1.2013processes and procedures in compliance with relevant legislation, the MFSA may issue a licence – a process thattypically takes less than one week.Service ProvidersExcept in the case of Experienced Investor Schemes, where the appointment of a Custodian is compulsory, a PIFmay appoint any service provider - e.g. investment manager, adviser, administrator, custodian or prime broker - itdesires.If all service providers are based outside Malta and the PIF has not appointed a local resident director (ifestablished as a as an investment company), a local general partner (if established as a limited partnership); or alocal trustee (if established as a as a unit trust / common contractual fund), the PIF must appoint a LocalRepresentative.If one or more of the proposed service providers is not based in Malta, or is not a subsidiary of a operation basedand /or regulated in a recognised jurisdiction and such parent retains control and responsibility over itssubsidiary, then it will be necessary for the promoters to apply to the MFSA for a preliminary indication ofacceptability of the PIF.Self Managed PIFSIt is possible for PIFs to be set up as self‐managed funds, in which case the PIF would be subject to a minimumcapital requirement of EUR125,000 and certain other supplementary licensing conditions. Self‐managed PIFs mayestablish an in‐house Investment Committee, which is expected to hold the majority of its meetings in Malta. TheInvestment Committee may delegate the day‐to‐day investment management of the assets of the PIF to one ormore Portfolio Manager/s, who will effect the day‐to‐day transactions within the investment guidelines, set bythe Investment Committee; in accordance with the investment objectives, policy and restrictions as described inthe fund’s Offering Document / Marketing Document.RedomiciliationForeign funds established as a company in jurisdictions permitting redomiciliation, may apply to be registered asbeing continued in Malta under the Companies Act (Chapter 386 of the Laws of Malta), without the need towind‐up the company or the necessity of creating a new entity.
  • 5. 5E: info@acumum.com |www.acumum.com | Skype ID: acumumT: Malta +356 27781700 | UK +44 (0)20 6060 4277 | USA +1646 569 9003Acumum Legal |Acumum Services Ltd d/b/a Acumum Legal Group. Registered address: 26 Efesu Street, St Paul’s Bay, Malta,SPB 2700. Company Registered No. C.57125. Vat No. MT20911929 v1.2013Ongoing requirementsThe Standard Licence Conditions (“SLCs”) established by the MFSA and set out in the Investment Services Rules,provide guidance and on-going regulation of PIFs. The MFSA may agree to amend or disallow the application ofthe SLCs, if the circumstances relating to the PIF justify such treatment and always subject to investors beingadequately.PIFs are subject to certain minimum1 disclosure, record keeping and reporting requirements and are required toappoint: a Compliance Officer; a Money Laundering Reporting Officer (where applicable); and an auditor approved by the MFSA.For further details regarding the salient features of the Maltese regime applicable to each category, i.e. PIFspromoted to Experienced Investors (“Experienced Investor Funds”), PIFs promoted to Qualifying Investors(“Qualifying Investor Funds”) and PIFs promoted to Extraordinary Investors (“Extraordinary Investor Funds”)please see our PIF Fiscal Fact Sheet at http://acumum.com/publications/library/.Funds Fiscal RulesQualifying Investor Funds and Extraordinary Investor Funds are not subject to any investment or borrowingrestrictions, whilst Experienced Investor Funds are subject to certain restrictions and diversification requirements.Where the main objective of a PIF is investing in immovable property, certain restrictions on leverage may applyin respect of Experienced Investor Funds and open‐ended Qualifying Investor Funds.If a PIF effects its investments through one or more special purpose vehicles (“SPVs”) owned or controlled via amajority shareholding of the voting shares - either directly or indirectly by the PIF - the SPV(s) must be establishedin Malta or in a jurisdiction which is not an FATF blacklisted country. The PIF, at all times, must via its directors orgeneral partner(s) maintain the majority directorship of any SPV.
