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Malta Funds

Malta Funds Formation Packages

€7,450 – Malta Private Funds (CIS) License

*** Click Here for a Full Written Quotation ***

A Private Fund is a valid alternative to clients who wish to set up a collective investment scheme in a reputable jurisdiction, without the regulatory constrictions brought about by licensed Malta Funds.  Private Funds are regulated but not licensable, and although they constrain the promoters to a more limited pool of investors when compared to its licensed counterpart, it does not require the engagement of external fund managers or of fund administrators, thereby appealing to promoters who may require a swifter and less onerous path to a collective investment scheme.

As corporate and financial service providers, we pride ourselves as catering for all solutions, from the full-fledged regulatory such a Malta Funds to the smaller-scale solutions – e.g. Malta Private Funds.

As part of the FBS Kotsomitis Global Network, we can draw from a plethora of experience and expertise in the financial services.  Our Malta-based partners have a proven track-record in assisting clients successfully pursue their objectives in the financial services.  We can provide you with a one-stop shop for your Malta Private Funds.

Legal Services

We can assist you in the review and drafting of the following regulatory requirements:

  • Company formation and registered address and company secretarial services;
  • Drafting of MAs;
  • Drafting of investment objectives and policies of the scheme;
  • Application letter for recognition;
  • Vetting of PQs of original directors and original participants to the scheme;
  • Drafting of letter regarding close proximity of participants to promoters;
  • letter of undertaking that the scheme is a Private Collective Investment Schemes

Malta Company Formation Services

 Malta Private Funds require a spectrum of corporate services to ensure that the correct corporate governance is maintained at all times.  Our assistance for private collective investments schemes is extended to the formation of the fund in all its possible regulatory forms, to the provision of corporate officers and full accounting services.

Malta FOREX and Funds Licensing Procedures Overview

In this section you can find extensive information and facts about Malta FOREX and Malta Funds licensing procedures and requirements.

For quick navigation and a complete walk-through of the relevant service, follow the links below:

Malta has won ever increasing recognition and increased its clout as a financial center with  its sophisticated regulatory framework.  Today, financial services account from approximately 12% of the island’s Gross Domestic Product (expected to increase two-fold by 2025) with over 7,000 persons employed in the industry.

The main reasons for this rapid expansion may be summarized as follows:

  • Highly-responsive, receptive and reputable regulator;
  • Relatively low-costs;
  • EU-passporting rights;
  • Highly skilled, multilingual workforce

The main driving force however, has been the enactment of sophisticated and flexible legislation.  One such measures is the re-domicliation of companies in and from Malta is permissible even for licensed entities, minimizing costs and circumventing the need to liquidate these entities.  Other examples include the use of Incorporated Cell Companies, Protected Cell Companies and the use of  Unit Trusts and Contractual Funds as Collective Investment Schemes.

The banking sector has proven its resilience by weathering the international recession through solid fundamentals and sound systems.  The World Economic Forum’s Competitiveness Index 2009-2010 has ranked Malta’s Banking System as the 13th soundest in the world.  In a similar vein, the City of London’s Global Financial Centers Index, has ranked Malta fourth out of 66 jurisdictions as a center “that is most likely to increase in importance over the next few years“, behind only Dubai, Shanghai and Singapore.  More impressively as of 2011, rating agency Moody’s has re-confirmed Malta’s A1 rating.

The Funds industry has registered steady growth and as of 2010, over 400 funds, mostly Professional Investor Funds have been domiciled in Malta, with a combined net asset value in excess of EUR 7 billion.

In the insurance sector, there are over 40 insurance companies, particularly Captive Insurances and protected cell companies, domiciled in Malta.

Contact one of our officers to get information about Malta FOREX and Funds Licensing Procedures and initiate the process for the licensing of any financial services activity in Malta. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

We are committed to providing you with a swift solution best suited to your needs.

Malta Investment Services Licence

Article 3 of the Investment Services Act (Chapter 370 of the Laws of Malta) (“ISA”) provides that:

  •  No person shall provide, or hold themselves out as providing, an investment service in or from within Malta unless they are in possession of a valid investment services licence; and
  •  No body corporate, unincorporated body or association formed in accordance with or existing under the laws of Malta, shall provide or hold itself out as providing an investment service in or from within a country, territory or other place outside Malta unless it is in possession of a valid investment services licence.

An “investment service” is defined by the ISA as any service falling within the First Schedule to the Act when provided in relation to an instrument.  There are different categories of investment services licences, summarised  in the table below:

Category
1a Licence Holders authorised to receive and transmit orders in relation to one or more instruments and/or provide investment advice and/or place instruments without a firm commitment basis but not to hold or control Clients’ Money or Customers’ Assets. (This Category does not include managers of Collective Investment Schemes.)
1b Licence Holders authorised to receive and transmit orders in relation to one or more instruments and/or provide investment advice and/or place instruments without a firm commitment basis solely for Professional Clients and/or Eligible Counterparties but not to hold or control Clients’ Money or Customers’ Assets.
2 Licence Holders authorised to provide any Investment Service, and to hold or control Clients’ Money or Customers’ Assets, but not to operate a multilateral trading facility or deal for their own account or underwrite or place instruments on a firm commitment basis.This Category includes fund managers of Collective Investment Schemes as well as online FOREX traders acting as a riskless principal (white label partner).
3 Licence Holders authorised to provide any Investment Service and to hold and control Clients’ Money or Customers’ Assets.This Category includes FOREX Companies dealing on own account.
4 Licence Holders authorised to act as trustees or custodians of Collective Investment Schemes.

 

Instruments

The eligible instruments under the Act, as set forth in the Second Schedule include:

  • Transferable securities;
  • Money Market Securities;
  • Units in Collective Investment Schemes;
  • Options, Futures, Swaps, Forward Rate Agreements and other derivative contracts relating to securities, currencies, interest rates, yields, or other derivative instruments, financial indices or financial measures;
  • Options, Futures, Swaps, Forward Rate Agreements and other derivative contracts relating to commodities;
  • Options, Futures, Swaps, Forward Rate Agreements and other derivative contracts relating to commodities that can be settled provided they are traded on a regulated market;
  • Options, Futures, Swaps, Forward Rate Agreements and other derivative contracts relating commodities that can be settled through recognised clearing houses;
  • Derivative instruments for the transfer of credit risk;
  • Rights under a contract of difference intended to secure a profit or avoid a loss;
  • Options, Futures, Swaps, Forward Rate Agreements and other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates that must be settled in cash and which are traded on a regulated market;
  • Certificate or other instruments which confer property rights in respect of any of the aforesaid instruments;
  • Foreign exchange acquired or held for investment purposes.

Licensing process

The regulatory Authority for the issuance of an investment services licence is the Malta Financial Services Authority (“MFSA”).  The application process may be summarised as follows:

Prepatory

It is strongly advisable that the promoters arrange a preliminary meeting with representatives of the MFSA to explain their proposal. A draft application form together with supporting documentation is submitted to MFSA, which application shall only be accepted if such application is drawn up in proper form.  The draft application form and the supporting documentation will be reviewed by the MFSA.   The MFSA will also carry out the “fit and proper” checks at this stage. The MFSA will consider the nature of the proposed activity and a decision will be made regarding which “Standard Licence Conditions” (SLCs) should apply.

The application for an investment services licence must be submitted to the MFSA and should include the following documents:

  • the completed form “Application for an Investment Services Licence”;
  • covering letter (template included in the Application form);
  • Auditor’s Confirmation (template included in the Application form);
  • supporting Board Resolution;
  • a completed financial resources statement form;
  • projected profit and loss account and balance sheet for the three years after the licence is issued;
  • where appropriate, copies of the last three years audited accounts of the applicant and other relevant related companies;
  • Memorandum and Articles of Association (or Partnership Agreement) of applicant;
  • specimen copies of the insurance policies and draft schedule/cover note (where applicable), and ‘Insurance Checklist’;
  • completed Personal Questionnaire forms for each shareholder, director, and senior officer of the applicant (the PQs should include a certified copy of the person’s passport and a conduct certificate);
  • Memorandum and Articles of Association of corporate shareholders of the applicant;
  • a chart which illustrates the internal operational structure of the applicant’s business (this should show names, reporting lines and roles);
  • where the applicant Company/Partnership forms part of a Group, a diagram showing the relationships between the applicant and other members of the Group.  The “family tree” submitted should give details up to the ultimate beneficial owner(s), showing percentage sizes of holdings in each entity; unless (a) the entity has one ultimate beneficial owner with a holding of over 50% of the voting rights or (b) no less than fifty ultimate beneficial owners who between them account for over 50% of the voting rights.  If (a) or (b) apply, it will only be necessary to give details of the ultimate beneficial owners with holdings of 10% or more.

Pre-licensing

Pursuant to the review of the draft application and supporting documents, the MFSA will issue its “in principle” approval for the issue of the Licence.

The licence will be issued once the outstanding matters are resolved, including the incorporation of the company (or registration of partnership), submission of signed copies of revised application and supporting documents in their final format, and any other issues raised during the Application process.

Post-licensing

The MFSA may require the applicant to meet certainpost-licensing requirements prior to formal commencement of business.

Exercise of EU passporting rights

Licence holders in possesion of an investment services licence issued by the MFSA under the ISA in relation to one or more investment services which qualify as ‘core’ services under Section A of Annex 1 of the Markets in Financial Instruments Directive (‘MiFID’) may offer such services (and, if covered by the MFSA licence, also the MiFID ancillary services listed in Section B of Annex 1 of the MiFID Directive) in other EU/EEA States, through the provision of cross-border services or through the establishment of a branch, without requiring another licence in such other EU/EEA State, and this on the basis of the passporting rights granted by MiFID.

Licence holders will be required to follow the notification procedure indicated in the European Passport Rights for Investment Firms Regulations, 2007 as subsequently amended (and submit a notification letter to MFSA in the form set out in Schedule D or, as the case may be, Schedule E of the Investment Services Providers Rules) before they can commence to provide services in another EU/EEA Member State on a remote basis under the freedom of services or by means of the establishment of a branch.

In terms of MiFID itself, the promotion rules as well as some conduct of business and transaction reporting rules and requirements of the relevant EU Member State may need to be adhered to, in particular if the Maltese licence holder exercises its passport rights through the establishment of a branch in such EU Member State.

Provision of services in non-EU/EEA jurisdictions

If the licence holder wishes to provide the above-mentioned services in another jurisdiction outside the EU/EEA, the passport rights will not be available to it and it would, in all probability need a licence/authorisation in the jurisdiction concerned in terms of the laws of such jurisdiction and would then need to comply with the laws and rules of such jurisdiction applicable to the services being provided.

Standard Licence Conditions / On-going requirements

The licensing process will comprise the consideration and finalisation of the conditions which will apply to and be incorporated in the investment services licence applied for.  Whilst slight variations to some of them may be agreed to by MFSA (depending on the circumstances of each particular case), the said licence conditions will generally consist of the Standard Licence Conditions set out in Part B of the Investment Services Rules for Investment Services Providers, as applicable to the licence applied for.  These deal ‘inter alia’ with:

  • general organisational requirements;
  • conduct of business rules (including client classification and profiling, client reporting, retail client agreement, best execution requirements, client order handling rules, record keeping, safeguarding of clients’ assets, conflicts of interests, staff dealing, provision of information, complaints handling);
  • disclosure requirements for information to clients (transparency), including marketing communications;
  • outsourcing;
  • financial reporting, accounting and record keeping;
  • transaction reporting; etc

Licence Holders are required to comply with these conditions on an on-going basis and are therefore expected to be familiar with the Investment Services Rules for Investment Services Providers and relevant Guidance Notes issued by the MFSA.

MLRO and Compliance Officer

Every Applicant is required (as part of the licensing process) to identify an individual who will be responsible for ensuring the Licence Holder’s adherence to the Licence Conditions listed in the Investment Services Rules for Investment Services Providers.

Furthermore, Licence Holders are required to appoint a Money Laundering Reporting Officer (“MLRO”) to ensure compliance by the Licence Holder with its obligations under Anti-Money Laundering laws, regulations and relevant Guidance notes.  The MLRO is expected to familiarise himself/herself with these (these will eventually be provided upon request).  The person assuming this role may or may not act as Compliance Officer.

Licensing and supervisory fees

 The Applicable fees are set forth in the Investment Services Act (Licence and Other Fees) Regulations and are summarised as follows:-

Licence Category Application Fee Licence Fee Supervisory Fee
Category 1a €750 €1,300 €1,300 (for revenue up to €50,000.Further tranches of €50,000 up to a maximum of €1,000,000 chargeable at €250 per tranche or part thereof
Category 1b €750 €1,800 €1,800(for revenue up to €50,000.Further tranches of €50,000 up to a maximum of €1,000,000 chargeable at €250 per tranche or part thereof
Category 2 €1,500 €3,000 €3,000 (for revenue up to €250,000.Further tranches of €250,000 up to a maximum of €5,000,000 chargeable at €350 per tranche or part thereof
Category 3 €2,000 €4,000 €4,000 (for revenue up to €250,000.Further tranches of €250,000 up to a maximum of €5,000,000 chargeable at €350 per tranche or part thereof
Category 4 €4,000 €10,000 €10,000

Re-domiciliation

Investment service licence-holders based in foreign jurisdictions as corporate entities can transfer their operations to Malta without the need to wind up their operations, by re-domiciliating the company to Malta, through the procedure set forth in the Continuation of Companies Regulations.  Re-domiciliation allows the corporate entity to retain its legal personality and corporate existence (as well as its rights and liabilities under contracts and at law) without having to start afresh.

