Malta, a small island located in the centre of the Mediterranean, has rapidly emerged as one of Europe’s fastest growing and most stable and innovative finance domiciles. By joining the European Union in 2004, and adopting the Euro as currency in 2008, has proved pivotal to its development as a major finance and business centre.
Flexible regulation, transparency and good governance have long been some of Malta’s key players for success, as well as its status as a cost-effective domicile for funds, asset managers, fund administrators and custodians/depositaries.
The island continues to enjoy political and economic stability, as confirmed by the international rating agencies. The island’s banking systems were resilient in the face of the international banking crisis and faired extremely well compared to other economies in the Eurozone.
Malta benefits from a sound commercial infrastructure, and an English-speaking business community with a strong platform of professionals able to service the needs fund promoters. Its strategic location at the centre of the Mediterranean facilitates travelling and communication with investors and other third parties located in different time zones.
LAUNCH PERIOD & COSTS
One of the key drivers behind today’s business decisions is cost. Comparing the Island to other fund domiciles within the EU, Malta offers significant cost advantages and, thus, making it as a competitive alternative. Additionally, Malta adopting a full imputation system of tax would also benefit the end shareholders a 5% tax cost through shareholder refunds.
Finding the right vehicle for a fund can be time consuming. As a jurisdiction of choice, Malta offers a wide range of fund structures, and after carefully examining the expectations of potential investors, the type and location of underlying investments, any of the below collective investment schemes (CIS) can be established.
- Professional Investor Fund (“PIF”)
- Alternative Investor Fund (“AIF”)
- Retail Collective Investment Schemes (Retail-UCITS / Retail non-UCITS)
- Private Collective Investment Schemes
An “in principle” approval will be issued by the Malta Financial Services Authority (MFSA) within eight to twelve weeks. It should be noted that such a period would depend on the complexity of the structure and that all documentation required by the regulator are submitted in a timely manner.
Furthermore, the MFSA has recently launched a new framework applicable for Alternative Investor Funds targeting Qualifying and Professional Investors. Such structures are known as Notified AIFs and would result in a rapid “plug-and-play” option for full AIFMs. From a licencing point of view, such Notified AIFs need not be authorised and approved by the MFSA, but EU/EEA AIFMs may submit a notification to the MFSA for an AIF to be included on the List of Notified AIFs. Third country AIFMs will be able to submit a request for notification of an AIF once the country where these have been established has been granted passporting rights pursuant to the AIFMD.
From a cost perspective, Malta is a cost-competitive jurisdiction in terms of both fund set up fees and ongoing supervisory fees, legal fees, compliance fees, as well as operating costs; thus making the island an attractive location for back and middle office functions.
Malta’s attractiveness as a jurisdiction of choice is due to the fact that fees and costs, such as legal, accounting and certain regulatory fees, are lower than in most other European jurisdictions. Overall, ongoing operational costs are lower by approximately 20-30 percent when compared to the UK, France, Germany, Belgium, Luxembourg and the Netherlands.
REGULATION & LEGISLATION
Malta’s legislation is in line with EU law and directives and is built on best practices from other finance centres. The Maltese legislation is designed to efficiently meet the needs of both the industry and the consumer and is regularly updated to reflect the latest market demands.
In June of 2013, the MFSA updated its Investment Services Rulebooks as part of Malta’s implementation of the Alternative Investment Fund Manager Directive (“AIFMD”). Up until then, alternative investment funds were solely regulated by the Professional Investor Fund (“PIF”) Regime. Now the PIF regime exists side by side with Malta’s AIFMD regime, placing the island in the enviable position of being able to accommodate the different needs of promoters in as flexible manner as possible. In addition to this, during 2016 the market will see the launch of the newly revised UCITS V Directive which will override the previous UCITS IV and, thus, placing the UCITS regime “in line” with the AIFM Directive.
Malta’s independent and risk-based regulator, the MFSA, ensures best practice and compliance whilst still keeping a “can do” approach for fund promoters wishing to choose Malta as jurisdiction of choice. Moreover, the country’s small size allows direct contact with licensees, which gives the MFSA a better understanding of the soundness of the license holders. This will help ensure a smoother start-up whilst keeping full compliance with all regulatory standards.
Malta offers a highly efficient fiscal regime which adopts double taxation on a taxed company profits distributed as dividends. Malta companies are taxed at a rate of 35%. However, a full imputation system applies to the taxation of dividends whereby the tax paid by the company is imputed as a credit to the shareholder receiving the dividend to as low as 5% (or full refund in the case of participating holding).
As a general rule, Malta domiciled Funds are exempt from Maltese income and capital gains tax as long as they do not have more than 85% of their assets situated in Malta, i.e. non-prescribed. Additionally, when properly structured, such schemes could benefit from the following tax advantages:
- No Tax on the Net Asset Value of the scheme
- No withholding tax on dividends paid to non-residents
- No tax on capital gains on the sale of units by non-residents
- No taxation on capital gains on the sale of shares or units by residents provided these are listed on the Malta Stock Exchange
From a new player in the financial services market, Malta has garnered itself a reputation as a credible player in the alternative funds space. The below are core reasons why Malta should be selected as jurisdiction of choice by fund promoters.
- Regulated Service Providers
- Growing number of Service Providers
- Qualified & Experienced Professionals
- Low Setup & Operational Costs
- Flexible & Market Driven Regulation
- Pragmatic & Prudential Regulatory Environment
- Wide Selection of Investment Structures
- Passporting Opportunites
- Favourable Tax Regime
- Geographically connected marketplace
- Easy Migration
By providing fund promoters with access to funding both within and beyond the EU, regulatory certainty, and a network of service providers that support the fund management industry, Malta will become an increasingly attractive jurisdiction for the establishment of alternative investment funds.