Malta has established itself as a leading hub for the establishment and management of investment funds, owing to its robust regulatory framework, competitive tax environment, and strategic position within the European Union. As an EU member state, Malta offers fund managers seamless access to the European market, benefiting from its harmonized regulatory environment that ensures legal certainty and operational efficiency. The country’s financial services sector has been growing steadily, with a significant rise in the number of funds and assets under management.
By June 2022, Malta had 483 licensed investment funds with a combined net asset value (NAV) of €21.2 billion, of which Alternative Investment Funds (AIFs) account for the largest share at 70.5%. With the introduction of Notified Alternative Investment Funds (NAIFs) allowing for a faster process of setting up investment funds, the figure continues to grow.
“The fund industry is growing, and we should grow with this trend.” Dr. iur. Alexander Lindemann, Managing Partner, LINDEMANNLAW AG. Conference: Navigating EU Investment Fund Frameworks: Malta’s Offering, Zurich, Switzerland, 11.09.2024.
In our insight, we explore the key aspects of establishing and managing investment funds in Malta, focusing on the jurisdiction’s unique advantages and regulatory frameworks.
What are the principal types of investment funds offered in Malta?
Malta provides a diverse range of investment fund structures, catering to different investor types and regulatory needs. Two primary fund structures are Professional Investor Funds (PIFs) and Notified Alternative Investment Funds (NAIFs).
✔ PIFs are structured for professional, experienced, or extraordinary investors. These funds offer high levels of flexibility and are not subject to significant investment restrictions, allowing for bespoke investment strategies, including hedge funds, private equity, or real estate investments. PIFs can be established in various legal forms, such as SICAVs, INVCOs, Unit Trusts, and Limited Partnerships. Investors in PIFs must meet certain eligibility criteria, including minimum investment thresholds. PIFs are categorized based on investor sophistication: Qualifying Investors (minimum €100,000), Experienced Investors (minimum €10,000), and Extraordinary Investors (minimum €750,000).
✔ NAIFs are streamlined, fast-track funds designed for professional investors. NAIFs can be launched without direct approval from the Malta Financial Services Authority (MFSA) as long as they are managed by an authorized Alternative Investment Fund Manager (AIFM). This expedites the process of setting up a fund while still adhering to the Alternative Investment Fund Managers Directive (AIFMD) requirements.
This combination of flexibility and regulatory efficiency makes Malta a preferred location for diverse fund structures.
Why is Malta considered a favorable jurisdiction for establishing investment funds?
Malta is widely recognized as a leading jurisdiction for the establishment and management of investment funds, offering a highly developed regulatory framework, a favorable tax environment, and a strategic location within the European Union. As an EU member state, Malta’s regulatory system is fully compliant with EU directives, providing fund managers with seamless access to the European market. This harmonized regulatory environment is particularly advantageous for those targeting European investors, as it ensures consistency, legal clarity, and operational ease across borders.
At the core of Malta’s appeal is the Malta Financial Services Authority (MFSA), renowned for its proactive and business-friendly regulatory framework. The MFSA goes beyond the traditional role of a regulator, fostering a close partnership with fund managers to ensure their long-term success. By adopting a principle-based approach to regulation, the MFSA offers a level of flexibility that allows fund managers to tailor their fund structures in alignment with their specific strategies and objectives. This regulatory model not only meets stringent compliance standards but also actively supports fund managers in optimizing their operations and achieving business goals, making Malta an exceptional jurisdiction for funds seeking both regulatory excellence and commercial success.
The attractiveness of Malta is further reinforced by its highly competitive tax regime. Non-prescribed funds, which focus on investments outside Malta, benefit from substantial tax exemptions on income and capital gains and Malta’s fully imputed tax system significantly reduces the effective corporate tax rate for fund managers, which we discuss in more detail in the last question.
“Malta is in a very strong position. We need to work together to become even stronger.” Doreen Balzan, Head of Investment Services Supervision, MFSA. Conference: Navigating EU Investment Fund Frameworks: Malta’s Offering, Zurich, Switzerland, 11.09.2024.
Moreover, Malta’s strength lies in its highly qualified and experienced workforce, with expertise spanning financial services, law, and accounting. The presence of global advisory firms further enhances the depth of professional support available to fund managers operating in the jurisdiction. Malta’s funds industry is not merely focused on regulatory compliance but is deeply committed to working closely with clients to ensure their success. This client-centric approach enables fund managers to benefit from a regulatory environment that is not only supportive but also aligned with their strategic ambitions.
What are the regulatory obligations for Notified Alternative Investment Funds (NAIFs) in Malta?