Click here for a detailed explanation of the Re-Domiciliation of Corporate Entities

Taxation

Like all companies resident in Malta, companies holding one or more investment services licences, would be subject to income tax on company profits at a rate of 35%. However, this is subject to Malta’s full imputation tax system, wherein tax paid by a company in Malta is, on the distribution of a final dividends, imputed to the shareholder as a tax credit against the shareholders’ tax liability. Therefore, a shareholder will, upon a distribution of the dividend, be entitled to a refund in part or in full of any advance tax levied on the distributing company.

The full imputation tax credit thereby renders Maltese companies highly efficient tax vehicles, with a number of applicable refunds to shareholders possible. The default refund applicable to a fund administrator company in respect of active trading income, is a refund of 6/7ths.

Furthermore, foreign tax paid can be taken into account for purposes of the refund calculation, subject to the maximum refund not exceeding Malta tax paid.  Effectively, it is possible to envisage situations where no Maltese tax leakage would be suffered by the investment services company in the manner set forth below:

Maltese Company No Foreign Tax With Foreign Tax
Net Foreign Income 2000 2000
Grossing up with Foreign Tax 0 105
Chargeable Income 2000 2105
Tax at 35% 700 737
Credit- Double Tax Relief 0 105
Malta Tax Payable
(tax at 35% less tax credit)
700 632
Shareholder of Maltese Company
Refund on distribution
(6/7 of Malta Tax Payable)
600 632*
Effective Tax Paid in Malta 100 0
Effective Tax leakage in Malta on Net Income 5% 0%

*632 (6/7ths of 737)

Click here for a more thorough understanding of the TAX TREATMENT OF THE MALTA COMPANY

Contact one of our officers to initiate the licensing for a Maltese Investment Services Licence and start reaping full benefits of a reputable, low-tax EU jurisdiction. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

Malta Collective Investment Schemes

Collective investment schemes (CIS) that issue or create units or carry on any activity “in or from within Malta” require a collective investment scheme licence issued by the Malta Financial Services Authority (“MFSA”).  An exception is made with regard to private collective investment schemes and employee participation schemes.

CIS can take the form of Undertakings for Collective Investment in Transferable Securities (“UCITS”) or Professional Investor Funds (“PIFs“).  Irrespective of the form, a CIS must satisfy the criteria set forth in Article 2 of the Investment Services Act (Chapter 370 of the Laws of Malta – “ISA”), and have as its objects the collective invesment of capital acquired by means of an offer of units for subscription, sale or exchange which has the following characteristics:-

  • The scheme or arrangement operates according to the principle of risk spreading; and either
  • The contributions of the participants and the profits or income out of which payments are to be made to them are pooled; or
  • At the request of the holders, units are or are to be repurchased or redeemed out of the assets of the scheme or arrangement, continuously or in blocks of short intervals; or
  • units are, or have been, or will be issued continuously or in blocks at short intervals.

Risk Spreading

Diversification is a key element in all CIS.  Stringent risk-spreading rules apply to UCITS, whereas laxer principles of risk-spreading are permissible with regard to PIFs (although this shall be susceptible to changes pursuant to the transposition of the Directive of Alternative Investment Fund Managers).

Pooling of Resources

Although there is no set minimum number, the very definition of CIS presupposes a plurality of investors.  Consequently, one of the most popular corporate forms of CIS are public limited companies with variable share capital (“SICAVs”).

Redemption of Units

One of the hallmarks of a CIS is that investors can freely transfer or acquire Units in a CIS.   However this power may be restricted by the Offering Supplement of the CIS, such as in close-ended schemes and through the inclusion of redemption gate provisions, particularly where the underlying investment of the CIS consists of illiquid assets e.g. real estate.  Nevertheless, where the investment objectives of a PIF are proposed to be changed, the fund managers must seek the written consent of all investors of the CIS, and the investors shall have the discretion to redeem their units within the Scheme.

Units

The Units mean any representation of the rights and interests of the participants in a CIS, and are recognised as a financial Instrument within the definition set forth in the Second Schedule of the ISA

Contact one of our officers for more information about Collective Investment Schemes in Malta. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

We are committed to providing you with a swift solution best suited to your needs.

Listing of Collective Investment Schemes in Malta

Collective Investment Schemes (CIS) which issue or create units or carry on any activity “in or from within Malta” require a collective investment scheme licence issued by the Malta Financial Services Authority (“MFSA”).  CIS may, subject to the submission of applicatiosn for admissibility to listing of units in a CIS, be authorised to list their units by the Listing Authority (also the MFSA).

Suitability for listing hinges on several factors, chief amongst which is compliance with the relevant requirements laid down in the listing rules, as amended from time to time, as well as any special condition which it may consider appropriate in the interests of investors.

The application procedures and requirements, listed hereunder, are limited to the principal procedures and requirements for open ended Schemes seeking authorisation for admissibility for primary listing. Different or additional requirements apply for secondary listings of open ended Schemes and for primary or secondary listings of close ended Schemes – reference is made to Chapter 15 of the MFSA Listing Rules: “Admissibility Requirements for Collective Investment Schemes”.

Requirements and Conditions to be fulfilled by the scheme

In order to be eligible for the listing, the CIS  must be:

  • duly licensed by the MFSA pursuant to the provisions of the Investment Services Act (ISA); or
  • an Undertaking for Collective Investment in Transferable Securities (UCITS) licensed by a regulatory authority in a Member State or EEA State.

Apart from the above general requirement, an open ended CIS seeking authorisation for primary listing, must satisfy a number of additional critieria, summarised below:

  • The units in the CIS should be freely transferable;
  • The number of Directors of a scheme should at least be one (provided that the MFSA may request the presence of one or more non-executive Directors who are independent of the manager for the bolstering of local presence);
  • The Directors must be individuals (not corporate entities) – a slight exception is allowed if the corporate director is the manager of the CIS.
  • A scheme should adopt rules governing dealings by Directors which will preclude them from dealing in the listed units of the scheme at a time when they are in possession of price-sensitive information.
  • Copies of the Directors’ service contracts, if any, should be made available to the general public for inspection at the time of the Annual General Meeting of the CIS.
  • Any other activity of the Directors, manager or investment adviser should not result in the scheme being disadvantaged in any way due to possible conflicts of interest between their obligations arising as a result of such activities and their obligations to the Scheme.

The directors are personally responsible for the information contained in the Prospectus, and they have to acknowledge to the MFSA in writing that they accept full responsibility collectively and individually for the CIS’ compliance with all the requirements and continuing obligations, whether in terms of the Listing Rules or otherwise.

Formal Application for Authorisation for Admissibility for Primary Listing

All applicants seeking admissibility to listing of its units are required to appoint a sponsor (who must be a person, independent of the issuer/scheme, and be in possession of a category II licence issued in erms of the Investment Services Act), which shall have various responsibilities, amongst which the responsibility of preparing the applicant for authorisation for admissibility to listing and for dealing with the Listing Authority on all matters arising in connection with the application.

A formal application for authorisation for admissibility to listing, in accordance with the application form provided by the MFSA, is to be lodged with the Listing Authority at least five (5) business days prior to the date of hearing of the application by the Listing Committee of the Listing Authority.

The application form is to be:

  • Duly completed and signed by a duly authorized representative of the scheme and the sponsor; and
  • Signed by a duly authorised officer for and on behalf of the scheme and, if appropriate, the management company, in the case of any other form of Collective Investment Scheme

Furthermore, the formal application shall be accompanied by the following documents:

  • One copy of the Prospectus (the requirements in relation to which are further elaborated below) marked in the margin to indicate where the relevant requirements of the Listing Rules have been met; and
  • Any other document or information which the Listing Authority may require.

Each application is assessed on its own merits and, on the basis of the relevant circumstances, and the MFSA may modify or request additional authorisation requirements as it deems necessary.

Timing

The MFSA shall notify the applicant of its decision to accept or refuse an application for admissibility to listing:

  • Within forty (40) days beginning with the date on which the application is received; or
  • If within that period the Listing Authority has required the applicant to provide further information in connection with the application, before the end of the period of forty days beginning with the date on which that information is provided.

Prospectus Requirements

Every Prospectus which is submitted to the Listing Authority by or on behalf of the CIS in support of an application for authorisation for Admissibility to Listing, apart from satisfying the general requirements applicable in relation to Prospectuses, must on pain of nulltity, contain the following statements:

  •  A statement that application has been made to a Recognised Investment Exchange for admission to listing, of the units issued or to be issued by the scheme;
  • Any additional information as may be required by the Listing Authority;
  • The name of the Recognised Investment Exchange on which the primary listing is or is to be;
  • Particulars of any other Recognised Investment Exchange on which any of the units are listed or dealt in or where listing or permission to deal is being sought or an appropriate negative statement; and
  • Particulars of any exchange where the scheme had previously sought a listing but had been refused and the reasons for such a refusal.

A scheme shall also include in its Prospectus any holdings of its units registered in the name of any one of its Directors, his/her spouse or minor children or of any person connected with the Director.

The Prospectus shall be accompanied by a letter signed by every Director of the scheme confirming that the Prospectus includes all such information within their knowledge (or which it would be reasonable for them to obtain) that investors and their professional advisers would reasonably require and reasonably expect to find for the purpose of making an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Scheme and of the rights attaching to the units to which the Prospectus relates.

Every Prospectus and Supplements thereto, which may be required by the MFSA, are to contain on the front cover of the Document a prominent and legible disclaimer stating that: “The Listing Authority accepts no responsibility for the accuracy or completeness of this document and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document.”

Application for Admission to the Malta Stock Exchange

Concurrently with the application for admissibility to the MFSA, an application form for admission to any of the Exchange’s recognised lists must be submitted to the  Malta Stock Exchange.  The Board of the Exchange must approve or reject the application within five (5) working days from receipt of confirmation of admissibility from the MFSA.  This is an independent process, the outcome of which is not necessarily identical to the admissibility granted by the MFSA.

MFSA Admission Fees

Every application for admissibility to listing must be accompanied by an initial (processing) non-refundable fee of €1,165.  A 50%  reduction will apply if the CIS has a primary listing on an overseas exchange).

MSE Admission Fees

An annual admission fee of € 1,160 (for the scheme) will be paid immediately upon admission, one year in advance and subsequently shall be paid within one month of the anniversary of admission.

In the case of an umbrella scheme with sub-funds, in addition to the above-mentioned annual admission fee for the scheme there shall also be paid in the following manner:

On the first five (5) sub-funds – € 1,160 per sub–fund;

On the 6th to the 10th sub-funds – € 930 per sub-fund;

On the 11th to the 15th sub-funds – € 695 per sub-fund;

Thereafter – € 465 per sub-fund.

We can assist you in all matters relating to the licensing of the CIS, as well as the listing thereof.  Contact one of our officers for more information about the listing of Collective Investment Schemes in Malta. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

We are committed to providing you with a swift solution best suited to your needs.

Malta Private Collective Investment Schemes

An interesting alternative to licensed collective investment schemes are private schemes. Private Scheme are not subject to a licence in terms of the Investment Services Act (the “Act”) in order to provide investment services in or from Malta or to use Malta as a ‘base’ for this reason, but shall instead be subject to recognition by the Authority, the Malta Financial Services Authority.

The Authority will only grant recognition to private schemes if the following conditions are met:

(i) if it is satisfied that the Private Scheme complies in all respects with the provisions of the Act, Investment Services Act (Recognition of Private Collective Investment Schemes) Regulations and the Rules/ Guidelines issued it under the authority of the Act; and

(ii) if the directors and other officers and participants of the scheme are fit and proper persons to carry out the functions required of them in connection with the Scheme. The identity of the ultimate beneficial owners must be made known to the Malta Financial Services Authority.

The “fit and proper” test is one which an Applicant and a Recognised Private Scheme must satisfy on a continuing basis.  However, the MFSA will limit its due diligence only on the integrity of the persons concerned, and contrary to the litmus test applied to licensed schemes, the Authority will not assess the technical  competence of the persons responsible for managing the Scheme, and will not subject the Private Scheme to any investment or borrowing restrictions or other conditions other than those which may be specified in the recognition certificate issued by the Authority.

Any recognition granted in terms of these regulations shall not be deemed to be a licence for the purpose of articles 2 and 12 of the Income Tax Act, meaning that the special income tax rules applicable to other types of schemes do not apply.  This basically means that the blanket exemption granted to regulated schemes will not apply, and the company will essentially be subject to the same tax treatment, which Maltese incorporated companies may avail themselves of.  Furthermore, a recognised Private Scheme need not appoint an external manager and cannot be listed on the Malta Stock Exchange.

Requirements

In order to be recognised as ‘Private’ a collective investment scheme must:

1.limit the total number of participants to fifteen persons;

2.the participants must be close friends or relatives of the promoters;

3.the Authority must be satisfied that the scheme is essentially private in nature and purpose; and

4.the scheme must not qualify as a professional investor fund in terms of guidelines issued for this purpose by the Authority.

One of the participants in a Private Collective Investment Scheme (a “Private Scheme”) may be a body corporate, subject to the following restrictions, requirements and conditions:

1.taking into account the ultimate individual beneficial owners of such company, the maximum number of 15 participants is still satisfied;

2.the company’s ultimate individual beneficial owners are close friends or relatives of the promoters;

3.the company is in no manner involved in the management or administration of the scheme and its connection with the scheme is merely that of investor.

Contact one of our officers to initiate the incorporation of a Maltese registered company and start reaping the full benefits of an onshore, low-tax, EU jurisdiction. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

We are committed to providing you with a swift solution best suited to your needs.

UCITS situated in Malta

Barring statutory exemptions e.g. employee participation schemes, all collective investment schemes (CIS) that issue or create units or carry on any activity “in or from within Malta”, require a collective investment scheme licence issued by the Malta Financial Services Authority (“MFSA”).