  • 6. 6E: info@acumum.com |www.acumum.com | Skype ID: acumumT: Malta +356 27781700 | UK +44 (0)20 6060 4277 | USA +1646 569 9003Acumum Legal |Acumum Services Ltd d/b/a Acumum Legal Group. Registered address: 26 Efesu Street, St Paul’s Bay, Malta,SPB 2700. Company Registered No. C.57125. Vat No. MT20911929 v1.2013Enhanced FlexibilitySubject to the conditions set out in the relevant MFSA Guidance Notes, PIFs are permitted to use side pockets tomange situations where certain assets within the fund’s portfolio become illiquid or comparatively hard to value.The MFSA has issues rules applicable to drawdown arrangements, whereby investors commit themselves tosubscribe for a maximum amount of units in the fund which may be issued at a discount.ListingA PIF (other than a private investment company) which has been granted or has applied for a CIS licence mayapply for admissibility to listing with the Listing Authority (the MFSA). The listing application can be madeconcurrently with the application for the CIS licence. Malta’s recognised exchange is the Malta Stock Exchange.License FeesAs of the date of this publication, the following fees levied by the MFSA are:Scheme Sub FundApplication for Preliminary Indicationof acceptability of PIF€600Application for PIF Licence €1,500 €1,000 per sub fundAnnual Supervisory Fee €1,500 €500 per sub fundRegistration fees payable to the Registrar of Companies for investment companies, upon incorporation, arecurrently set at €1,750.Taxation of CISs & PIFsMalta offers a favourable tax regime for collective investment funds (“CIS”) (including PIFs) and has acomprehensive Double Tax Treaty network.For tax purposes, a distinction is made between the two categories of funds with the resulting tax treatment asfollows: Prescribed Fund - a fund in a locally based scheme that has assets situated in Malta, which holds at least85% of its total asset value- the CIS enjoys a exemption from tax on income “other than income from immovable propertysituated in Malta and investment income” earned by the Prescribed Fund
  • 7. 7E: info@acumum.com |www.acumum.com | Skype ID: acumumT: Malta +356 27781700 | UK +44 (0)20 6060 4277 | USA +1646 569 9003Acumum Legal |Acumum Services Ltd d/b/a Acumum Legal Group. Registered address: 26 Efesu Street, St Paul’s Bay, Malta,SPB 2700. Company Registered No. C.57125. Vat No. MT20911929 v1.2013- withholding tax on local investment income is 15% for bank interest and 10% for other investmentincome. Non‐Prescribed funds - other licensed funds, including funds in an overseas‐based scheme- no withholding tax on investment income received by Non‐Prescribed Funds (including overseasbased CISs)- tax exemption on income and capital gains realised on their investments- stamp duty exemption on its transactions.Other Malta Tax Benefits for PIFs no Wealth or Net Asset Value Tax in Malta Foreign investors are not subject to Maltese tax on capital gains or income when they:- dispose of investments via redemption by the Fund or due to a disposal to a third party, or- if they receive a dividend or other income from the Fund- and enjoy a stamp duty exemption obtained for the PIF in connection with the acquisition or disposalof their units in the PIF.Foreign Fund Managers find Malta an extremely tax efficient location in respect of fee and participation incomeor gains - including carried interest through participation shares or otherwise in the fund - which they receivefrom the fund; whether they establish their own operations in Malta, or remain established in, and provide themanagement services from, a foreign jurisdiction.Malta’s Ordinary Tax System – 5% Effective Corporate Tax Rate Malta’s effective corporate Malta’s ordinary tax system grants a 6/7 refund of tax to non‐residentshareholders of Maltese companies (or foreign companies carrying on activities in Malta) of the standardrate of tax of 35% (leaving a tax leakage of maximum 5% in Malta which in some cases can be furtherreduced) ‐ Non‐Prescribed Funds do not pay tax in Malta and consequently there is no need to grant a refund tonon‐resident shareholders, who receive tax free dividends no Maltese tax on dividends - including bonus shares which are considered as dividends under Malteselaw - paid by a Maltese company or by Maltese collective investment scheme to non‐residentshareholders; no stamp duty on issues or transfers of shares in Maltese companies the majority of whose businessinterests are situated outside Malta;
  • 8. 8E: info@acumum.com |www.acumum.com | Skype ID: acumumT: Malta +356 27781700 | UK +44 (0)20 6060 4277 | USA +1646 569 9003Acumum Legal |Acumum Services Ltd d/b/a Acumum Legal Group. Registered address: 26 Efesu Street, St Paul’s Bay, Malta,SPB 2700. Company Registered No. C.57125. Vat No. MT20911929 v1.2013 no tax on capital gains made by non‐residents on the disposal of their shares in Maltese companies or theredemption of their units in collective investment schemes.Taxation of highly “Qualified Individuals” – 15%The ‘Highly Qualified Persons’ scheme was introduced by the Malta Inland Revenue to attract the in receipt ofemployment income of minimum of €83,000, excluding the annual value of fringe benefits, from an eligible office;senior positions such as CEO, CFO, COO, Portfolio Manager, Chief Investment Officer, Chief Risk Officer, SeniorTrader, Senior Analyst etc..., with companies licensed and/or recognised by the MFSA.Such individuals are subject to tax at a flat rate of 15% on employment income which is subject to tax in Malta.This incentive applies for 5 years for EEA and Swiss nationals and 4 years for third country nationals.For further information concerning Malta’s Highly Qualified Persons Scheme and its resultant tax benefits, pleasesee Acumum’s fact sheet at http://acumum.com/publications/library/.About Acumum Legal GroupUnique in Malta, we are international lawyers & accountants – all with extensive on location onshore & offshoreexperience, providing legal & advisory services to individuals, companies, family offices and other institutions.We also provide advocacy services through an associated international Barristers Chambers, representing lawfirms and clients – individuals, corporations, institutions & Governments before UK, EU and International Courts &Tribunals in most Commonwealth countries.Our Lawyers & Accountants are highly knowledgeable specialists in their fields – committed to providing costeffective, excellent client service. Utilising a multi-disciplinary & multi – jurisdictional approach, we are engagedby both private individuals and corporations in the areas of: Tax Corporate Formation & Services Aviation Intellectual Property - IP HoldingCompanies & Royalty Routing Private Client Trusts & Estate Planning Maritime Public & Private Law Financial Services Gaming - Malta, UK, Alderney,Caribbean, USA Industry Support