Notified Alternative Investment Funds (NAIFs) in Malta are subject to ongoing regulatory requirements that ensure compliance and investor protection. The key obligations include:
✔ Due Diligence: The Alternative Investment Fund Manager (AIFM) must conduct comprehensive due diligence on the service providers, governing body, and shareholders of the NAIF. This process must be continuous, ensuring that all involved parties remain compliant with the Malta Financial Services Authority (MFSA)‘s fitness and properness standards.
✔ Amendments to the Prospectus: Any changes to the NAIF’s prospectus must be notified to the MFSA. The fund’s governing body must certify that all amendments are in line with the regulatory framework, ensuring transparency and ongoing investor protection.
✔ Audited Financial Statements and Reporting: NAIFs are required to submit annual audited financial statements to the MFSA, which must also be made available to investors. Additionally, the AIFM must submit statistical returns to comply with European and Maltese reporting obligations.
✔ Random Compliance Checks: The MFSA reserves the right to conduct random checks to ensure that NAIFs adhere to the ongoing requirements. Should a NAIF fail to meet these requirements, the MFSA can remove it from the official list of NAIFs.
These obligations are designed to ensure that NAIFs operate in a compliant, transparent, and investor-friendly manner.
What are the procedural steps involved in establishing an investment fund in Malta?
The process of establishing an investment fund in Malta is streamlined and efficient, consisting of three distinct phases:
- Phase One – Preparatory Stage: The process begins with an initial meeting between the fund’s promoters and the MFSA Authorisation Unit. During this meeting, the promoters present the intended activities of the fund, and the MFSA provides a preliminary indication of whether the application can proceed. This preparatory phase ensures alignment of expectations between the applicant and the regulator.
- Phase Two – License Application: The applicant submits the required documentation, which includes draft offering documents, constitutional documents, and a completed application form. The MFSA undertakes a thorough review and conducts fit and proper tests on the promoters, directors, and other key personnel. Upon the successful completion of these assessments, the MFSA grants an “in principle” approval.
- Phase Three – Post-Licensing: Once the license is granted, the fund must address any outstanding matters, such as appointing key service providers and ensuring full compliance with all licensing conditions. The MFSA then issues the final license, permitting the fund to commence operations. The fund remains under ongoing supervision to ensure continued compliance with regulatory obligations.
The MFSA is continuously working on simplifying the application process to make it faster, more efficient and increasingly client-focused, as Doreen Balzan, Head of Investment Services Supervision at the MFSA, stated at the conference “Navigating EU Investment Fund Frameworks: Malta’s Offering” in Zurich (11.09.2024).
What is the tax environment in Malta, including double tax treaties?
Malta provides a tax environment that is designed to be efficient and beneficial for funds, fund managers and investors, positioning it as a competitive jurisdiction for the establishment of investment vehicles.
✔ Taxation of Funds: Collective investment schemes in Malta are classified as either prescribed or non-prescribed. Non-prescribed funds, which predominantly invest outside of Malta, benefit from tax exemptions, particularly on income and capital gains. Prescribed funds, on the other hand, which hold more than 85% of their assets within Malta, are subject to reduced tax rates.
✔ Taxation of Non-Residents: Non-resident investors in Malta benefit from tax exemptions on income distributions, including dividends and interest, as well as capital gains from the disposal of units in both prescribed and non-prescribed funds. This structure is particularly advantageous for international investors seeking tax-efficient investment opportunities.
✔ Double Tax Treaties: Malta has an extensive network of over 70 double tax treaties, ensuring that income generated from Maltese funds is not taxed twice. This network helps reduce the tax burden on income and provides significant benefits for both fund managers and international investors by creating a more tax-efficient investment environment.
✔ Taxation of Fund Managers: Fund managers in Malta benefit from the country’s full imputation system, which allows for a tax refund of up to 6/7ths of the 35% corporate tax rate, effectively reducing the tax rate to as low as 5%. This makes Malta one of the most tax-efficient jurisdictions for fund management.
At LINDEMANNLAW, we provide comprehensive legal support for establishing and managing investment funds in Malta. With expertise in both Maltese and Swiss regulatory frameworks, and leveraging the cooperation between the Malta Financial Services Authority (MFSA) and Swiss Financial Market Supervisory Authority (FINMA), we guide clients through fund registration and compliance confidently and efficiently.
Our experience covers all aspects of fund establishment, from licensing to ongoing regulatory compliance. We have successfully opened multiple funds in Malta, giving us a thorough understanding of the local financial landscape and strong connections with key regulatory bodies. With our in-depth market knowledge and extensive network, we can help you achieve long-term success. Contact us to find out how we can help you manage the complexities of the Maltese regulatory environment and capitalize on the opportunities within the Maltese financial sector.