One form of CIS are retail CIS qualifying as Undertakings for Collective Investment in Transferable Securities (“UCITS”) situated in Malta, which are subject to the rules set out in Council Directive 85/611/EEC of 20 December 1985 (UCITS III).  The transposition and implementation of Directive 2009/65/EC (UCITS IV) shall be enacted as of 1 July 2011.

Characteristics of a UCITS

The CIS and any of its sub-funds must have the following characteristics, all of which must be satisfied cumulatively:

  • have as its sole object the collective investment in transferable securities and/or in other liquid financial assets, or capital raised from the public, and operate on the principle of risk-spreading;
  • have units which, at the request of holders, may be repurchased or redeemed, directly or indirectly, out of its assets;
  • have investment and borrowing policies in conformity with those specified by the MFSA; and
  • be open-ended;

Similarly to Professional Investor Funds a UCITS Scheme may be set up as:

  • an investment company with variable share capital (SICAV); or
  • a limited partnership; or
  • a unit trust; or
  • a common contractual fund

Likewise, UCITS may be organised as umbrella schemes with one or more sub-funds, with each sub-fund having a patrimony separate from the assets and liabilities of each other sub-fund, or as a fund of funds.

Service Providers

A UCITS may be either self-managed or externally managed.

Self-managed UCITS operating in and from Malta, as subject to a minimum share capital requirements of €300,000, which must be maintained at all times.  The management of the assets of a self-managed UCITS is entrusted, in the case of corporate structures, to the board of directors, which must comprise at least one resident director.

The Board must establish an in-house Investment Committee made up of at least three members, who must meet at least on a quarterly basis and the majority of the meetings must be held in Malta.  Nevertheless, the Investment Committee may delegate the day-to-day investment management of the UCITS’s assets either to Portfolio Managers or to a third party manager acceptable to the MFSA.

Alternatively, a UCITS can appoint a Maltese UCITS management company as its external investment manager.  For safe-keeping purposes and in exercise of a monitoring function, the assets of the UCITS must be entrusted to a custodian, which must have an established place of business in Malta and be a credit institution licensed under the laws of Malta, or such other body corporate, unincorporated body or association acceptable to the MFSA.

The UCITS need also appoint an auditor and a fund administrator recognised by the MFSA.  The UCITS may appoint a third party investment adviser, who may also be approved by the MFSA, but need not be established and regulated in Malta.  Such party investment advisor may not enjoy any discretion with respect to the investment and re-investment of the assets of the UCITS.

Licensing

The MFSA will only issue a licence to a UCITS if it is satisfied that its directors and officers are “fit and proper” persons.  In reaching its conclusions, the MFSA will evaluate the experience and track record of the proposed candidates and ensure that parties are of good character.

Thereinafter, the licensing process can be summarised as follows:

Prepatory

It is strongly advisable that the promoters arrange a preliminary meeting with representatives of the MFSA to explain their proposal.

A draft application form together with supporting documentation is submitted to MFSA, which application shall only be accepted if such application is drawn up in proper form.  The draft application form and the supporting documentation will be reviewed by the MFSA.  Feedback is generally provided within three to four weeks from submission of the application documents. The MFSA will also carry out the “fit and proper” checks at this stage. The MFSA will consider the nature of the proposed CIS and a decision will be made regarding which “Standard Licence Conditions” (SLCs) should apply.

Pre-licensing

Pursuant to the review of the draft application and supporting documents, the MFSA will issue its “in principle” approval for the issue of the Licence.

The supporting documents shall include a marketing plan and the service agreements to be entered into with the management company, custodians and the aforesaid service providers.  Furthermore, a Maltese UCITS is required to draw up a full prospectus and a simplified prospectus.

Once the applicant finalises any outstanding matters, the Licence will be issued.

Post-licensing

The applicant may be required to satisfy a number of post-licensing matters prior to formal commencement of business.  Furthermore, the UCITS must comply with the SLCs on an ongoing basis, which delineate, amongst others:

  • the risk management process;
  • permissible investments;
  • diversification rules and investment restrictions;
  • leverage restrictions
  • allocation and distribution of income; and
  • financial and statistical reporting requirements.

Passporting

Any Maltese UCITS wishing to market its units in another EU or EEA Member State, must notify the MFSA and inform the competent authority of the host Member State, in accordance with the passporting procedure prescribed by the UCITS Directive.

The exercise of the right of establishment and the provision of services by a Maltese management company is also subject to a notification procedure, whereby it is required to notify the MFSA.  The Authority shall issue a consent notice or send a copy of the notification, as the case may be, to the competent authority of the host Member State.

Likewise, a Maltese management company is also subject to the notification procedure in cases where it entrusts a third party with the marketing of the units in a host Member State.

Fees

The fee structure payable to the MFSA is as follows:

Application Fee Annual Supervisory Fee*
The Scheme €2,000 €2,500
Up to 15 sub-funds
(per sub-fund)
€450 €450
16 sub-funds and over
(per sub-fund)
€250 €150

 

Re-domiciliation

Foreign funds and their service providers established as companies in jurisdictions permitting re-domiciliation, may apply to be registered as being continued in Malta without the need to wind-up the company and to create a new entity. Re-domiciliation of funds established in a non-corporate form e.g. common contractual fund or as a unit trust may not be re-domiciled.

The process of redomiciliation will be conducted concurrently with the application procedure for the relevant licence, where required. A foreign fund may apply for a licence to operate as a Maltese UCITS, provided that it satisfies the relevant requirements.

Taxation

Malta offers a favourable tax regime for CISs. For the purposes of taxation, a distinction must be drawn between prescribed and non‐prescribed funds. A fund in a locally based scheme that has assets situated in Malta constituting at least 85% of its total asset value is classified as a Prescribed Fund. Other licensed funds, including funds in an overseas‐based scheme, are called Non‐prescribed Funds.

In the case of Prescribed Funds, the CIS qualifies for exemption from tax on income “other than income from immovable property situated in Malta and investment income” earned by the Prescribed Fund. The withholding tax on local investment income is 15% for bank interest and 10% for other investment income.

There is no withholding tax on investment income received by Non‐prescribed Funds (including overseas based CISs), which are exempt from tax on income and capital gains realised on their investments and also enjoy a blanket stamp duty exemption on their transactions. Furthermore, kindly note that there are no Wealth nor Net Asset Value Taxes in Malta.

Foreign investors are not subject to Maltese tax on capital gains or income when they dispose of their investment (through redemption by the Fund or sale or exchanges to a third party) or when they receive a dividend or other income from the Fund. These would also be entitled to benefit from the stamp duty exemption obtained for the Fund in connection with the acquisition or disposal of their units in the Fund.

Furthermore, foreign Fund Managers find Malta to be an extremely tax efficient location in respect of fee and participation income or gains (including carried interest through participation shares or otherwise in the Fund) which they receive from the Fund. This favourable fiscal treatment applies when they establish their own operations in Malta but also when they remain established in, and provide the management services from, their own jurisdiction.

One of the main incentives for foreign fund managers set up as Maltese management companies is a 6/7 refund of tax granted to non-resident shareholders of Maltese companies who would have paid tax in Malta on income generated or otherwise taxable in Malta (e.g. investment management activities) at the standard rate of tax at 35% (leaving a tax leakage of a maximum 5% in Malta which in some cases can be further reduced) as set forth in the illustration below

Maltese Company No Foreign Tax With Foreign Tax
Net Foreign Income 2000 2000
Grossing up with Foreign Tax 0 105
Chargeable Income 2000 2105
Tax at 35% 700 737
Credit- Double Tax Relief 0 105
Malta Tax Payable
(tax at 35% less tax credit)
700 632
Shareholder of Maltese Company
Refund on distribution
(6/7 of Malta Tax Payable)
600 632*
Effective Tax Paid in Malta 100 0
Effective Tax leakage in Malta on Net Income 5% 0%

*632 (6/7ths of 737)

Our Services

Focus Business Services prides itself in providing a seamless one-stop shop to clients and are firmly committed to ensuring the highest level of integrity and competence to accommodate our clients’ needs, at competitive pricing.

Our specialised Financial Services Unit, can assist you with the following services:

  • advice on financial services legislation;
  • liaising with the Malta Financial Services Authority and relevant government departments;
  • assistance with the applications for licences for a UCITS or other investment services licences;
  • assistance with the setting up and re-domiciliation of funds and investment firms and applications for licences; drafting of the offering memorandum, offering supplement, board resolutions and constitutive and corporate documents as well as agreements with service providers;
  • registration of CIS with registry of companies (in the case of a corporate entity);
  • taking up corporate offices for investment companies and special purpose vehicles established in Malta.

Contact one of our officers to initiate the licensing process for a Maltese UCITS. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

Shariah Law Funds in Malta

Collective investment schemes are regulated by the Malta Financial Services Authority (MFSA) under a framework regime incorporated in the Investment Services Act (“the Act”). Within the parameters set by the Act and subsidiary legislation, Rules published by the MFSA provide for the specific regulation of collective investment schemes based on the level of sophistication (and therefore the level of protection) required by the target investor.

The principal categories of collective investment schemes that can be set up under this common framework are the following:

The regime is applied to a large variety of conventional and alternative investment funds.

Shariah compliant funds may be set up as both Retail Investment Schemes and Professional Investor Funds.  Furthermore, Shariah compliant equity funds can be set up as Maltese UCITS Schemes, Maltese non-UCITS Schemes or Professional Investor Funds.

However, certain forms of funds, particularly those which invest in non-conventional asset classes, may only be licensed under the Professional Investor Funds regime.  Typical examples would include, Ijarah Funds, Commodity Funds and Murabahah Funds.

The Standard Licence Conditions issued by the MFSA shall apply also to Shariah funds.  However, due to the particular principles which may apply to certain types of Shariah funds, note should be taken of the following principles:

  • Shariah compliant funds must adhere to the principle of risk-spreading, except when this can be waived in terms of the applicable statutory provisions;
  • The managing body of a Shariah fund are responsible for ensuring that the fund satisfies the relevant Shariah principles and requirements as disclosed in the fund’s prospectus and other investor information documentation;
  • The selected extra-financial criteria must comply with all prevailing regulatory and statutory requirements. No specific difficulties arise provided that the extra-financial criteria do not infringe regulatory principles.

Appointment of Shariah Advisory Board

The Fund Manager shall appoint a Shariah Advisory Board.  The composition of the Board must subsist in at least two (2) internationally recognised Islamic Shariah Scholars to ensure that the fund meets Shariah compliance standards in the management of its assets. Members of the Shariah Advisory Board must retain independence from the Manager at all times.

The fund may opt to appoint a legal entity as a Shariah Advisor, which would in turn appoint a Shariah Advisory Board to carry out the above functions, and which may replace, at its absolute discretion, the members by others of equal standing and reputation.

The Role of the Shariah Advisory Board shall be :

  • To provide guidance to the fund on the steps to be followed to meet Shariah compliance standards in the management of its assets, rather than being an investment advisor which issues specific investment recommendations to the fund or its Manager;
  • Prior to the launch of the fund, to approve the fund structure and the investment methodology of the Fund Manager;
  • Review the fund’s contractual relationships with relevant parties;
  • To approve all matters pertaining to Shariah compliance in an autonomous manner from the Manager who remains responsible for the investment management of the fund’s assets;
  • To provide ongoing services to the Company and the fund, including supervising and monitoring the operations of the Company and the fund to aid in its ongoing adherence to the Shariah Guidelines;
  • To report to unit holders annually in the fund’s audited financial statements, expressing its opinion regarding the extent of Shariah compliance by the fund.

Disclosures in Prospectus or Offering Memorandum

The Prospectus or Offering Memorandum shall include the following disclosures:

  • Details regarding the Members of Shariah Advisory Board (and the Shariah Advisor, if any);
  • Reference that the fund (or the Shariah Advisor, as the case may be) may replace any members of the Shariah Advisory Board with individuals whom it considers, in its absolute discretion, to be of equal standing and reputation;
  • Terms of appointment of the Shariah Advisory Board;
  • Reference to the Shariah compliance review carried out by the Shariah Advisory Board prior to the launch of the fund and to the opinion given by the Board in this respect;
  • Reference to the main features of the Shariah Guidelines to be followed by the fund setting out:

(i) the nature of assets which the fund will not be permitted to invest in;
(ii) the investment strategy/ stock selection technique to be adopted;
(iii) permitted asset classes and screens to be adopted;
(iv) any leverage restrictions;
(v) where applicable, the possible distribution of income to third parties who are not fund investors, such as charities, and the nature of such income and the criteria for determining when this can be done, to whom and a maximum permitted limit on such distributions together with disclosure of any tax implications for investors/ full disclosure of all Shariah related processes and potential outcomes (eg purification or cleansing of dividends received);
(vi) the requirements related to Shariah compliance vetting and certification by the Shariah Advisory Board both following the launch of the fund

  • Disclaimer that the fund Directors and Manager are responsible for ensuring the fund satisfies the relevant Shariah principles and requirements as disclosed in the Prospectus or Offering Memorandum and that the MFSA has not assessed the competence or otherwise of the members of the Shariah Advisory Board; has made no assessment or value judgment on the accuracy or completeness of statements made or opinions expressed with regard to the compliance of the fund with Shariah principles, and will not be monitoring the extent of compliance of the fund with such principles on an on-going basis;
  • Risks associated with Shariah compliance with reference to the following:

(i) reference to the fact that the fund will operate within the requirements of Shariah as interpreted by the Shariah Advisory Board. The interpretation of Shariah by the Shariah Advisory Board may limit certain investment opportunities and may impose structural requirements that could increase costs and taxes, and that, due to the restricted nature of the permitted investment of Shariah compliant investments universe, a risk warning that returns of the fund may be lower and with higher volatility than a non-restricted fund;
(ii) warning that prospective investors should not rely solely on the pronouncement of the Shariah Advisory Board on the compliance of the fund with Shariah principles, and that the investments comply with Shariah, in deciding whether to invest, and that they should consult their own Shariah advisor as necessary;
(iii) disclosure of increased susceptibility of the fund to fluctuations in value resulting from adverse economic or business conditions affecting the particular issuer, security or market to the extent that the Manager concentrates the fund’s investments in particular industries or market sectors in view of the limitations imposed by Shariah;
(iv) risks related to changes in Shariah compliant which may result in a reduced opportunity to sell in certain cases and higher costs of trading;
(v) increased counterparty risk due to the possible use of limited prime brokers and administrators in the market place offering the required level of Shariah compliance as well as risk of increased cost from lack of a competitive marketplace;
(vi) risk warning on possible increased costs to be incurred by a Shariah -compliant fund compared to a non compliant one;
(vii) risks associated with limited Shariah compliant cash management tools and techniques – risk of lower returns to those generated by conventional cash management methods;
(viii) risks associated with possible decreased opportunities for financing and increased costs of financing given that the fund would need to utilise financing in a Shariah-compliant manner/ increased liquidity risk due to borrowing restrictions and illiquid investments) and potential foreign exchange risk in view of hedging restrictions;
(ix)  liquidation risk associated with any investment that may not be Shariah compliant.

