Melvyn Mangion on Malta Fund Industry
Opinion by Melvyn Mangion
INTRODUCTION TO MALTA’S FUNDS’ INDUSTRY
A brief look to why one must set-up funds in Malta or re-domicile funds to Malta: what are the advantages? — An objective assessment of the pros and cons.
In the last decade, Malta has distinguished itself as a serious and extremely adaptable jurisdiction in the field of financial services. The industry of financial services in Malta is booming. This is due to various reasons, mainly due to the fact that Malta is a low tax jurisdiction, the country is cost competitive jurisdiction, it has a stable political environment, a trusted and sophisticated legal tradition, a sophisticated financial services regime fully in line with EU directives with an extremely efficient one-stop regulator, the English language, along with the Maltese language is one of the official languages, and as from 2004 Malta became a member of the EU, with the Euro as its currency. Moreover, its geographical position makes it ideal for other business opportunities, which include the concept of using Malta as a hub as highly demonstrated by its free-port, maritime (Malta has the fifth largest ship register in the world), English language schools for foreign students, and aircraft registration and aircraft maintenance. Its proximity to southern Europe and North Africa gives more substance as much its climate, its lifestyle, and its rich culture and history.
At a glance, it is interesting to note that Malta is experiencing steady growth in the field of financial services, even more so since the accession to the EU and the adoption of the Euro as a base currency. Continued growth is predicted driven by the strong, flexible regulatory framework, quick processing of applications, an employment pool of skilled professionals and a competitive cost advantage compared with other EU jurisdictions, creating new opportunities for banks, funds, and captive insurance companies. Maltese legislation provides for the use of trusts and the PIF regime, which is the medium for hedge funds, property and private equity funds. It is good to point out that twenty-five UK fund managers set up an office in Malta last year, including ten which re-domicilated their operations from offshore domiciles such as the Channel Islands, Bermuda and the Cayman Islands. As a result of the MiFID and UCITS III EU Directives, establishing a fund in Malta would mean that one has the opportunity of passporting it throughout the EU without extra costs or to apply anew.
In particular, re-domiciling of fund-management companies is of particular interest because Malta is an extremely attractive jurisdiction which in particular offers a low-tax regime. Needless to say that Malta’s tax regime is approved by the European Union and is therefore a stable tax environment. Coupled with this, Malta has just over fifty double taxation agreements.
The Legislation
The Maltese legislation with regard to the different funds structures is principally the Investment Services Act of 1994 (as further amended) (the “ISA”). Under the ISA as the parent Act, there are issued the necessary Legal Notices, subsidiary legislation, and rules and regulations that regulate all the technical details regulating the different types of funds and the legal structures permitted.
Under the ISA we find various types of collective investment schemes or funds schemes which, once registered with the Malta Financial Services Authority (MFSA) can be operated in and from Malta, that is, at the domestic Market as well as the European and international market. One cannot operate or market a collective investment scheme in or from Malta, before a licence is issued by the MFSA. A number of compliance and regulatory requirements are attached to each type of fund type or structure.
Types of Schemes
- Professional Investor Funds (PIFs)
MFSA regulations allow only medium to high net-worth investors to set-up and/or invest in these types of structures. There are three types of investment level and such type of funds may be sold solely to investors who satisfy the minimum investment threshold:
Type (a) Extra-ordinary investor: EUR 750,000
Type (b) Qualifying investors: EUR 75,000
Type ( c) Experienced investors: EUR 10,000
In the three types of Schemes, the following offices and appointments are compulsory: a Local Representative, a Compliance officer, a Custodian (n the case only of Experienced Investors). There exist some minimum restrictions with regard to the Investment objectives, especially in the case of “Experienced Investors” and in the instance of Property Funds targeting both Maltese residents as well as non-Maltese residents. The PIF structure can be set-up in order to realise projects outside Malta, ex the purchase of immovable property in London in order to develop into business centre for office space.
