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Investment Services Licence

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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

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