  • Disclosure regarding treatment of the fund’s investments which in the opinion of the Shariah Advisory Board are no longer Shariah compliant and the time within which the fund is permitted to liquidate such positions.

Disclosure in Audited Financial Statements of Shariah Fund

In addition to the disclosure requirements ordinarily applicable to non-Shariah funds in terms of their licence conditions, the audited financial statements of Shariah funds shall also include:

  • A report by the Shariah Advisory Board expressing its opinion on whether the fund has been able to comply with Shariah principles and its Shariah Guidelines during the period under review;
  • Disclosure (where applicable) of the actual distribution of income to entities other than investors in the fund, the circumstances which led to such distributions and the recipients of such funds.

Contact one of our officers to initiate the licensing process for a Maltese Shariah Law Fund. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

Malta Pension Funds Background

Malta has established itself as a strong financial services centre, and has now sought to further increase this market with the establishment of new retirement schemes and pension funds.  Malta has been recognised as a Qualifying Recognised Overseas Pension Schemes (“QROPS”) jurisdiction by Her Majesty’s Revenue and Customs (“HMRC”) in the U.K. Effectively, HMRC shall consider applications from retirement schemes based in Malta for registration as QROPS.

The Special Funds (Regulation) Act 2002 (“SFA”) makes provision for the establishment and operation of Pillar II retirement schemes (both occupational and person) as well as for the registration and supervision of the related service providers of a retirement scheme or fund, mainly the administrator, the asset manager and the custodian.  The regulator of retirement schemes or funds is the Malta Financial Services Authority (“MFSA”).

In addition to the SFA, the EC Institutions for Occupational Retirement Provision Directive (“IORP Directive”) which has been fully transposed in Malta, establishing a European framework for the operation and supervision of institutions for occupational retirement provisions (“IORPs”) and applies to all IORPs whether they operate cross-border retirement schemes or not.

The Retirement Scheme

The SFA defines a ‘scheme’ as an arrangement which is registered under the SFA whereby payments are made to the beneficiaries for the principal purpose of providing retirement benefits.

A scheme which has any of the following characteristics, shall be deemed to be outside the scope of the SFA:

  • Unless application is made to the MFSA, any arrangement for the payment of retirement benefits which has less than five (5) beneficiaries;
  • Any arrangement whereby the retirement benefits start before the beneficiary attains the age of fifty (50) or after the age of seventy (70), with the exception of any benefit due by reason of permanent invalidity or death of the beneficiary and any cash payment to the beneficiary without the need of his consent if the beneficiary is no longer employed by the contributor;
  • Unless, application is made to the MFSA, The payment of proceeds from the surrender or maturity of a long term contract of insurance effected by an insurance company;

Any scheme requires a ‘scheme document’. This is the written instrument evidencing the registered scheme and establishing the manner in which the scheme should be run, and typically takes the form of a contractual agreement or a trust deed established under Maltese Law.

The Retirement Fund

The retirement fund is set up as an investment company with fixed (INVCO) or variable share capital (SICAV) incorporated under the Companies Act, 1995, used as a pension pooling vehicle, for the principal purpose of holding and investing the contributions made to one or more retirement schemes or to one or more overseas retirement plans.

The Related Parties of a Retirement Scheme/Fund

Retirement Scheme/Fund Administrator

Every retirement scheme or fund must have a retirement scheme or fund administrator to carry on the duties assigned to it under the SFA.

The retirement scheme/fund administrator must be a company operating in Malta, which either has its head office in Malta, or if its head office is outside Malta, is established in a jurisdiction with an adequate level of regulatory supervision.

Asset Manager

Only registered asset manager or a retirement scheme administrator that are duly authorised to provide investment management services may manage investments of a retirement fund or scheme.

The asset manager must be a company operating in Malta, licensed under the Investment Services Act, or in the case of a retirement scheme asset manager, a company authorised to carry on long-term business under the Insurance Business Act, 1998.

The asset manager may also be a company operating outside Malta, provided it is established in a country where an adequate level of supervision exists. Where such company is established in another Member State and is duly authorised to carry out portfolio investment management, it shall be exempt from the registration requirement.

Retirement Fund Custodian

No person, other than the retirement fund administrator, may provide custody services to a retirement fund, unless such person is registered by the MFSA to act as a Retirement Fund Custodian.

The Retirement Fund/Scheme’s Service Providers in Malta

All retirement scheme/fund administrators, asset managers and fund custodians set up as companies resident in Malta are subject to income tax on company profits at a rate of thirty-five percent (35%).

However, subject to Malta’s full imputation tax system, upon a distribution of dividends, shareholders are entitled to a tax credit of 6/7ths of the thirty-five percent (35%) corporate tax rate, which is the refund applicable to companies in respect of trading income, thereby reducing the effective tax burden on distributed profits to just five percent (5%). Furthermore, foreign tax paid can be taken into account for purposes of the refund calculation, subject to the maximum refund not exceeding Malta tax paid. This, in effect, means that there may be situations where there will be no Maltese tax leakage.

View Tax Treatment of the Malta Company for a more comprehensive view of the tax credit applicable to trading income.

The Registration of a Retirement Scheme/Fund and Related Parties

Retirement schemes/funds and the related parties mentioned above require to be registered with the MFSA, a process which normally takes 8-12 weeks, and typically involves the following registration process.

  • Preparatory Phase – Following a preliminary meeting of the representatives of the retirement scheme/fund with the MFSA, applicants shall be asked to submit a draft application together with any supporting documents. The draft applications are reviewed and vetted by the MFSA, with particular scrutiny being made on the nature and structure of the retirement scheme/fund;
  • Pre-Registration Phase – The MFSA will subsequently issue an ‘in principle’ approval for the registration of the retirement scheme/fund and any related parties. The applicant must finalise any outstanding matters, such as the incorporation and capitalisation of any corporate entities, submission of signed copies of the application forms and supporting documents in their final format;
  • Post-Registration Phase – The MFSA may impose a number of post-registration matters prior to the formal commencement of the business.

Scheme administrators, fund administrators and retirement fund custodians who are already licensed by the MFSA are subject to an abridged application process and registration will typically occur well before the routine 8-12 weeks.

The Investments of the Retirement Scheme/Fund

The scheme may opt to invest in one or more retirement funds, as well as invest directly on the market in shares, bonds, collective investment schemes and other instruments.  In all cases, the scheme’s assets shall be invested according to the ‘prudent man principle’ and the best interest of beneficiaries shall rank paramount.

The retirement scheme administrator must ensure that:

  • The assets are invested in order to ensure the security, quality and liquidity and profitability of the portfolio as a whole;
  • The majority of the assets are invested in regulated markets;
  • The proper diversification of assets and investments;
  • The assets are invested in derivative instruments only insofar as they contribute to the reduction of investment risks or facilitate efficient portfolio management;
  • The scheme may temporarily borrow money solely for liquidity purposes, as long as the borrowings do not exceed 10 % of the value of the scheme and save for the acquisition of debt securities, the scheme cannot grant loans or act as a guarantor on behalf of a third party;
  • The scheme may acquire the units of retirement funds or other collective investment schemes and, unless otherwise provided, not more than 5 % of the scheme’s assets may be invested in contributor-related investments.

The Investments of the Retirement Fund

Similarly the MFSA shall require a retirement fund to comply with the following restrictions:

  • The retirement fund shall be mainly invested in regulated markets;
  • The retirement fund shall be properly diversified;
  • The retirement fund may, subject to certain conditions, invest in the units of collective investment schemes;
  • The retirement fund may employ techniques and instruments relating to transferable securities for the purposes of efficient portfolio management, and to provide protection against exchange rate and other risks in the context of the management of its assets and reserves;
  • The retirement fund may invest in derivatives only in so far as these are used a means of reducing risk or facilitating efficient portfolio management;
  • The retirement fund may borrow as long as the borrowing does not exceed ten percent (10%) of the value of the fund and only insofar that such borrowing is temporary and for liquidity purposes;
  • The retirement fund shall not invest in a feeder collective investment scheme, nor in another retirement fund;

General Funding Requirements

A retirement scheme administrator shall ensure that the scheme establishes at all times an adequate amount of reserves to reflect its financial commitments.

Occupational retirement schemes shall maintain minimum ‘technical funding requirement’ calculated by a sufficiently prudent actuarial valuation and shall be composed of assets that, had the scheme wound up on the valuation date, the assets would have provided for:

  • Benefits in course of payment;
  • Benefits which consist of additional benefits secured under the retirement scheme on behalf of the beneficiary by way of additional voluntary contributions or a transfer of rights from another scheme;
  • Benefits with at least uniform attribution payable in respect of a service completed up to the valuation date;
  • The estimated expenses of administering the winding up of the scheme.

If the value of a scheme assets in a purely local scheme falls below the minimum technical funding requirement, the retirement scheme administrator must take action so that the employer (and where appropriate any other contributor) sets up a recovery plan to replenish the required amount. The required increase must take place within 10 years (or average working lifetime of any individual contributors if less) from the date of the actuarial valuation or before the date when the scheme is wound up, whichever is earlier.  Cross-border schemes however, must be fully funded at all times.

The inverse situation, overfunding may occur.  In this case, the retirement scheme administrator shall keep such excess in the scheme and the reduction of such assets may be provided by a reduction or suspension of the contributions.

Cross-border Occupational Retirement Schemes

The IORP Directive provides for the operation of cross-border occupational retirement schemes, thereby allowing multinational firms the opportunity to operate a single retirement scheme for all its employees throughout the European Union.

A Maltese IORP may accept sponsorship in terms of the IORP Directive from sponsoring undertakings situated in another Member State or EEA state, provided that prior authorisation be obtained from the home Member State.  A sponsoring undertaking, however, is not subject to prior authorisation.

Before the Maltese IORP may start to operate the occupational retirement scheme for a sponsoring undertaking in another Member State, the MFSA must communicate to the Maltese IORP the information received from the host member state authority about the requirements to be satisfied by the Maltese IORP. The Maltese IORP must be informed on and satisfy:

 

  • The requirements of social and labour law of the host Member State
  • Strict diversification rules, which rules are:
    • the IORP shall not invest more than thirty percent (30%) of its assets in shares or debt securities not admitted to trading on a regulated market OR the institution shall at least invest seventy percent (70%) of these assets in shares or debt securities which are admitted to trading on a regulated market;
    • the IORP shall invest not more than five percent (5%) of the assets in instruments issued by the same undertaking and no more than ten percent (10%) of them in instruments issued by undertakings belonging to the same group.
    • the IORP shall not invest more than thirty percent (30%) of these assets in assets denominated in currencies other than those in which the reserves are expressed.

However, these rules should only be applied to the part of the assets of the IORP that correspond to the activities carried out in the host Member State. Furthermore, host competent authority may only apply these rules if the same or stricter rules also apply to all IORPs located in the host Member State.

  • In respect of the corresponding employees entitled to retirement benefits, the Maltese IORP sponsored by a sponsoring undertaking located within another Member State, shall satisfy the information requirements imposed by the host Member State on IORPs located within its territory.

Likewise, it is possible to have a sponsoring undertaking located in Malta which may sponsor a European IORP. The above procedure which applies to a Maltese IORP receiving contributions from sponsoring undertakings in other Member States, shall apply in this case.

The Overseas Retirement Plans

An overseas retirement plan is a scheme set up under the laws of a country outside Malta, which governs the rights and responsibilities of the parties, and under which payments to the beneficiaries are made for the principal purpose of providing retirement benefits.

The overseas retirement plan does not require registration under the SFA, but it may either decide to establish a retirement fund registered under the SFA or invest its contributions in an existing retirement fund registered under the SFA. However, it is not permissibile for an overseas retirement plan to be promoted or made available to Maltese residents.

Tax Treatment of Retirement Funds and Schemes in Malta

The income, which includes capital gains, of any retirement fund/scheme licensed, registered or otherwise authorised under SFA, other than income from immovable property situated in Malta, is exempt from Maltese income tax.

Income at the Level of the Non-Resident Beneficiary of the Retirement Scheme

Lump sum payments (a maximum of 25 % to 30 % is allowed to be withdrawn by the beneficiary upon retirement) are exempt from Maltese income tax which provides an exemption in relation to ‘any capital sum received by way of commutation of pension, retiring or death gratuity or received as consolidated compensation for death or injuries’.