Private Schemes
A private scheme is a ‘private collective investment scheme’ as that scheme which limits the total number of participants to 15 persons, which must be either close friends or relatives of the promoters, that the scheme is essentially private in nature and purpose, and that it does not qualify as a professional investor fund (PIF). Such a private scheme does not require a licence but only recognition. In view of the fact that such schemes are not considered as being licensed, the special income tax rules applicable to other types of Schemes do not apply.
Specialist Schemes
These Schemes would target special sectors such as venture capital or development funds; money market funds; property funds; and futures and options funds.
Retail Funds
Such Schemes collect funds from the general public and therefore such type of funds as the most highly regulated funds from all the four types of funds under Maltese legislation.
The big players re-locating to Malta: a proof of Malta’s potential and advantages
A clear proof that Malta is the ideal place to set-up funds or located (re-domicile) funds is the fact that during last year (2009) 25 UK fund managers set up office in Malta. Ten out of these 25 re-domiciled their operation from offshore domiciles such as the Cayman Islands, Bermuda, and the Channel Islands. The UK companies includes big names such as the £1 billion oil traders Bluegold, Pamplona Capital (£1.3 billion) and Liongate capital ($2.5 billion), as well as Finisterre, Fortelus, DAM, Altedge capital, Occam, Oceanwood, Blue Planet and Tell.
The Advantages of Investing in Malta
- The country is a stable country, both from a political as well as economical and financial point of view. The legal regime is stable, based on both the European continental system as well as the British system in the aspects of Public law and Trusts and Trustees legislation, recognised the world over for its reliability and consistency;
2. The Regulator is flexible, yet very robust and responsive within twenty-four hours. The regulator is extremely customer-oriented and efficient. An example of such customer-oriented is the fact that the officials request a meeting with the investors and the consultancy firm/law firm in order to discuss and review all the aspects of the structure and the application process and pending issues that are particular to the investors. The stability highlighted in the above paragraph is also in the case of the costs of the setting-up of funds and the on-going compliance fees: such fees not only one of the lowest in Europe (running to a few hundred Euro) but such fees do not change for years;
3. In Malta both the fiscal regime as well as the costs for the setting up and on-going regulatory compliance (annual fees) is one of the lowest in Europe. They are on par with Cayman, sometimes cheaper than Cayman. What Malta differs from the Cayman is that Malta is not after quantity but quality. The due diligence procedures and the anti-money laundering laws are enforced and adhered to. As said, the taxation system is both recognised and fully compliant with the EU as well as by the OECD. Funds domiciled in Malta pay no tax and non-resident investors are not subject to any withholding tax. There is no VAT on fund management.
In terms of a fund-structure, the promoters and investors can choose from a variety: Retail for the man in the street, the Professional Investor Funds (PIFs) for the high net worth individuals, UCITS Schemes in the case the management company wants to passport it to the European market. Moreover, a good advantage is the fact that service providers need not be set up in Malta. The only exception is in the case of UCITS (Funds that are marketed and passported to the EU and EEA States). According to the MFSA this flexibility makes Malta the most effective and efficient EU jurisdiction when re-domiciliation is being considered.
4. Fourthly, as pointed out earlier on, there is a great pool of sophisticated professionals: fund administrators, lawyers, auditors and accountants. Such sophistication of the human potential is complimented by the sophistication of the IT and telecommunications of the country, as much is its banking and financial system, which is on the soundest in the world, placing the 10th out of 134 countries. It is good to note that most of the main service providers the world over, like HSBC Bank, Sprakasse, UBS, FinBank, TMF Fund Management Administrators, Apex Fund Administrators, Blevins Franks, Maitland, and many other, have opened shop in Malta.
5. Moreover and complimenting this, the country is a safe country with a warm weather for most of the year, with rich cultural and historical heritage that spans from the pre-historical temples, down to the time of the Knights of St John, up to the British period and post Independence. Whether for business or leisure, Malta has many to offer to everyone. Malta is the place to be!
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