elcome to our first newsletter of 2022, published in collaboration with BOV Fund Services Malta’s leading fund services provider.
Asset Managers & Investors: Why Malta?
• Malta offers flexible regulation based on circumstances and investor markets;
• Maltese Professional Investor funds can utilize Swiss banks as safekeepers/custodians;
• Malta has competitive setup & operational running costs compared to other jurisdictions;
• Malta’s regulator is accessible, pro-business, innovative and efficient.
Answers to the 5 most frequently asked questions
1. What are the Maltese regulatory requirements for investment funds?
Investment funds in Malta may be categorized as retail funds (UCITS) or alternative funds, such as Alternative Investment Funds (AIFs), Notified AIFs (NAIFs), Professional Investor Funds (PIFs) and Private Collective Investment Schemes (Private CISs). The latter 3 alternative fund types are unique to the Maltese jurisdiction, with NAIFs and Private CISs not being subject to any licensing requirements, but requiring solely a notification to, or recognition by the Malta Financial Services Authority (MFSA). UCITS and AIFs are funds regulated respectively by the EU UCITS and AIFMD Directives, thus the requirements in terms of regulation are similar across every EU member state. Professional Investor Funds (PIFs). The PIF regime is available to de minimis EU fund managers managing assets less than €100 million (or €500 million if unleveraged and with an initial 5-year lock-in period for investors) as well as third country (non-EU)managers, including Swiss managers regulated by FINMA or even Swiss advisors that are members of Swiss self-regulatory organisations. PIFs may also be set up as a self-managed funds, which is a very popular option among startup managers or individual players looking to set up a fund in Europe. PIFs are more suitable for de minimis investment managers and are the best fit for wealth managers specializing on private clients. PIFs offer a less onerous alternative regime of regulation when compared to AIFs, and thus also more flexibilities, cost efficiencies and lesser restrictions. PIFs have no required leverage and investment restrictions, no diversification requirements, and no need to appoint a custodian, rather safekeeping arrangements suffice, e.g. with Swiss banks or prime brokers. A PIF may also be listed on the Malta Stock Exchange, in which case a PIF would be able to target certain institutional investors, such as pension funds, which are restricted to acquiring units in listed schemes. The advantages of a listed PIF would be increased transparency and increased liquidity. Notified Alternative Investment Funds (NAIFs). The Notified AIF is a product available exclusively to EU AIFMs regulated under the AIFMD. It allows such managers to structure EU AIFs without the need to go through any lengthy authorization processes, and within a maximum timeframe of 10 working days. Since the manager is already regulated under the EU AIFMD Directive, the MFSA here places full reliance on the regulated manager to perform the necessary due diligence on the involved parties, functionaries and service providers and ensure that all the necessary arrangements are in place.
2. What are the substance requirements for an investment fund in Malta?
Collective Investment Schemes in Malta are generally set up as SICAVs, being investment companies with variable share capital. Maltese SICAVs are required to have a Board of Directors, composed of at least 3 individuals, one of whom would need to be based in Malta and who would also normally cover the roles of Money Laundering Reporting Officer (MLRO) and Compliance Officer. In the case of a self-managed PIF, the SICAV would also appoint an Investment Committee which is to be composed of 3 individuals, one of whom would need to be in Malta. Any one of the IC members may be appointed as the designated Portfolio Manager, responsible for carrying out the day-to-day investment management function of the fund. All members of the IC will need to undergo the necessary competence and experience tests as required by the MFSA, with particular focus on the Portfolio Manager. The Board and Investment Committee are expected to convene a minimum of 4 times every year, with the majority of these meetings being held at the registered office of the fund. Maltese investment funds are also required to appoint a Fund Administrator, such as BOV Fund Services, and an Auditor which must be based in Malta. In the case of NAIFs, it is also necessary to appoint a local depositary, while PIFs only require adequate safekeeping arrangements to be in place, e.g. appointing a prime broker to hold the assets and execute the trades. Such safekeeper is not required to be based in Malta.
3. What is the tax regime in Malta for Collective Investment Schemes?
Maltese funds are generally not subject to Malta tax. There is no capital gains tax and no withholding tax on dividends and interest paid to non-residents. Funds having more than 85% of their underlying assets situated outside Malta are also not subject to any income or company tax. Malta also has excellent and extensive double tax treaties with more than 80 countries.
4. How can Maltese Funds be marketed in EU and Switzerland?
Units of UCITS, AIFs and NAIFs may be actively marketed in other Member States or EEA States by means of the “EU Passporting.” Thus the NAIF in turn allows a fast-track solution for AIFMs to set up an AIF in Europe, which also benefits from the EU passport to actively distribute across member states, with a very quick time-to-market. Falling outside of the scope of the AIFMD, PIFs may avail themselves of existing EU member state’s national private placement regulatory regimes in order to market PIFs, insofar such regimes are retained by the respective EU member states. In Switzerland, a Swiss representative and a Swiss paying agent are required when a foreign fund, including PIFs, is offered to high-net-worth individuals who wish to be considered qualified investors (opt out). Offering of foreign funds may qualify as a financial service, therefore, client advisors of a financial service provider may have to register with a Swiss register of advisers.
5. What’s next for Malta?
Key industry stakeholders, including MFSA continue to develop the funds and asset management sector. MFSA has proposed the introduction of a Notified PIF regime (which does not require to hold a license, will be managed by an authorised EU- de minimis AIFM or authorised non-EU AIFM and will not be self-managed), registered de minimis AIFMs (which does not require to hold an investment services license) and extension of tax exemption to Private CIS (which will increase popularity of Private CISs). Do you have any questions? – We look forward to hearing from you!