Benefits in the form of an annuity or another form of retirement income are taxable if paid from a local source i.e. the income arises in Malta. These benefits are aggregated with other income and the resulting chargeable income is taxed at the normal progressive rates (applicable to non-residents) with the highest rate being thirty-five percent (35%). Yet, this is subject to double tax relief, afforded by Malta’s extensive tax treaty networks, with over 50 treaties currently in force, several of which set out the general principle that pensions and other similar remuneration paid to a resident of a contracting state in consideration of past employment shall be taxable only in that state i.e. in the state of residence of the recipient.

For a full list, view the Double Tax Agreements

Contact one of our officers to initiate the licensing process for a Maltese Pension Fund. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

Re-domiciliation of Offshore Funds into Malta

Malta has swiftly established itself as an alternative domicile for funds and financial services in general, a position which may be further incremented purusant to the implementation of  the EU proposed Directive on Alternative Investment Fund Management (“AIFMD”).  Although it is speculative to comment on the full extent of the AIFMD prior to its full transposition, it is apt to envisage that the benefits Malta has to offer in terms of costs, expertise and fiscal benefits shall help mitigate the  ever-severe scrutiny under which major fund exporting countries in offshore jurisdictions are currently undergoing and which shall lead to a migration of fund managers and other fund service providers to regulated yet investor-friendly  jurisdictions, like Malta.

One of the major catalysts behind Malta’s growing clout in financial services has been the progressive enactment of  legislative instruments, particularly the Continuation of Companies Regulations (L.N 344 of 2002 – hereinafter the “Regulations”).  The Regulations set forth a legal framework for the continuation of corporate entities in Malta and out of Malta (inward and outward re-domiciliation) under the Companies Act (Chapter 386 of the Laws of Malta).

Click here for a detailed explanation of the Re-Domiciliation of Corporate Entities

The Regulations are also applicable in relation to regulated entities such as overseas collective investment schemes. The re-domiciliation of such schemes is governed by Article 31 of the Investment Services Act (Chapter 370 of the Laws of Malta) (“ISA”), the ISA being the main legislation governing regulatory aspects of investment services and collective investment business in Malta, complemented by the guidelines issued by the Malta Financial Services Authority (“MFSA”).

The ISA and the MFSA Guidelines currently contemplate only the re-domiciliation of offshore funds which are set up as body corporates. The MFSA is however minded of the desirability of extending such regime to funds assuming other structural forms such as unit trusts and common contractual funds and is currently contemplating measures to this effect. It should also be noted that the current legal framework may be utilised for all types of corporate funds, such as UCITS, or other retail (but non-UCITS) funds or Professional Investor Funds.

From a purely corporate perspective, provided the offshore fund is set in a corporate form, the re-domiciliation process is no different than that of any ordinary corporate entity and shall be permissible provided that:-

  • The body corporate to be re-domiciled into Malta must be registered or incorporated in an “approved country or jurisdiction” (which includes all EU Member States, EEA and FATF countries) and set up in a structure similar to those recognised by the Maltese Companies Act;
  • The re-domiciliation must be permitted by the law of the foreign jurisdiction and the constitutive documents of the corporate entity;

The effects of re-domiciliation may be summarised as follows:-

  • A corporate fund may retain its already existing status as a body corporate, in the new jurisdiction where it is continued. No new legal entity is created and this arrangement is intended to ensure that nothing prejudices or affects the continuity or continued operation of the fund. The corporate fund thus retains all its assets and liabilities and remains bound by all obligations incurred as from the date of its incorporation in the first jurisdiction;
  • Continuation of a company in Malta does not affect any legal or other proceedings instituted or to be instituted by or against the company. In addition, continuation does not operate to release or impair any conviction, judgment, ruling, order, liability or obligation due or to become due or any cause existing against the company or against any member, director, officer, or persons vested with the administration or representation of the company

This continuity of corporate existence is then supplemented, in the case of offshore funds, by a continuity at an operational and infrastructural level. The pofessional investor fund regime in Malta, unlike its equivalent in other renowned onshore fund domiciles which also permit redomiciliation of funds, is not protective in terms of the domicile of service providers to the fund.  Therefore, it is adaptive enough to enable an offshore fund to be re-domiciled into Malta and retain its operational arrangements and business relationship with its foreign manager, administrator, custodian and other service providers, without the need to appoint new ones established in Malta (provided such  foreign service providers are regulated or adequately supervised in a recognised jurisdiction or are otherwise approved by the MFSA).  This flexibility translates itself to tangible operational benefits constituting considerable savings on costs which would otherwise be necessarily incurred in terminating and negotiating new services and infrastructural agreements.

Application procedure

The re-domiciliation procedure entails a two-pronged process:

  • the corporate continuation application; and
  • the regulatory licence application

For expediency, both applications are co-ordinated and processed concurrently to avoid unnecessary and duplication of documentation. To this end, the Registry of Companies and the MFSA (which are housed in the same premises) liaise and work in close collaboration throughout the whole re-domiciliation process.

Corporate Continuation Application

For the corporate continuation application, the constitutive documents of the foreign company, supported by the necessary resolutions and declarations must be presented to the Registrar of Companies. In addition to these documents, in the case of offshore funds (as well as other corporate bodies performing activities which are subject to licensing in Malta, such as, for example, credit and financial institutions, insurance companies and investment firms), these will be required to apply for and obtain the applicable licence from the MFSA in accordance with Maltese law.

The offshore fund must submit an Application for a Collective Investment Scheme (“CIS”) Licence (on MFSA standard form), supported by recent copies of the audited financial statements and other supporting resolutions and documentation. Where the migrating scheme is licensed or authorised in the foreign jurisdiction, evidence of licensing in such home country is necessary.

It is also possible for an offshore fund, pursuant to such re-domiciliation process to convert or upgrade its licensing / authorisation status. This is typically the case for offshore hedge funds or other alternative investment funds wishing to re-domicile into Malta as UCITS (to the extent that they comply with, or will upon re-domiciliation comply with, the eligible assets for UCITS and the investment, exposure, borrowing and lending restrictions prescribed by the UCITS Directive), and thereafter avail themselves of the UCITS passporting benefit, using Malta as a gateway for the European market and investors.

The Licensing Application

The MFSA shall process the licence application, vet all documents submitted and carry out the necessary due diligence enquiries as appropriate, following which, upon satisfaction that these are in order, it will issue an in-principle approval which would list the pre-licensing outstanding issues to be actioned by the applicant before issuance of the licence. Following satisfaction of any outstanding issues by the applicant, the MFSA will issue the licence on the same date as the Provisional Certificate of Continuation issued by the Registrar of Companies mentioned hereunder, which will enable the fund to start operating in Malta.

A Provisional Certificate of Continuation will be issued by the Registrar of Companies once the application and supporting documents have been received and vetted.  Within six (6) months of the date of issue of the Provisional Certificate, the company should provide proof to the Maltese Registrar of Companies that the company has ceased to be registered in the original home country. Upon receipt of acceptable proof to this effect the Registrar will issue a Final Certificate of Registration.

Companies re-domiciled to Malta will be subject to the same accounting, audit and tax filing requirements as those applicable to newly established companies in Malta. In the case of funds, these will be subject to the ongoing requirements prescribed by MFSA for licensed collective investment schemes of the respective type (retail or otherwise).

Advantages of re-domiciling to Malta

  1.  Malta is a relatively low-cost jurisdiction compared to other renowned onshore jurisdictions such as Luxembourg and the Republic of Ireland, with costs (salary and office costs, professional fees etc.) being about 30-40% cheaper of those prevailing in the aforesaid centres.
  2. Malta has a skilled professional labour force and choice of services providers at a competitive operating cost.
  3. The MFSA, is a reputable yet flexible regulator adopting an approachable, sensitive insight to industry needs, open to discuss and accommodate innovative financial products and industry players, whilst ensuring a timely and efficient service.
  4. Malta has an important number of Memoranda of Understandings with various non-EU jurisdictions such as the Democratic Republic of China, which facilitate distribution of Malta domiciled funds into the respective jurisdictions and financial business developments between the respective parties.
  5. Malta offers passporting opportunities within the EU (in the case of UCITS).
  6. An onshore jurisdiction and EU member state, Malta is a safe and yet friendly tax jurisdiction for commercial and investment activities. Its attractiveness lies in the combination of an extensive network of double tax treaties (with more than 50 countries) as well as in a number of generous of tax benefits available under Maltese domestic tax laws, which provide excellent tax planning opportunities for funds as well as for managers, administrators, custodians and other service providers.

Taxation

Funds having more than 15% of their assets invested outside Malta enjoying a tax neutrality (through a tax exemption) on their income and capital gains generated from their investments.  Funds which satisfy the aforesaid threshold also enjoy a blanket stamp duty exemption on their transactions.  There are no Wealth nor Net Asset Value Taxes in Malta. At investor level, Foreign investors are not subject to Maltese tax on capital gains or income when they dispose of their investment (through redemption by the Fund or sale or exchanges to a third party) or when they receive a dividend or other income from the Fund.

In the case of funds which have less than 15% of their assets invested outside Malta, investors are subject to a withholding tax on local investment income of 15% for bank interest and 10% for other investment income.

Funds may also invest in underlying assets through special purpose vehicles (“SPVs”), which act as the lunga manus of the Fund.  SPVs can act as efficient tools in tax planning for the funds, particularly to enhance the possibility for funds to claim double tax treaty benefits which might otherwise not be available nor sufficiently advantageous. SPVs set up by the fund in Malta would themselves benefit from the domestic tax benefits available to holding and trading entities in general, which benefits have also increasingly attracted fund managers and other investment service providers to migrate from other jurisdictions and continue their operations in Malta to increase tax efficiencies. These tax benefits essentially consist of a net tax leakage of just 5% on income and gains deriving from trading activities (or as low as 0% when grossed up with foreign income tax), as set forth in the table below:

Maltese Company No Foreign Tax With Foreign Tax
Net Foreign Income 2000 2000
Grossing up with Foreign Tax 0 105
Chargeable Income 2000 2105
Tax at 35% 700 737
Credit- Double Tax Relief 0 105
Malta Tax Payable
(tax at 35% less tax credit)
700 632
Shareholder of Maltese Company
Refund on distribution
(6/7 of Malta Tax Payable)
600 632*
Effective Tax Paid in Malta 100 0
Effective Tax leakage in Malta on Net Income 5% 0%

*632 (6/7ths of 737)

Click here for a more thorough understanding of the TAX TREATMENT OF THE MALTA COMPANY

Contact one of our officers to initiate the process for the re-domiciliation of offshore funds and start reaping full benefits of a reputable, low-tax EU jurisdiction. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

Malta Fund Managers – Licensing Process and Requirements

The regulatory framework in Malta permits the licensing of the following Maltese management companies:

1. Maltese UCITS management companies

Maltese UCITS Management Companies are subject to the rules of the UCITS Directive, as implemented in Malta, and may exercise their passporting rights within the EU / EEA, following the prescribed notification procedure.

A Maltese Management Company may not engage in activities other than the management of Maltese and European UCITS except the additional management of other collective investment undertakings which are not covered by the UCITS Directive (i.e. non-UCITS schemes) and for which the management company is subject to prudential supervision but which cannot be marketed in other Member States or EEA States under the Directive pursuant to the Directive’s passporting rights (and would need to comply with the relevant marketing rules and procedures – including possibly authorisation requirements – in the relevant foreign jurisdiction/s).

Apart from the investment management per se, the activity of management of UCITS includes also the additional functions of Administration and Marketing.

However, the management company, may, subject to the approval of the MFSA, be allowed to provide the following additional services (as permitted by the Directive):

  • discretionary portfolio management services on a client-by-client basis, in relation to one or more instruments as defined in the ISA; and where so  authorised to provide the discretionary portfolio management service described above):
  • investment advice in relation to one or more instruments as defined in the ISA;
  • safekeeping and administration in relation to units of collective investment schemes.

2. Maltese non-UCITS management companies

The activities of a non-UCITS fund management company shall be limited to the management of collective investment schemes. However, the Licence Holder may also, subject to the approval of the MFSA, be allowed to provide other Investment Services contemplated by the ISA (including investment advice and/or portfolio management services to retail and/or Professional Clients and/or to Eligible Counterparties).  Managers of Non-UCITS Schemes (whether retail or Professional investor funds) are subject to a more flexible regulatory regime, however, they cannot “passport” into other EU/EEA Member States.

3. Licence Holders carrying out Portfolio Management services

Licence holders of portfolio management services are subject to the rules of the MiFID Directive 2004/39/EC  as transposed under Maltese law, and are entitled to exercise their European passport rights in terms of the MiFID regime by complying with the prescribed notification procedure.  Such Licence Holders may again be authorised by MFSA to provide other Investment Services contemplated by the ISA.

The issuance of multi-disciplinary licences, covering different types of management activities and/or other investment services, would ultimately remain in the discretion of MFSA but the Maltese regulator would favourably consider such an application if the particular circumstances of the case so warrant (after taking into account, inter alia, the size and extent of services to be provided by the applicant in each field and the resources, organisation, systems, qualifications and expertise of the applicant, to make sure that the interests of investors are adequately protected).

In this respect, it is always advisable for an applicant to first identify its own operational set-up, plans and needs and the nature and location of its targeted clients and their needs in terms of services and passporting flexibility at least in the initial years of the licence, to be able to apply for the most suitable and appropriate licence. It should also be noted that a licence issued by the MFSA may subsequently be upgraded to include other services and/or other financial instruments subject of the relevant services. It is always for the applicant to approach the MFSA at an early stage of the licence application process and to submit and discuss with them a brief programme of operations for the initial years of operation. It is MFSA’s declared commitment to address such proposals with an open and flexible approach, to assist the applicant in identifying and implementing a licensing and regulatory set-up which best suits his plans (to the extent such flexibility is allowed by law and the primary need to adequately protect investors).

