Malta - Q&A with Ivan Grech and Anatoli Grech
Q&A with Ivan Grech, Head of Business Development, FinanceMalta & Anatoli Grech, Executive Secretary of the Malta Funds Industry Association.
What makes Malta’s funds industry an attractive proposition?
Malta's reputation as a fund domicile was established with the island's accession to the European Union way back in May 2004. A robust yet flexible regulatory framework, a pro-business and accessible regulator and cost competitive highly skilled human resources have contributed to enable Malta set its mark as a reputable European fund domicile of choice. Testament to the robust structure and growth of the Malta Funds Industry is the `Most Favoured Fund Domicle' recognition awarded to Malta by the Hedge Funds Review in 2013 and 2014.
Today, Malta hosts over 600 investment funds which have a combined net asset value of almost EUR10 billion. While Malta has a reputation as a jurisdiction for smaller financial series companies and start-ups the fund sector is maturing and attracting sophisticated asset management activities.
What are the key benefits and features of doing business in Malta
Malta provides a cosmopolitan lifestyle in the Mediterranean. This small, friendly and welcoming island contains everything you could want to strike that perfect balance between business and pleasure. Being an island, Malta is surrounded by beautiful clear blue seas and has one of the world's best climates. Malta has also been voted the 3rd Best Country to live in by ExpatInsider in 2015.
Although the official language of the Island is Maltese, English is spoken by nearly everyone. In fact, English is the main business language, while laws and regulations are published in both Maltese and English. The island offers highly sophisticated and reliable banking, taxation, insurance, social security and communications services. Malta is also well connected to the major European airports with several airlines operating regular flights to the island.
What are the typical legal vehicles that prospective hedge fund managers need to think about when considering Malta?
The Maltese jurisdiction allows the use of a variety of legal vehicles in the context of hedge funds. In fact, a Maltese hedge fund can be structured using the following legal vehicles:
- An Investment company, with variable share capital (SICAV) or with fixed share capital (INVCO). The most popular form of Maltese investment vehicle is a corporate variable capital fund (SICAV), usually established as an open-ended fund. SICAVs also can be established as umbrella funds. A SICAV that is established as an umbrella fund may have segregation of the assets and liabilities of each of its sub-funds. The variability of a SICAV's capital allows for significant flexibility in shareholder operations. The general information relating to any company incorporation also will apply to closed-ended funds. A SICAV may also be established as a Recognised Incorporated Cell Company (RICC), enabling each sub-fund within the structure to be established as a separate incorporated cell (IC) having separate legal and juridical personality from the other sub-funds. An INVCO is a closed-ended fund to which particular rules on distribution and capitalisation of profits apply.
- A Collective Investment Scheme (CIS) also can take the form of a unit trust that is governed by Maltese law or the laws of any other jurisdiction. A unit trust is a contractual agreement entered into between the management company and the trustee.
- A fund also can be set up as a limited partnership. Limited partnerships benefit from more structural and operational flexibility.
- A CIS can also be setup as a contractual fund. Contractual funds are CISs that are set up by a deed of constitution (entered into by the fund manager and the custodian of the fund) and consequently do not have legal personality and may be an open-ended or closed-ended scheme.
Once a manager has determined the most suitable legal structure, what are the different fund structuringoptions?
A manager has various fund options depending on whether the investors being targeted are retail or non-retail. The Professional Investment Funds (PIFs), retain their popular regime targeted at increasingly financially literate investors. PIFs refer to the Experienced Investor Fund, the Qualifying Investor Fund and the Extraordinary Investor Fund. The PIF regime is a very attractive structure for non-harmonised Funds of One and Family Office Funds. The Alternative Investment Funds (AIFs) is one of the biggest recent developments to Malta's fund landscape targeting and may be retail or non-retail funds. Malta's legislation also provides for the setting up of UCITS (Undertakings for Collective Investment in Transferable Securities) and typically target retail investors.
The Notified AIF is one of the more recent product innovations. What exactly is this and what is the notification process of getting such a fund established?
Last year, the Malta Financial Services Authority launched a new framework referred to as the Notified Alternative Investment Funds regime (Notified AIF). A Notified AIF may be established in any form which may be used to establish a fund under Maltese law (including SICAV, INVCO, unit trusts, partnerships, contractual funds). A Notified AIF can be either open-ended or closed-ended. This new regime addresses time to market issues being faced by a number of AIFMs wishing to launch AIFs and market them to investors in a tight time frame to meet market opportunities.
Are there any differences between the NAIF and the PIF or Maltese AIF? And if so, who is the NAIF specifically trying to target?
Since the introduction of the AIFMD, fund managers have been facing a double regulatory burden. The NAIF seeks to address this issue. Under the NAIF regime, unlike existing Malta fund regimes, Notified AIFs will not need to be licensed, authorised, or approved by the MFSA nor will they be subject to any ongoing regulation. The NAIF framework is faster to market, easier to understand, and more cost effective than other comparable regimes.
What is Malta’s business tax regime and personal tax regime for HNW individuals living on the island?
Malta offers a tax-friendly base for financial services companies, operating a full imputation tax system. While all companies pay tax at a rate of 35%, certain shareholders are entitled to refunds for the tax paid by the company and there is no withholding tax on dividends. In addition, companies benefit from a wide network of double tax treaties covering most of the world's high growth markets facilitating international business. This combined with a number of other incentives make the costs of doing business in Malta around 30% cheaper than in other European jurisdictions. Individuals are charged on their income at progressive tax rates up to a maximum of 35%.
How would you describe the MFSA and Malta’s overall regulatory environment?
Malta's financial regulatory framework is among one of the most robust in the world and is fully harmonised with EU and OECD rules, while still being sophisticated enough to remain a flexible platform for the financial services industry. The proactive approach taken by the Malta Financial Services Authority, Malta's single regulator, has supported the country in becoming a leading financial centre in Europe. The MFSA is thorough in their regulation but easy to approach. The MFSA establishes constructive working relationships with companies investing in Malta, which helps ensure a smoother start up and full compliance with all regulatory standards.