Categories of licences

Managers of collective investment schemes (UCITS or non-UCITS) as well as investment services firms providing individual portfolio management services, in or from Malta, must hold a licence in accordance with article 3 of the Investment Services Act (Chapter 370 of the Laws of Malta) (“ISA”).  However  portfolio management investment firms established and licensed in other EU / EEA States in terms of the MiFID Directive may, use their passporting rights, through the adequate notification procedure, to provide services in Malta and shall not require such a licence in Malta).

Fund managers and portfolio managers are expected to hold (at least) a Category 2 licence, which would in turn entitle them to hold or control Clients’ Money or Customers’ assets, but not to (inter alia) deal for their own account.  Each applicant for a management licence should identify the type of management services (portfolio management or fund management services and, in the latter case, the type of fund/s) and the instruments in respect of which it is to provide management services for which it is applying for authorisation. The licence issued by Malta Financial Services Authority (“MFSA”) will specify such items in the licence.

Local Presence Requirements

The Licence Holder is required to have an established place of business in Malta and shall have adequate financial resources so as to enable it to conduct its business effectively and to meet its liabilities.  A Portfolio Manager authorised to provide investment services in accordance with MiFID, is required to have its registered office as well as its head office in Malta (unless it is established and authorised in another EU / EEA State and provides portfolio management services in Malta through the establishment of a branch or through cross-border provision of services pursuant to the MiFID passporting regime).  A UCITS Manager needs to have an established place of business in Malta, and its head office and registered office must both be located in Malta.

However, the MFSA has extended the flexibility permitted to fund administrators and custodians, also to fund Managers.  Where a Manager wishes to start operating in and from Malta on a small scale, the MFSA will be minded to accept a grace period for small set-ups with reliance on outsourcing/ delegation arrangements, until the volume of business to be carried out by the fund manager grows, thereby necessitating increased resources.

Such delegation may be made to Managers established outside Malta, whether in the EU or not, provided that where the delegation concerns the investment management core activity, the mandate may only be given to undertakings which are authorised or licensed for the purpose of asset management and subject to prudential supervision (and such delegation shall be in accordance with investment-allocation criteria periodically laid down by the Licence Holder in Malta). The delegated entity may also be the parent undertaking or a group or affiliated undertaking of the Maltese delegating entity.

Where the Manager proposes to delegate the management function to a third party manager (Maltese or foreign) the MFSA would generally accept the following minimum staffing arrangement:

  • one (1) Maltese resident Director;
  • at least (1) one full time employee who has a strong management background responsible for Compliance, Anti-Money Laundering and monitoring the activities of the delegated entity.

The Board of Directors of the Manager is expected to be made up of at least three (3) Members (one of whom should be resident in Malta) and the majority of Board meetings to be held in Malta.  The Licence Holder’s business is to be effectively directed or managed by at least two (2) individuals in satisfaction of the four-eyes principle, good repute and sufficiently experienced so as to ensure sound and prudent management of the Licence Holder.

The Manager will generally be required by the MFSA to have an office space dedicated to its activities, within Malta. The Manager may opt to have its own offices in Malta or alternatively to share offices with other entities, provided that such office space be equipped with an independent telephone line, a facsimile machine connected to a direct telephone line, an internet connection and filing space.  If the Manager makes use of shared offices, then the MFSA must be satisfied that the managers satsifies the criteria for confidentiality and has adequate safe-keeping arrangments at all times.  It is clear that the intention of the MFSA is to give value to the substance requirements of the fund manager and circuvmenting the creation of brass-plate offices.

Managers of Professional Investor Funds (“PIFs”) and non-UCITS retail schemes

Unlike UCITS, Maltese PIFs are not required to appoint a Manager with an established place of business in Malta and such Manager could be foreign-based and is specifically exempted from the requirement to obtain a management investment services licence under the ISA, insofar that the MFSA is satisfied that such custodian is of sufficient standing and repute.

Managers of retail non-UCITS funds are however still required to have an established place of business in Malta in terms of the MFSA Rules applicable to them (notwithstanding that they may be exempt from the requirement to obtain an investment services licence by MFSA in Malta).

The Alternative Investment Fund Management Directive, may however open different scenarios, when it comes into force (and depending on the final text thereof).

Licensing Process

The licensing process may be summarised as follows-

(i) Phase One – Preliminary: preliminary meeting and discussions with MFSA regarding the proposal (which clients wishing to set up business in Malta are strongly encouraged to do); submission of draft application form and supporting documentation; the MFSA will consider the nature of the proposed activity and the type of investors to whom and the markets to which the investment services restrictions and other provisions of the UCITS Directive) and the definition of “Maltese Management Company” under article 2(1) of the Undertakings for Collective Investment in Transferable Securities and Management Companies Regulations (Legal Notice 207 of 2004, as subsequently amended) (which Regulations transpose the passporting provisions of the UCITS Directive) are to be provided and will decide which “Standard Licence Conditions” (SLCs)  should apply.

(ii) Phase Two – Pre-Licensing: once the review of the draft application and supporting documents has been completed and the draft licence conditions have been agreed, the MFSA will issue its ‘in principle’ approval for the issue of a licence. The licence will be issued once the outstanding matters are resolved, including the incorporation of the company, submission of signed copies of final application and final supporting documents and any other issues raised during the Application process.

(iii) Phase Three – Post-Licensing/Pre-Commencement of Business: the MFSA may require the applicant to meet certain post-licensing requirements prior to formal commencement of business (e.g. adhering to the licence requirements, submitting of financial statements).

The application for an investment services licence must be submitted to the MFSA and should include the following documents:

  • the completed form “Application for an Investment Services Licence”;
  • covering letter (template included in the Application form);
  • auditor’s Confirmation (template included in the Application form);
  • supporting Board Resolution;
  • a completed financial resources statement form;
  • projected profit and loss account and balance sheet for the three years after the licence is issued;
  • where appropriate, copies of the last three years audited accounts of the applicant and other relevant related companies;
  • Memorandum and Articles of Association of applicant;
  • specimen copies of the insurance policies and draft schedule/cover note (where applicable), and ‘Insurance Checklist’;
  • completed Personal Questionnaire forms for each shareholder, director, and senior officer of the applicant (the PQs should include a certified copy of the person’s passport and a conduct certificate);
  • Memorandum and Articles of Association of corporate shareholders of the applicant;
  • a chart which illustrates the internal operational structure of the applicant’s business (this should show names, reporting lines and roles);
  • where the applicant Company forms part of a Group, a diagram showing the relationships between the applicant and other members of the Group. The “family tree” submitted should give details up to the ultimate beneficial owner(s), showing percentage sizes of holdings in each entity; unless (a) the entity has one ultimate beneficial owner with a holding of over 50% of the voting rights or (b) no less than fifty ultimate beneficial owners who between them account for over 50% of the voting rights. If (a) or (b) apply, it will only be necessary to give details of the ultimate beneficial owners with holdings of 10% or more;
  • Detailed Business Plan (which should include background details about the promoters, the applicants’ target clients, the operational set up as well as the applicant’s plans for the future).

Share Capital Requirments

Holders of a Category 2 licence (whether a Maltese UCITS or Maltese non-UCITS Management Company or Portfolio Management Licence Holder) are required at all times to maintain own funds which are equal to or in excess of their Capital Resources Requirement, and this constitutes their Financial Resources Requirement.

In the case of  Licence Holders of such Category, the components of the Capital Resources Requirement can be summarised as being the higher of (i) and (ii) below:

i. Initial Capital as defined hereunder (comprising (a) equity capital (i.e. paid up share capital plus share premium accounts but excluding cumulative preferential shares) and (b) reserves (i.e. revenue reserves, interim net profits/retained profits for the year, unrealised fair value movements in held for trading financial instruments and other reserves)); and

ii. the higher of the following:

a. the sum of the non-trading book business risk components, the trading book business risk components, the commodities instruments – risk component, the large exposures risk component and the foreign exchange risk component; and

b. the Fixed Overhead Requirement.

The Initial Capital for Management Companies, other than UCITS Management Companies, shall be €125,000.

The Initial Capital for UCITS Management Companies shall (in terms of the UCITS Directive) be the sum of the following:

  • Initial Capital of €125,000;
  • An additional amount of Own Funds equivalent to 0.02% of the amount by which the value of the portfolios under management exceed  €50,000,000: provided that the Maltese UCITS Management Company may be exempted from providing up to 50% of this additional amount of Own Funds, if it benefits from a guarantee of the same amount given by a credit institution or insurance undertaking (which credit institution or insurance undertaking must have its registered office in a Member State provided that it is subject to prudential rules considered by the MFSA as equivalent to those laid down in Community Law).

For these purposes, portfolios of the Maltese UCITS Management Company shall be deemed to include:

(a) unit trusts/ common funds managed by the Manager including portfolios for which it has delegated the management function but excluding portfolios that it is managing under delegation; (b) investment companies for which the Manager is the designated management company; (c) other collective investment schemes managed by the Manager including portfolios for which it has delegated the management function but excluding portfolios that it is managing under delegation.

Maltese UCITS Management Companies wishing to avail themselves of this exemption should contact the MFSA for guidance in this regard.

– The summation of (a) and (b) above shall not exceed €10,000,000.

The Own Funds and Capital Resources Requirements for investment services licence holders and the methodology for calculating same and a licence holder’s Financial Resources Requirement are set out in the MFSA’s Investment Services Rules for Investment Services Providers (Appendix 1 thereto) and are based on the EU’s Capital Requirements Directives (Directive 2006/48/EC and 2006/49/EC).

Furthermore, the Licence Holder is required to, by not later than the end of one month from its accounting reference date, assess whether it forms part of an Investment Services Consolidation Group, in which case, consolidated financial resources requirements will apply.

Licensing and supervisory fees

An application fee of €1,500 is payable to the MFSA upon submission of the draft application. Upon obtaining a licence, a licence fee of €3,000 is payable to the MFSA.  Thereinafter, upon submission of the annual audited financial statements, a supervisory fee shall be payable to the MFSA on an annual basis, as follows:

  • For revenue up to €250,000: €3,000 fee;
  • For further tranches of €250,000 (up to a maximum of €5,000,000): an additional fee of €350 per tranch or part thereof.

Timing

Typically, provided a properly documented application form together with all other supporting documentation is submitted to MFSA, the time to licence will usually vary from 7 to 10 weeks, as from date of submission of the application form.

Ongoing requirements

Investment Services Licence Holders (including UCITS or non-UCITS Management Companies and Portfolio Management Licence Holders) are subject to the Standard Licence Conditions (“SLCs”) set out in the Investment Services Rules for Investment Services Providers issued by MFSA , which reflect the current MiFID regime. The SLCs prescribe, amongst others, organisational requirements, conduct of business obligations, disclosure requirements, outsourcing rules, financial resources requirements, accounting and record keeping requirements, and rules on transaction reporting. The MFSA Rules also contain supplementary conditions specifically applicable to managers of collective investment schemes.

The extent to which the SLCs are applicable to a Licence Holder, depends on the nature of licensable activity which the Licence Holder is authorised to provide. At this stage, it should be pointed out that, whilst the local legislator and regulator has opted to treat the management of collective investment schemes (an activity which is not covered by the MiFID Directive) as a core investment service under domestic investment services legislation (namely the ISA) and to apply the MiFID provisions (as transposed into Maltese law, principally the MFSA Rules) to such activities for the purpose of investor protection, yet not all MiFID rules will apply to such activities. Thus, Managers of Collective Investment Schemes that are not licensed to provide any investment services in terms of the MiFID, are subject in particular to the following conduct of business rules only:

  • General requirements;
  • Client Reporting: statement of client financial instruments or client money;
  • Record keeping;
  • Safeguarding of client assets;
  • Conflicts of interests;
  • Staff dealing;
  • Provision of services through the medium of another Licence Holder;
  • Conduct of business rules for Licence Holders producing and disseminating investment research (where applicable);
  • Conditions applicable to the provision of information; and
  • Complaints Handling.

Investor Compensation Scheme

Licence holders in possession of a Category 2 licence are required to participate in and contribute to the Investor Compensation Scheme established under the Investor Compensation Scheme Regulations except where they provide investment services solely and exclusively to persons who do not fall within the definition of “investor” in terms of regulation 2 of the same Regulations. The term “investors” does not include,  collective investment schemes. Therefore, as a general rule, UCITS and non-UCITS Fund Managers are not required to participate in such investor compensation scheme, except where they are authorised to provide other investment services to other clients.  However, Individual Portfolio Management licence holders are required to participate in such investor compensation arrangements.

Re-domiciliation

Fund managers based in foreign jurisdictions as corporate entities can transfer their operations to Malta without the need to wind up their operations, by re-domiciliating the company to Malta, through the procedure set forth in the Continuation of Companies Regulations.  Re-domiciliation allows the corporate entity to retain its legal personality and corporate existence (as well as its rights and liabilities under contracts and at law) without having to start afresh.

Click here for a detailed explanation of the Re-Domiciliation of Corporate Entities

Taxation of Fund Management Companies

Like all companies resident in Malta, fund management companies would be subject to income tax on company profits at a rate of 35%. However, this is subject to Malta’s full imputation tax system, wherein tax paid by a company in Malta is, on the distribution of a final dividend, imputed to the shareholder as a tax credit against the shareholders’ tax liability. Therefore, a shareholder will, upon a distribution of the dividend, be entitled to a refund in part or in full of any advance tax levied on the distributing company. The full imputation tax credit thereby renders Maltese companies highly efficient tax vehicles, with a number of applicable refunds to shareholders possible. The default refund applicable to a fund management company in respect of active trading income, is a refund of 6/7ths. These tax benefits essentially consist of a net tax leakage of just 5% on income and gains deriving from trading activities (or as low as 0% when grossed up with foreign income tax), as set forth in the table below:

Maltese Company No Foreign Tax With Foreign Tax
Net Foreign Income 2000 2000
Grossing up with Foreign Tax 0 105
Chargeable Income 2000 2105
Tax at 35% 700 737
Credit- Double Tax Relief 0 105
Malta Tax Payable
(tax at 35% less tax credit)
700 632
Shareholder of Maltese Company
Refund on distribution
(6/7 of Malta Tax Payable)
600 632*
Effective Tax Paid in Malta 100 0
Effective Tax leakage in Malta on Net Income 5% 0%

*632 (6/7ths of 737)

Click here for a more thorough understanding of the TAX TREATMENT OF THE MALTA COMPANY

Contact one of our officers to initiate the licensing process for a Malta Management Company and start reaping full benefits of a reputable, low-tax EU jurisdiction. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

Malta Fund Administrators

Collective Investment Schemes licensed under the Investment Services Act (“the Act”) are not obliged to appoint an administrator and in the absence of an administrator, the administration function is undertaken by the appointed investment manager.

However, the Act does provide for a regulatory framework for the provision of Fund Administrator Services, and over the past years, Malta has seen a marked increase in the number of Fund Administrators who have sought recognition from the Malta Financial Services Authority (the “MFSA”).

The services provided by Fund Administrators may be divided two fold.  On the one hand, core services performed by Fund Administrators would include but are not limited to:

  • Preparation of Net Asset Value;
  • Reconciliations;
  • Pricing the Investment Portfolio;
  • Fund Accounting;
  • Preparation of Contract Notes; and
  • Transfer Agency;

On the other hand, ancillary services which may also be provided for by Fund Administrators would typically include:

  • Payment of Bills;
  • Preparation of Financial Statements;
  • Performance Reporting;
  • Compliance Reporting;
  • Registrar.

Notification to the MFSA

The provision of Fund Administration Services in or from Malta to any licensed Collective Investment Scheme requires a formal recognition from the MFSA, after assessment that the applicant is fit and proper to provide fund administration services.

Although there are no minimum presence requirements, the MFSA does not permit the creation of brass-plate operations and the Fund Administrator is expected to conduct business in and from Malta.  Nevertheless, the MFSA is receptive to allowing a grace-period for small set-up and shall allow reliance on outsourcing arrangements (even to parent undertakings, groups or affiliated undertakings), until the business of the Fund Administrator has reached a critical mass.

However, any outsourcing arrangements shall not be such as to hinder and/or dilute the controls of the Fund Administrator of the ability of the MFSA to monitor adherence to statutory obligations.  Any outsourcing requirements has to be pre-approved by the MFSA, and generally conditional to the satisfaction of the following minimum staffing arrangements:

  • one Maltese resident Director;
  • one full time employee with appropriate experience responsible for Compliance, Anti-Money Laundering and monitoring the activities of the delegated entity.

The Board of Directors of the Fund Administrator is generally expected to be made up of at least two members (one of whom should be resident in Malta) and the majority of board meetings should be held in Malta.

Furthermore, the Fund Administrator will generally be required by the MFSA to have office space (own or shared) dedicated to its activities in Malta, equipped with an independent telephone line, a facsimile machine connected to a direct telephone line, an internet connection and filing space.

Recognition Process

Provided a properly documented application form together with all other supporting documentation is submitted to MFSA, the time to recognition will usually be between six (6) to eight (8) weeks. The process for recognition may be concisely summarised as follows-

  • Preparatory: preliminary meeting and discussions with MFSA regarding the proposal. Submission of draft application form and supporting documentation and review thereof by the MFSA;
  • Pre-Recognition: when the review of the draft application and supporting documents has been completed, the MFSA shall, upon a favourable evaluation of the application, issue its ‘in principle’ approval for the recognition of the applicant. The applicant will be recognised once the outstanding matters are resolved, including the incorporation of the company (or registration of the partnership), submission of signed copies of final application and final supporting documents and any other issues raised during the Application process;
  • Post-Recognition/Pre-Commencement of Business: the MFSA may require the applicant to meet certain post-recognition requirements prior to formal commencement of business.

The request for Recognition shall be processed by the MFSA, upon receipt of an application fee of €3,000, together with the following documents:

  • the completed form – Application for Recognition as a Fund Administrator of a Collective  Investment Scheme;
  • template covering letter;
  • template confirmation letter by recipient/s of the proposed administration services;
  • auditor’s declaration (template included in the Application Form);
  • business plan, including a description of the Fund Administration Services to be provided and details as to whom such services will be provided;
  • Memorandum & Articles of Association, deed of partnership or equivalent constitutive document depending on the legal structure of the applicant;
  • a copy of the most recent audited accounts of the applicant.  Where the applicant is a new entity, three year financial projection;
  • a duly completed Personal Questionnaire (PQ) in relation to each Director and Qualifying Shareholder(s) of the applicant as well as the applicant’s proposed Compliance Officer and Money Laundering Reporting Officer. In the case of qualifying corporate shareholders, the Memorandum and Articles of Association and most recent audited accounts of the corporate shareholder shall also be required;
  • resolution of the Directors/ General Partners of the applicant;
  • address of the premises in Malta from where the Fund Administration Services will be rendered including the relevant contact details;
  • a chart which illustrates the internal operational structure of the applicant with respect to its proposed fund administration business (this should show names, reporting lines and roles);
  • where the applicant forms part of a group: a diagram showing the relationships between the applicant and other members of the group.

Upon obtaining recognition and annually thereafter, a supervisory fee of €1,200 is payable to the MFSA.

Re-domiciliation

Fund administrators based in foreign jurisdictions as corporate entities can transfer their operations to Malta without the need to wind up their operations, by re-domiciliating the company to Malta, through the procedure set forth in the Continuation of Companies Regulations.  Re-domiciliation allows the corporate entity to retain its legal personality and corporate existence (as well as its rights and liabilities under contracts and at law) without having to start afresh.

Click here for a detailed explanation of the Re-Domiciliation of Corporate Entities

Taxation of Fund Administration Companies

Like all companies resident in Malta, a fund administration company would be subject to income tax on company profits at a rate of 35%. However, this is subject to Malta’s full imputation tax system, wherein tax paid by a company in Malta is, on the distribution of a final dividends, imputed to the shareholder as a tax credit against the shareholders’ tax liability. Therefore, a shareholder will, upon a distribution of the dividend, be entitled to a refund in part or in full of any advance tax levied on the distributing company.

The full imputation tax credit thereby renders Maltese companies highly efficient tax vehicles, with a number of applicable refunds to shareholders possible. The default refund applicable to a fund administrator company in respect of active trading income, is a refund of 6/7ths.

Furthermore, foreign tax paid can be taken into account for purposes of the refund calculation, subject to the maximum refund not exceeding Malta tax paid.  Effectively, it is possible to envisage situations where no Maltese tax leakage would be suffered by the fund administrator company in the manner set forth below:

Maltese Company No Foreign Tax With Foreign Tax
Net Foreign Income 2000 2000
Grossing up with Foreign Tax 0 105
Chargeable Income 2000 2105
Tax at 35% 700 737
Credit- Double Tax Relief 0 105
Malta Tax Payable
(tax at 35% less tax credit)
700 632
Shareholder of Maltese Company
Refund on distribution
(6/7 of Malta Tax Payable)
600 632*
Effective Tax Paid in Malta 100 0
Effective Tax leakage in Malta on Net Income 5% 0%

*632 (6/7ths of 737)

Click here for a more thorough understanding of the TAX TREATMENT OF THE MALTA COMPANY

Contact one of our officers to initiate the recognition process for a Maltese Fund Administrator and start reaping full benefits of a reputable, low-tax EU jurisdiction. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

Malta Fund Custodians

Any entity providing “Trustee, Custodian or Nominee Services”, in relation to “instruments” as defined in the Investment Services Act (Chapter 370 of the Laws of Malta) (the “ISA”), in or from within Malta, is required to hold an investment services licence issued by the Malta Financial Services Authority (“MFSA”). Likewise, entities acting as trustee or custodian of a collective investment scheme must also apply for an investment services licence.

There are different categories of investment services licences, depending on the nature of the investment services carried out and/or the nature and classification of clients to whom such services are provided.  A custodian of a collective investment scheme requires a Category 4 Licence. Investment firms or credit institutions providing custody services to collective investment schemes may also apply for a licence which allows them to provide services complementary to the safe-keeping functions of a custodian, such as the execution and/or receipt and transmission of orders on behalf of its clients.

Custodians of retail collective investment schemes (UCITS and non-UCITS)

The custodian or depositary of a Maltese UCITS scheme or of a Maltese retail non- UCITS scheme should be based and have an established place of business in Malta and should be in possession of a Category 4 Investment Services Licence issued by the MFSA.

Custodians of both types of retail schemes are required to keep under custody the assets of the relevant scheme and, additionally (as a ‘core’ custodial function), to monitor the activities of the investment manager of the scheme to ensure compliance with the investment and borrowing powers set forth in the prospectus and otherwise in accordance with the provisions of the constitutional document of the scheme and the licence conditions.

Custodians of Professional Investor Funds

Maltese Professional Investor Funds (PIFs) are not required to appoint a custodian with an established place of business in Malta.  Therefore  such custodian could be foreign-based.  Foreign-based custodians, may, provided such custodian is of sufficient standing and repute,  be exempted from the requirement to obtain a Category 4 licence under the ISA, by virtue of the Investment Services Act (Exemption) Regulations (L.N.329 of 2007).

PIFs are not even required to appoint a custodian (foreign or local), provided they have alternative adequate safe-keeping arrangements for the custody of their assets. The only exception to this is with respect to PIFs targeted to Experienced Investors, which due to the lower degree of investment knowledge of the investor, as opposed to the other forms of investors  (Qualifying and Extraordinary), require the appointment of a custodian to keep the assets of the PIF under custody and also to monitor the activities of the investment manager.

However, the aforesaid position shall be subject to review pursuant to the transposition of the Alternative Investment Fund Managers (AIFM) Directive, where a custodian may be required even for PIFs, irrespective of the type of investor to whom the PIF shall be targetted.

Local Presence Requirements

 The Investment Services Rules for Investment Services Providers issued by the MFSA prescribe that custodians are required to have an established place of business in Malta.  However, some flexibility is ensured in terms of the forms of establishment that the custodians can take  providing that the custodians are:

  • a credit institution, constituted and licensed under the laws of Malta; or
  • a branch established in Malta, of a credit institution authorised in a EU Member State or EEA State; or
  • a branch established in Malta of an overseas credit institution which is subject to prudential requirements at least equivalent to the requirements applicable to Maltese credit institutions; or
  • a company incorporated in Malta which is wholly owned by a credit institution, provided that the liabilities of the Licence Holder are guaranteed by the credit institution and the credit institution is either a Maltese credit institution or is an overseas credit institution which is subject to prudential requirements at least equivalent to the requirements applicable to Maltese credit institutions; or
  • a company incorporated in Malta which is wholly owned by a Maltese or foreign institution or company which is deemed by the MFSA to be an institution or company which provides unit-holders with protection equivalent to that provided by a Licence Holder fulfilling the requirements of the aforesaid grounds and provided the liabilities of the company acting as custodian are guaranteed by the institution or company and the institution or company has paid-up share capital of EUR five million (EUR 5,000,000) or its equivalent in foreign currency.

A custodian of a Maltese UCITS or non-UCITS retail scheme and any other custodian licensed under the ISA is required to have an established place of business in Malta, effectively meaning that the business organisation, systems, and appropriate expertise and experience necessary for the carrying out its functions must be in Malta.   The custodian must ensure that it has adequate financial resources and liquidity at its disposal to enable it to conduct its business effectively and to meet its liabilities. The nature and extent of required resources (particularly local staff requirements), will depend on the number, nature and extent of mandates to be taken on by the custodian.

Nonetheless, the policy of the MFSA has been to adopt a flexible approach in assessing proposals for new local custody operational set-ups regard being had to start-up costs and allowing an incubation period, conducive towards the growth of the business.   For this reason, the MFSA shall be minded to accept small set-ups with reliance on outsourcing/ delegation arrangements, until the volume of business to be carried out by the custodian grows, conditional to adherence to:

  • The MFSA’s Investment Services Rules for Investment Services Providers; and
  • The Investment Services Act (Control of Assets) Regulations

Delegation is permissible to custodians established outside Malta, whether in the EU or not and may also be the parent undertaking or a group or affiliated undertaking of the Maltese delegating entity.   However,  where the delegation concerns custodial core activities, the mandate may only be given to undertakings which are duly authorised or licensed and, in all cases subject to prudential supervision.

Where the custodian proposes to delegate the custody function to a third party custodian the MFSA would generally accept the following minimum staffing arrangement:

  • one (1) Maltese resident Director;
  • at least one full time employee who has a strong custody background responsible for compliance, Anti-Money Laundering and monitoring the activities of the sub-custodian.

The Board of Directors of the custodian should be made up of at least three (3) members (one of whom should be resident in Malta). Furthermore, the MFSA generally expects the majority of Board meetings to be held in Malta, in line with MFSA’s general expectation that the business is effectively managed and controlled from Malta.

The custodian will generally be required by the MFSA to have an office space dedicated to its activities, within Malta. The custodian may acquire its own offices in Malta or alternatively share offices with other entities (including other local service providers to funds for whom the custodian acts, such as the administrator). Whatever option the entity decides to take on, it is essential that such office space be equipped with an independent telephone line; a facsimile machine connected to a direct telephone line; an internet connection; and filing space.

The custodian would also need to appoint a local Compliance Officer (to ensure and report on the extent to which the custodian has complied with its licence conditions) and Money Laundering Reporting Officer (to assist the custodian in complying with, and to report on the extent to which the custodian has complied with its statutory anti-money laundering obligations). Both roles may be assumed by the same person (who could be, for example, the local Director of the custodian).

Branch set-ups

Likewise, flexibility is afforded to custodians establishing a place of business in Malta through a local branch.   However, in order to preserve the good reputation of Malta and to ensure suitable protection to consumers, the branch must be properly and adequately organised with staff who are suitable, aptly trained and properly supervised. A Senior Branch Manager should be appointed to manage the affairs of the local branch operation as well as such other staff members as may be required to enable the branch to carry out its duties and fulfill its responsibilities in an adequate manner, including the appointment of a local Compliance Officer and Money Laundering Reporting Officer.  Preferably, these officers  should be distinct from the Senior Branch Manager although a transitional period may be permitted during which the Branch Manager may also assume these offices.

The custody of fund assets may be entrusted by the branch to its Head Office or third party sub-custodians. Subject to MFSA agreement, certain monitoring duties (where these form part of the custodian’s responsibilities as is the case with retail UCITS or non-UCITS schemes) can be carried out by the branch’s Head Office on its behalf. The MFSA would however expect the branch to have the systems and procedures in place to carry out some of the monitoring duties itself.  The branch should also provide the MFSA promptly upon request, with all information that it or its Head Office or other delegates have obtained whilst discharging their duties in relation to the relevant fund/s and which is necessary for the MFSA to supervise the branch and (where applicable) the local fund/s it services.

The rental of office space on an office-sharing basis is again permitted (subject to need to safeguard the confidentiality of documentation). As regards to services provided by the branch’s Head Office, the MFSA would expect the branch to have adequate communication and reporting arrangements in place to enable it to satisfy itself that such services are being properly performed as well as to enable it to report to the MFSA as may be required and also to comply with the outsourcing requirements set out in the MFSA’s Investment Services Rules for Investment Services Providers (which are based on the MiFID outsourcing requirements).  All these measures are enacted to circumvent the creation of a “brass plate” office by ensuring sustance in Malta.

Licensing process

The licensing process for custodians may be summarised as follows-

(i) Phase One – Preliminary: preliminary meeting and discussions with MFSA regarding the proposal (which clients wishing to set up business in Malta are strongly encouraged to do); submission of draft application form and supporting documentation; the MFSA will consider the nature of the proposed activity and the type of investors to whom and the markets to which the investment services are to be provided and will decide which “Standard Licence Conditions” (SLCs) should apply.

(ii) Phase Two – Pre-Licensing: once the review of the draft application and supporting documents has been completed and the draft licence conditions have been agreed, the MFSA will issue its ‘in principle’ approval for the issue of a licence. The licence will be issued once the outstanding matters are resolved, including the incorporation of the company (where applicable), submission of signed copies of final application and final supporting documents and any other issues raised during the application process.

(iii)Phase Three – Post-Licensing/Pre-Commencement of Business: the MFSA may require the applicant to meet certain post-licensing requirements prior to formal commencement of business (e.g. adherence to the licence requirements, submission of financial statements).

The application for an investment services licence must be submitted to the MFSA and should include the following documents:

  •  the completed form “Application for an Investment Services Licence”;
  • covering letter (template included in the Application form);
  • auditor’s Confirmation (template included in the Application form);
  •  supporting Board Resolution;
  •  a completed financial resources statement form;
  • projected profit and loss account and balance sheet for the three years after the licence is issued;
  • where appropriate, copies of the last three years audited accounts of the applicant and other relevant related companies;
  • Memorandum and Articles of Association of applicant;
  • specimen copies of the insurance policies and draft schedule/cover note (where applicable), and ‘Insurance Checklist’;
  • completed Personal Questionnaire forms for each shareholder, director, and senior officer of the applicant (the PQs should include a certified copy of the person’s passport and a conduct certificate);
  • Memorandum and Articles of Association of corporate shareholders of the applicant;
  • chart which illustrates the internal operational structure of the applicant’s business (this should show names, reporting lines and roles);
  • where the applicant Company forms part of a Group, a diagram showing the relationships between the applicant and other members of the Group. The “family tree” submitted should give details up to the ultimate beneficial owner(s), showing percentage sizes of holdings in each entity; unless (a) the entity has one ultimate beneficial owner with a holding of over 50% of the voting rights or (b) no less than fifty ultimate beneficial owners who between them account for over 50% of the voting rights. If (a) or (b) apply, it will only be necessary to give details of the ultimate beneficial owners with holdings of 10% or more;
  • Detailed Business Plan (which should include background details about the promoters, the applicants’ target clients, the operational set up as well as the applicant’s plans for the future).

In the case of a branch, the above-mentioned licence documentation will be adapted to the branch scenario as appropriate.

In terms of timing, ISA prescribes a period of six (6) months for MFSA to decide whether or not to grant a licence applied for. In practice, however, it is possible, provided the adequate supporting documentation are submitted to MFSA, for the licensing process to be expedited within 8 to 10 weeks.

Share Capital Requirements

Holders of a Category 4 licence are required at all times to maintain own funds which are equal to or in excess of their Capital Resources Requirement, and this constitutes their Financial Resources Requirement summaried as being the higher of (1) and (2) below:

  1. Initial Capital, which for custodians is €125,000 (comprising (a) equity capital (i.e. paid up share capital plus share premium accounts but excluding cumulative preferential shares) and (b) reserves (i.e. revenue reserves, interim net profits/retained profits for the year, unrealised fair value movements in held for trading financial instruments and other reserves); and
  2. the higher of the following:

a. the sum of the non-trading book business risk components, the trading book business risk components, the commodities instruments – risk component, the large exposures risk component and the foreign exchange risk component; and

b. the Fixed Overhead Requirement.

The Own Funds and Capital Resources Requirements for investment services licence holders and the methodology for calculating same and a Licence Holder’s Financial Resources Requirement are set out in the MFSA’s Investment Services Rules for Investment Services Providers (Appendix 1 thereto) and are based on the EU’s Capital Requirements Directives (Directives 2006/48/EC and 2006/49/EC).

Licence Holders which are a credit institution constituted and licensed under the laws of Malta or a branch (established in Malta) of a credit institution authorised in a EU Member State or EEA State or of an overseas credit institution which is subject to prudential requirements at least equivalent to the requirements applicable to Maltese credit institutions) are exempt from the said Financial Resources Requirement for Category 4 investment firms.

Licensing and supervisory fees

An application fee of €4,000 is payable to the MFSA upon submission of the draft application. Upon obtaining a licence, a licence fee of €10,000 is likewise payable to the MFSA. Annually thereafter, upon submission of the annual audited financial statements, a supervisory fee of €10,000 is payable to MFSA.

 Ongoing requirements

Investment Services Licence Holders are subject to the Standard Licence Conditions (“SLCs”) set out in the Investment Services Rules for Investment Services Providers issued by the MFSA and regulate inter alia apart from the aforesaid outsourcing rules, the conduct of business obligations, disclosure requirements,  financial resources requirements, accounting and record keeping requirements etc and the extent to which the SLCs are applicable to a Licence Holder depends on the nature of licensable activity which the Licence Holder is authorised to provide.

 Custodians of collective investment schemes

Furthermore, the Custodian of a collective investment scheme shall be requested to comply with the following supplementary conditions:

  • Monitor and supervise the operation of the fund to ensure that the investment manager complies with the investment restrictions of the fund (this includes the duty to ensure that dealings in units and dealing prices are effected and calculated, and that the income of the scheme is applied, in accordance with the scheme’s constitutional documents and prospectus and MFSA requirements; and ensuring that the scheme only enters into transactions for the sale of assets which it owns and that consideration is remitted to it in accordance with market practice) and the duty of the custodian to report at least annually to investors and the MFSA on such compliance by the manager;
  • liability of the Licence Holder for loss suffered by the fund, investment manager or investors as a result of the Licence Holder’s fraud, wilful default or negligence, including the unjustifiable failure to perform in whole or in part its obligations;
  • Independence from the investment manager of the fund

 Re-domiciliation

Custodians based in foreign jurisdictions as corporate entities can transfer their operations to Malta without the need to wind up their operations, by re-domiciliating the company to Malta, through the procedure set forth in the Continuation of Companies Regulations.  Re-domiciliation allows the corporate entity to retain its legal personality and corporate existence (as well as its rights and liabilities under contracts and at law) without having to start afresh.

Click here for a detailed explanation of the Re-Domiciliation of Corporate Entities

Taxation of Custodians

Like all companies resident in Malta, custodians would be subject to income tax on company profits at a rate of 35%. However, this is subject to Malta’s full imputation tax system, wherein tax paid by a company in Malta is, on the distribution of a final dividends, imputed to the shareholder as a tax credit against the shareholders’ tax liability. Therefore, a shareholder will, upon a distribution of the dividend, be entitled to a refund in part or in full of any advance tax levied on the distributing company.

The full imputation tax credit thereby renders Maltese companies highly efficient tax vehicles, with a number of applicable refunds to shareholders possible. The default refund applicable to custodians in respect of active trading income, is a refund of 6/7ths.

Furthermore, foreign tax paid can be taken into account for purposes of the refund calculation, subject to the maximum refund not exceeding Malta tax paid.  Effectively, it is possible to envisage situations where no Maltese tax leakage would be suffered by the custodian in the manner set forth below:

Maltese Company No Foreign Tax With Foreign Tax
Net Foreign Income 2000 2000
Grossing up with Foreign Tax 0 105
Chargeable Income 2000 2105
Tax at 35% 700 737
Credit- Double Tax Relief 0 105
Malta Tax Payable
(tax at 35% less tax credit)
700 632
Shareholder of Maltese Company
Refund on distribution
(6/7 of Malta Tax Payable)
600 632*
Effective Tax Paid in Malta 100 0
Effective Tax leakage in Malta on Net Income 5% 0%

*632 (6/7ths of 737)

Click here for a more thorough understanding of the TAX TREATMENT OF THE MALTESE COMPANY

Contact one of our financial services officers for any licensing queries regarding the licensing of custodians and start reaping full benefits of a reputable, low-tax EU jurisdiction. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

Malta Binary Options as a Financial Instrument

In July 2013, the Malta Financial Services Authority (MFSA), via a formal notice, finally declared that Binary Options would henceforth be considered as a financial instrument falling within the ambit of the Investment Services Act.   This clarification, was much welcome, since it finally put to rest doubts, as to whether Binary Options were to be considered as gaming, as therefore regulated by the Lotteries and Gaming Authority or by the MFSA.  It is worth noting that until this notice, a number of Companies had successfully sought licensing by the Remote Gaming Regulations, and were therefore being regulated by the Lotteries and Gaming Authority.

It must be noted however, that this incertitude was not contained only to Malta, since an ambivalent and ambiguous stance, may also be observed in other jurisdictions, such as Cyprus, where the regulator Cysec considers  binary options as financial instruments, whereas the UK Gaming Commissions has considered binary options are strictly pertaining to gaming.

However, following a clarification made by the European Commission to point (4) of Section C of Annex 1 to the MiFID (Directive 2004/39/EC), the regulatory status of binary options as financial instruments is beyond debate.  Companies which were previously regulated by the Remote Gaming Authority must seek licensing under the Investment Services Act, through a series of transitory provisions.

What constitutes a Binary Option?

Binary Options are defined as contracts based on the direction which the price of an underlying asset will take within a specified time frame. Binary Options are derivative contracts with only two possible outcomes that depend on whether the forecast price is correct (in-the-money) or incorrect (out-of-the-money).  Binary options are therefore a pairing contract, by which clients can trade at various prices, which may include commodities such as oil and gold, indices, equities and currencies, the outcome of which is settled in cash.  The time frame various and may be set by traders, and may be as short as a 60 second option to several weeks / months.

 Licence Requirements

Applicants intending to provide investment services relating to Malta Binary Options in and from Malta, will henceforth need to submit an application for an Investment Services Licence.  Applicants wishing to provide binary options as a prime broker / own account will have to adhere to the requirements (local presence and share capital – minimum  €730,000) of a Category 3 licence, whereas applicants acting as a white-label provider, whose role is merely the transmission of orders of the execution of third parties will have to adhere to the requirements of a Category 2 licence (share capital requirement –  €125,000).  In either scenarios, passporting rules may be availed of by successful licence holders.  As with all companies, licensed under the Investment Services Act, the following licence conditions would have to be satisfied by the licence holder at all times:

  • Client funds are to be kept in a segregated bank account in a reputable bank established in a reputable jurisdiction;
  • Regulated Binary options brokers will be subject to on-going monitoring by the MFSA, ensuring an adequate level of transparency and investor protection, as well as adherence to  statutory standards aimed at ensuring ensure fair practice and transparent pricing;
  • Binary options traders licensed under the MiFID regime will benefit from passporting rights under the directive, greatly reducing regulatory costs.

The regulation of binary options is a welcome move towards cementing Malta as a leading financial services hub, and seek to regulate a relatively recent yet innovative financial instrument, which has due to its characteristics, created a niche market in its own right.

Contact one of our officers to initiate the licensing for a Maltese Binary Option licence and start reaping full benefits of a reputable, low-tax EU jurisdiction. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500

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